As filed with the Securities and Exchange
Commission on January 30, 2012.
Registration No. 333-173690
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Party City Holdings
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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5900
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20-1033029
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial Classification Code Number)
(914) 345-2020
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(I.R.S. Employer
Identification No.)
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80 Grasslands Road, Elmsford, NY 10523
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Gerald C. Rittenberg
Chief Executive Officer
80 Grasslands Road
Elmsford, NY 10523
(914) 345-2020
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Keith F. Higgins, Esq.
Jane D. Goldstein, Esq.
Andrew J. Terry, Esq.
Ropes & Gray LLP
Prudential Tower, 800 Boylston Street
Boston, MA
02199-3600
Telephone
(617) 951-7000
Fax
(617) 951-7050
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Marc D. Jaffe, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
Telephone (212) 906-1200
Fax (212) 751-4864
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Approximate date of commencement of proposed sale to
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended (the
Securities Act), check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. Neither we nor the selling stockholders may sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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Subject
to Completion. Dated January 30, 2012
Party City Holdings
Inc.
Shares
Common Stock
This is the initial public offering of shares of common stock of
Party City Holdings Inc., or Party City Holdings.
Party City Holdings is
offering shares
to be sold in the offering. The selling stockholders identified
in this prospectus are offering an
additional shares.
Party City Holdings will not receive any of the proceeds from
the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$ and
$ . Party City Holdings intends to
list the common stock on the New York Stock Exchange under the
symbol PRTY.
See Risk Factors on page 11 to read about
factors you should consider before buying shares of the common
stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds before expenses to Party City Holdings
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$
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$
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Proceeds before expenses to the selling stockholders
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$
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$
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To the extent the underwriters sell more
than shares
of common stock, the underwriters have the option to purchase up
to an
additional shares
from
at the initial public offering price less the underwriting
discount.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2012.
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Goldman, Sachs & Co.
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BofA Merrill Lynch
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Barclays Capital
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Deutsche Bank Securities
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Credit Suisse
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Morgan Stanley
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Wells Fargo Securities
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Baird
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William Blair & Company
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RBC Capital Markets
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Stifel Nicolaus Weisel
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Prospectus
dated ,
2012
TABLE OF
CONTENTS
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ii
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1
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11
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F-1
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EX-21.1 |
EX-23.1 |
Through and
including ,
2012 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
We have not authorized anyone to provide any information or to
make any representations other than those contained in this
prospectus or in any free writing prospectuses we have prepared.
We take no responsibility for, and can provide no assurance as
to the reliability of, any other information that others may
give you. This prospectus is an offer to sell only the shares
offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
MARKET,
RANKING AND OTHER INDUSTRY DATA
The market, ranking and other industry data included in this
prospectus, including the size of certain markets and our
position and the position of our competitors within these
markets, are based on published industry sources, our own
research and estimates based on our managements knowledge
and experience in the markets in which we operate. Our estimates
have been based on information obtained from our trade and
business organizations and other contacts in the markets in
which we operate. We note that our estimates, in particular as
they relate to general expectations concerning our industry,
involve risks and uncertainties and are subject to change based
on various factors, including those discussed under the heading
Risk Factors in this prospectus.
ii
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary may not contain all of the
information that is important to you in considering an
investment in our common stock. You should read this entire
prospectus carefully, especially the Risk Factors
section of this prospectus and our consolidated financial
statements and related notes appearing at the end of this
prospectus, before making an investment decision.
When we use the terms we, us,
our or the Company, we mean Party City
Holdings Inc., a Delaware corporation, formerly known as
AAH Holdings Corporation, and its consolidated
subsidiaries, including Amscan Holdings, Inc. (Amscan
Holdings or Amscan), taken as a whole, unless
the context otherwise indicates.
Our
Company
We are a global leader in decorated party supplies. We make it
easy and fun to enhance special occasions with a wide assortment
of innovative and exciting merchandise at a compelling value.
With the 2005 acquisition of Party City Corporation (Party
City), we created a vertically integrated business
combining the leading product design, manufacturing and
distribution platform, Amscan, with the largest
U.S. retailer of party supplies. We believe we have the
industrys broadest selection of decorated party supplies,
which we distribute to over 100 countries, and a party
superstore retail network that is approximately 15 times
larger than that of our next largest party superstore
competitor. Our business model and scale differentiate us from
other party supply companies and allow us to capture the
manufacturing-to-retail
margin on a significant portion of the products sold in our
stores. We believe our widely recognized brands, broad product
offering, low-cost global sourcing model and category-defining
retail concept are significant competitive advantages. We
believe these characteristics, combined with our vertical
business model and scale, position us for continued organic and
acquisition-led growth in the United States and
internationally.
Founded in 1947, we started as a wholesaler and have grown to
become one of the largest global designers, manufacturers and
distributors of decorated party supplies. Today, our broad
selection of decorated party supplies, with approximately 37,000
SKUs, includes paper and plastic tableware, decorations,
metallic and latex balloons, novelties, costumes, party kits,
stationery and gifts for everyday, themed and seasonal events.
Our products are available in over 40,000 retail outlets
worldwide, including our own retail network, independent party
supply stores, dollar stores, mass merchants, grocery retailers
and gift shops. We believe that through our extensive offering
as well as industry-leading innovation, customer service levels
and value, we will continue to win with our customers.
The acquisition of Party City represented an important step in
our evolution. Over the last five years, we have established the
largest network of party supply stores in the United States with
over 1,200 locations consisting of approximately 800 party
superstores (including approximately 230 franchised stores),
principally under the Party City banner, and a temporary
Halloween network of approximately 400 locations, principally
under the Halloween City banner. We also operate PartyCity.com,
our primary
e-commerce
site. Underscored by our slogan Nobody Has More Party for
Less, we believe we offer a superior one-stop shopping
experience with a broad selection, consistently high in-stock
positions and compelling value, making us the favored
destination for all of our customers party-supply needs.
Through a combination of organic growth and strategic
acquisitions, we increased our consolidated revenues from
$1,015 million in 2006 to $1,599 million in 2010,
representing a compounded annual growth rate of 12.0%. During
this same period, we grew our Adjusted EBITDA from
$122 million to $226 million, representing a
compounded annual growth rate of 16.7%. For a discussion of our
use of Adjusted EBITDA and a reconciliation to net income,
please refer to Summary Financial Data
and Selected Consolidated Financial Data.
1
Evolution
of Our Business
Over the last 60 years, we have grown to become a global,
vertically integrated designer, manufacturer, distributor and
retailer of decorated party supplies. Key strategic initiatives
that are important to our evolution include:
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Enhancing our wholesale platform through targeted acquisitions
that added key product capabilities while investing in
state-of-the-art
distribution facilities and developing a strong Asian-based
sourcing and sales organization.
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Establishing retail leadership in our industry and our
vertically integrated model through the acquisitions of Party
City, Party America Corporation (Party America) and
Factory Card and Party Outlet (FCPO). Following
each acquisition, we capitalized on our vertically integrated
model by increasing the percentage of Amscan products sold at
our retail stores, allowing us to capture the
manufacturing-to-retail
margin on a growing portion of our retail sales.
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Re-launching our
e-commerce
platform in 2009 provided us with an additional
direct-to-consumer
channel.
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Broadening our product offering and channel reach by acquiring
valuable character licenses and costume capabilities in addition
to improving our access to grocery and mass merchant retailers.
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Growing our international presence by building relationships
with local retailers to develop party supply store-in-store
concepts as well as targeted acquisitions that extended our
geographic reach.
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As a result of these investments, we have created a
differentiated, vertically integrated business model. We believe
that our superior selection of party supplies, scale, innovation
and service position us for future growth across all of our
channels.
Competitive
Strengths
We are well-positioned to continue to attract customers who
celebrate lifes memorable events as a result of the
following competitive strengths:
Leading Market Position with Industry Defining
Brands. We believe we are the largest vertically
integrated provider of decorated party supplies in the world.
Through our category-defining brands, Amscan and Party City, we
offer what we believe is the broadest selection of continuously
updated and innovative merchandise at a compelling value. We
distribute products globally and, with approximately 800 party
superstores in 41 states, our domestic retail footprint is
approximately 15 times larger than that of our next largest
party superstore competitor.
Unique Vertically Integrated Operating
Model. We manufacture, source and distribute
party supplies, acting as a one-stop shop for decorated party
goods to both wholesale and retail customers. Our vertically
integrated model provides us with a number of advantages
including the ability to (i) realize the
manufacturing-to-retail
margin on a significant portion of our retail sales,
(ii) leverage a global sourcing network to reinforce our
position as a low-cost provider of quality party supplies and
(iii) effectively respond to changes in consumer trends
through our in-house design and innovation team.
Broad and Innovative Product Offering. We
offer a broad and deep product assortment with over 37,000 SKUs
available in wholesale and an average of 25,000 SKUs offered at
any one time in our Party City superstores. Our extensive
selection offers customers a single source for all of their
party needs. Over the last three years, our in-house design team
has introduced an average of 3,500 new products annually,
driving newness in our product offering and supporting increased
sales across our channels.
Category Defining Retail Concept. With our
extensive selection, consistently high in-stock positions,
convenient locations and compelling value proposition, we
believe customers associate Party City with successful
celebrations, and, as a result, our stores will continue to be
seen as the favored destination for party supplies and
innovative ideas.
2
Highly Efficient Global Sourcing and Distribution
Capabilities. Over the last 60 years, we
have developed a global network of owned and third-party
manufacturers that we believe optimizes speed to market, quality
and cost. We also have warehousing and distribution facilities
around the world, including our
state-of-the-art
distribution center in Chester, New York, which has nearly
900,000 square feet under one roof. Our global sourcing and
distribution capabilities offer our customers
best-in-class
service levels, rapid fulfillment and competitive prices, and
have capacity for continued growth with our business.
World-Class Management Team with a Proven Track
Record. Our senior management team averages
approximately 20 years of industry experience and possesses
a unique combination of management skills and experience in the
party goods sector. Our team has successfully grown our sales
and profits during various economic cycles and through several
business transformations. Additionally, our team has a strong
track record of successful acquisitions and integrations, which
continue to be an important part of our overall strategy.
Despite these strengths, we continue to face competition in the
marketplace, particularly in our retail business. We compete
with a variety of retailers, including independent party goods
supply stores, specialty stores, dollar stores,
warehouse/merchandise clubs, drug stores, mass merchants,
grocery retailers and catalogue and Internet merchandisers. In
order to maintain and grow our market position, we need to
remain competitive with respect to quality, price, breadth of
selection, customer service and convenience. See Risk
Factors and Business Competition.
Growth
Strategy
We believe we have significant opportunities to enhance our
leadership position in the party goods industry and improve
profitability. Key elements of our growth strategy include:
Growing Market Share and Earnings. We will
continue to broaden our product assortment by adding new party
themed events and licenses, which, combined with our enhanced
in-house capabilities, will enable us to continue to increase
our market share and grow the percentage of our own products
sold at retail, including in our company-owned and franchised
stores. Since the acquisition of Party City in 2005, we have
increased the selection of Amscan merchandise offered in Party
City stores from approximately 25% to over 60%, with a target of
70% to 75% over the long term. Our ability to create new and
enhance existing celebration opportunities will continue to be a
consistent driver of our growth.
Expand Our Retail Store Base. We believe there
is an opportunity to open more than 400 additional Party City
stores in North America. In 2011, we opened 16 Party City
stores, acquired eight Party City stores from franchisees and
closed seven locations. Starting in 2012, we plan to open 25 to
35 Party City stores per year. Based on historical performance
and the margin generated from our vertically integrated model,
we expect our new stores to have a payback period of
approximately three years and to generate an average
pre-tax
cash-on-cash
return of approximately 50% in their fourth year.
Drive Additional Growth and Productivity From Existing Retail
Stores. We plan to grow our comparable store
sales by continuing to improve our brand image and awareness,
offering new, innovative party ideas and by converting FCPO
stores to the Party City banner.
Increase International Presence. We believe
international growth will be driven, in part, by increasing
customization of our products to local tastes and holidays and
the expansion of our retail presence, particularly through our
store-within-a-store concept with selected international
retailers. We believe international sales, which represented
6.9% of total revenues in 2010, are likely to grow to 10% to 15%
of our total revenues over the next three to five years through
organic and acquisition-led growth.
Grow Our E-commerce Platform. In August 2009,
we re-launched our primary
e-commerce
platform PartyCity.com, providing us with an additional
direct-to-consumer
sales channel. We expect
e-commerce
will continue to experience significant growth as we increase
online content for party products and ideas, invest in
additional online advertising and target customers through the
three million email addresses that we have captured through our
stores and website.
3
Pursue Accretive Acquisitions. Over the past
15 years, we have successfully integrated nine
acquisitions, strengthening our manufacturing, distribution and
retail platforms. We have also acquired, and will continue to
acquire, franchised stores as such opportunities emerge. We
believe our significant experience in identifying attractive
acquisition targets, proven integration process and global
infrastructure create a strong platform for future acquisitions.
Industry
Overview
We operate in the broadly defined $10 billion retail party
goods industry (including decorative paper and plastic
tableware, decorations, accessories and balloons), which is
supported by a range of suppliers from commodity paper goods
producers to party goods specialty retailers. The retail
landscape is comprised primarily of party superstores, dollar
stores, mass merchants, grocery retailers and craft stores.
Party superstores have emerged as a preferred destination for
party goods shoppers because they offer a wide variety of
merchandise at more compelling prices in a convenient setting.
Other retailers that cater to the party goods market typically
offer a limited assortment of party supplies and seasonal items.
Sales of party goods are fueled by everyday events such as
birthdays, baby showers, weddings and anniversaries, as well as
seasonal events such as holidays and other special occasions. As
a result of numerous and diverse occasions, the U.S. party
goods market enjoys broad demographic appeal. We also operate in
the Halloween market, which represents a $6 billion retail
opportunity and includes costumes, candy and makeup.
Risks
That We Face
Our business is subject to a number of risks of which you should
be aware before making an investment decision. The risks are
discussed more fully in the Risk Factors section of
this prospectus immediately following this prospectus summary.
These risks include, but are not limited to, the following:
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we operate in a competitive industry, and our failure to compete
effectively could cause us to lose our market share, revenues
and growth prospects;
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our business may be adversely affected by fluctuations in
commodity prices;
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our failure to appropriately respond to changing merchandise
trends and consumer preferences could significantly harm our
customer relationships and financial performance;
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we may not be able to successfully implement our store growth
strategy;
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a decrease in our Halloween sales could have a material adverse
effect on our operating results for the year;
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our substantial indebtedness and lease obligations could
adversely affect our financial flexibility and our competitive
position; and
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investment funds affiliated with Advent International
Corporation (Advent), Berkshire Partners LLC
(Berkshire Partners) and Weston Presidio (together
with Advent and Berkshire Partners, the Sponsors)
will have the ability to control the outcome of matters
submitted for stockholder approval and may have interests that
differ from those of our other stockholders. Our third amended
and restated certificate of incorporation (the third
amended and restated certificate of incorporation)
provides that we renounce any interest or expectancy in, or in
being offered an opportunity to participate in, any business
opportunity that may from time to time be presented to our
directors who are not our employees or employees of our
subsidiaries and the Sponsors or any of their officers,
directors, agents, stockholders, members, partners, affiliates
and subsidiaries (other than us and our subsidiaries). In
addition, our third amended and restated certificate of
incorporation includes a provision that relieves these directors
and the Sponsors representatives from any breach of
fiduciary duty to us if these investment funds pursue for their
benefit opportunities such as acquisitions that might otherwise
be appropriate for us.
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4
The
Sponsors
On April 30, 2004, our business was acquired by an entity
jointly controlled by funds affiliated with Berkshire Partners
and Weston Presidio. On August 19, 2008, certain of our
stockholders, in a secondary transaction, sold Class B
common stock representing approximately 38% of our outstanding
common stock to an entity controlled by funds managed by Advent.
As a result of these transactions, the Sponsors collectively own
approximately 91% of our common stock as of December 31,
2011. Upon completion of this offering, the Sponsors will
continue to beneficially own
approximately % of our outstanding
common stock.
Corporate
Information
Party City Holdings Inc. is the parent company of our collective
businesses. Our address is 80 Grasslands Road, Elmsford, NY
10523. Our direct subsidiary, Amscan Holdings, is currently a
public debt issuer and comprises 100% of Party City Holdings
Inc.s operations. Our telephone number is
(914) 345-2020.
Our primary website addresses are www.amscan.com and
www.partycity.com. Information contained in, and that can be
accessed through, our websites is not incorporated into and does
not form a part of this prospectus.
We own a number of trademarks and service marks registered with
the United States Patent and Trademark Office, including Party
City®,
The Discount Party Super
Store®,
Halloween Costume
Warehouse®,
Party America®,
The Paper
Factory®,
The Factory Card & Party
Outlet®
and Halloween
City®.
5
THE
OFFERING
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Common stock offered by us |
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shares |
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Common stock to be offered by selling stockholders |
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shares |
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Common stock to be outstanding after this offering |
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shares |
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Option to purchase additional shares offered to underwriters |
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We, along with some of our stockholders, have granted the
underwriters an option to purchase up
to
additional shares. If this option is exercised in full, we will
issue and
sell
shares and the selling stockholders will
sell
shares. |
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Use of proceeds |
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Assuming an initial public offering price of
$ , which is the midpoint of the
range listed on the cover page of this prospectus, we estimate
that the net proceeds to us from this offering will be
approximately $ million. We
intend to use the net proceeds from this offering to repay
indebtedness, to terminate the management agreement with the
Sponsors and for working capital and other general corporate
purposes. See Use of Proceeds. |
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We will not receive any proceeds from the shares sold by the
selling stockholders. |
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Risk factors |
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You should read the Risk Factors section of this
prospectus beginning on page 11 for a discussion of factors
to consider carefully before deciding whether to purchase shares
of our common stock. |
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Conflicts of interest |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated and
certain of its affiliates act as Joint Bookrunner, Joint Lead
Arranger, Syndication Agent, Issuing Bank and Lender under our
new senior secured asset-based revolving credit facility;
certain affiliates of Wells Fargo Securities, LLC act as
Administrative Agent, Collateral Agent, Joint Bookrunner, Joint
Lead Arranger, Swingline Lender and Lender under our new senior
secured asset-based revolving credit facility; and an affiliate
of Credit Suisse Securities (USA) LLC is a Lender under our new
senior secured asset-based revolving credit facility. Because of
these relationships and the manner in which the proceeds of this
offering may be used, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Wells Fargo Securities, LLC and Credit
Suisse Securities (USA) LLC may receive proceeds from this
offering in addition to their underwriting compensation. None of
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Wells Fargo Securities, LLC, or Credit Suisse Securities (USA)
LLC will receive 5% or more of the net proceeds from this
offering. See Underwriting Conflicts of
Interest. |
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Proposed New York Stock Exchange symbol |
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PRTY |
The number of shares of our common stock to be outstanding after
this offering is based on 32,180.52 shares of common stock
outstanding as of December 31, 2011 and excludes:
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3,698.27 shares of Class A common stock issuable upon
the exercise of stock options issued under our 2004 Equity
Incentive Plan with a weighted average exercise price of
$17,021.00 per share;
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additional
shares of Class A common stock reserved for future issuance
under our 2004 Equity Incentive Plan; and
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additional
shares of common stock reserved for future issuance under our
2012 Omnibus Incentive Plan.
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Unless otherwise indicated, all information in this prospectus
assumes:
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A
-for-one stock split on our Class A common stock and
Class B common stock effected as a stock dividend
on , 2012;
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The conversion of all outstanding shares of our Class B common
stock into shares of our Class A common stock on a
one-for-one
basis, which will occur automatically upon the closing of this
offering pursuant to our current certificate of incorporation
(the existing certificate of incorporation), and
renaming the Class A common stock as Common
Stock, which will occur upon the filing of our third
amended and restated certificate of incorporation upon the
closing of this offering (the Common Stock
Conversion);
|
|
|
|
The adoption of our third amended and restated certificate of
incorporation and our amended and restated bylaws
(bylaws), to be effective upon the closing of this
offering; and
|
|
|
|
No exercise by the underwriters of their option to purchase up
to
additional shares of our common stock from us and the selling
stockholders in this offering.
|
7
SUMMARY
FINANCIAL DATA
The following table sets forth our summary historical and pro
forma consolidated financial and other data as of the dates and
for the periods presented. The historical consolidated
statements of income data are derived from our audited
consolidated financial statements included elsewhere in this
prospectus. You should read the following tables together with
Selected Consolidated Financial Data,
Unaudited Pro Forma Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes appearing elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Months
|
|
|
|
Fiscal Year Ended
|
|
|
Nine Months Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,537,641
|
|
|
$
|
1,467,324
|
|
|
$
|
1,579,677
|
|
|
$
|
1,015,856
|
|
|
$
|
1,200,188
|
|
|
|
|
|
|
|
|
|
Royalties and franchise fees
|
|
|
22,020
|
|
|
|
19,494
|
|
|
|
19,417
|
|
|
|
12,333
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,559,661
|
|
|
|
1,486,818
|
|
|
|
1,599,094
|
|
|
|
1,028,189
|
|
|
|
1,212,381
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
966,426
|
|
|
|
899,041
|
|
|
|
943,058
|
|
|
|
637,100
|
|
|
|
760,947
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
479,317
|
|
|
|
445,904
|
|
|
|
528,600
|
|
|
|
329,469
|
|
|
|
380,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
113,918
|
|
|
|
141,873
|
|
|
|
127,436
|
|
|
|
61,620
|
|
|
|
70,905
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
50,915
|
|
|
|
41,481
|
|
|
|
40,850
|
|
|
|
28,261
|
|
|
|
60,252
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(818
|
)
|
|
|
(32
|
)
|
|
|
4,208
|
|
|
|
758
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
63,821
|
|
|
|
100,424
|
|
|
|
82,378
|
|
|
|
32,601
|
|
|
|
9,703
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
24,188
|
|
|
|
37,673
|
|
|
|
32,945
|
|
|
|
11,766
|
|
|
|
3,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
39,633
|
|
|
|
62,751
|
|
|
|
49,433
|
|
|
|
20,835
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
Less: net (loss) income attributable to noncontrolling interests
|
|
|
(877
|
)
|
|
|
198
|
|
|
|
114
|
|
|
|
184
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
40,510
|
|
|
$
|
62,553
|
|
|
$
|
49,319
|
|
|
$
|
20,651
|
|
|
$
|
6,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma outstanding basic(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
79,929
|
|
|
$
|
123,942
|
|
|
$
|
61,168
|
|
|
$
|
(1,500
|
)
|
|
$
|
26,589
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(51,199
|
)
|
|
|
(54,358
|
)
|
|
|
(102,766
|
)
|
|
|
(71,583
|
)
|
|
|
(131,844
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(23,033
|
)
|
|
|
(70,157
|
)
|
|
|
46,515
|
|
|
|
79,746
|
|
|
|
105,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale (after intercompany eliminations)
|
|
$
|
438,505
|
|
|
$
|
411,359
|
|
|
$
|
470,892
|
|
|
$
|
347,606
|
|
|
$
|
445,896
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
1,121,156
|
|
|
|
1,075,459
|
|
|
|
1,128,202
|
|
|
|
680,583
|
|
|
|
766,485
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
1,559,661
|
|
|
|
1,486,818
|
|
|
|
1,599,094
|
|
|
|
1,028,189
|
|
|
|
1,212,381
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Months
|
|
|
|
Fiscal Year Ended
|
|
|
Nine Months Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
|
162,014
|
|
|
|
186,287
|
|
|
|
172,646
|
|
|
|
97,538
|
|
|
|
113,039
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(3)
|
|
|
186,040
|
|
|
|
190,479
|
|
|
|
226,114
|
|
|
|
103,990
|
|
|
|
117,207
|
|
|
|
|
|
|
|
|
|
Number of company-owned and franchised retail stores (at end of
period)(4)
|
|
|
916
|
|
|
|
851
|
|
|
|
828
|
|
|
|
825
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
Number of Party City superstores
|
|
|
385
|
|
|
|
382
|
|
|
|
439
|
|
|
|
423
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
Party City comparable store sales growth(5)
|
|
|
0.5
|
%
|
|
|
(3.3
|
)%
|
|
|
1.4
|
%
|
|
|
0.9
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
Capital expenditures including assets under capital leases
(excluding acquisitions)
|
|
|
53,701
|
|
|
|
26,254
|
|
|
|
50,242
|
|
|
|
36,100
|
|
|
|
36,694
|
|
|
|
|
|
|
|
|
|
Working capital (excluding cash)
|
|
|
63,846
|
|
|
|
146,823
|
|
|
|
169,539
|
|
|
|
136,229
|
|
|
|
122,253
|
|
|
|
|
|
|
|
|
|
Ratio of debt to Adjusted EBITDA(3)(6)
|
|
|
3.9x
|
|
|
|
3.4x
|
|
|
|
4.4x
|
|
|
|
3.6x
|
|
|
|
4.6x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,058
|
|
|
$
|
15,420
|
|
|
$
|
20,454
|
|
|
$
|
22,743
|
|
|
$
|
19,484
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
76,904
|
|
|
|
162,243
|
|
|
|
189,993
|
|
|
|
158,972
|
|
|
|
141,737
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
1,507,977
|
|
|
|
1,480,501
|
|
|
|
1,653,151
|
|
|
|
1,719,507
|
|
|
|
1,866,771
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
721,635
|
|
|
|
651,433
|
|
|
|
1,000,256
|
|
|
|
730,983
|
|
|
|
1,107,153
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
412,117
|
|
|
|
479,122
|
|
|
|
256,422
|
|
|
|
524,328
|
|
|
|
257,792
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The pro forma as adjusted income statement and other financial
data for the fiscal year ended December 31, 2010 and the
nine months ended September 30, 2011 gives effect to:
(i) this offering and the use of proceeds therefrom; and
(ii) the refinancing of Amscan Holdings revolving and
term debt credit facilities in 2010, assuming in each case such
event occurred on January 1, 2010. The pro forma as
adjusted balance sheet data at September 30, 2011 gives
effect to this offering and the use of proceeds therefrom,
assuming such events occurred on September 30, 2011. The
pro forma as adjusted financial data do not necessarily
represent what our financial position and results of operations
would have been if the transactions had actually been completed
on the dates indicated, and are not intended to project our
financial position or results of operations for any future
period. See Use of Proceeds and Unaudited Pro
Forma Consolidated Financial Data. |
|
|
|
(2) |
|
The pro forma earnings per share calculations give effect to the
issuance and sale of a number of shares the proceeds of which
would be used to pay the amount of the 2010 cash dividend that
exceeded our 2010 earnings. |
|
(3) |
|
We present Adjusted EBITDA as a supplemental measure of our
performance. We define Adjusted EBITDA, per the terms of the
credit agreement for our revolving and term debt, as net income
(loss) plus (i) interest expense, (ii) provision for
taxes and (iii) depreciation and amortization, as further
adjusted to eliminate the impact of certain items that we do not
consider indicative of our ongoing operating performance. These
further adjustments are itemized below. You are encouraged to
evaluate these adjustments and the reasons we consider them
appropriate for supplemental analysis. In evaluating Adjusted
EBITDA, you should be aware that in the future we may incur
expenses that are the same as or similar to some of the
adjustments in this presentation. Our presentation of Adjusted
EBITDA should not be construed as an inference that our future
results will be unaffected by unusual or non-recurring items.
The reconciliation from net income to EBITDA and Adjusted EBITDA
for the periods presented is as follows: |
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(dollars in thousands)
|
|
|
Net Income
|
|
$
|
39,633
|
|
|
$
|
62,751
|
|
|
$
|
49,433
|
|
|
$
|
20,835
|
|
|
$
|
6,265
|
|
Interest expense, net
|
|
|
50,915
|
|
|
|
41,481
|
|
|
|
40,850
|
|
|
|
28,261
|
|
|
|
60,252
|
|
Income tax
|
|
|
24,188
|
|
|
|
37,673
|
|
|
|
32,945
|
|
|
|
11,766
|
|
|
|
3,438
|
|
Depreciation and amortization
|
|
|
47,278
|
|
|
|
44,382
|
|
|
|
49,418
|
|
|
|
36,676
|
|
|
|
43,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
162,014
|
|
|
|
186,287
|
|
|
|
172,646
|
|
|
|
97,538
|
|
|
|
113,039
|
|
Equity based compensation and other charges
|
|
|
4,546
|
|
|
|
882
|
|
|
|
6,019
|
|
|
|
514
|
|
|
|
1,076
|
|
Non-cash purchase accounting adjustments
|
|
|
2,329
|
|
|
|
(344
|
)
|
|
|
2,533
|
|
|
|
1,825
|
|
|
|
556
|
|
Management fee
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
936
|
|
|
|
936
|
|
Gain from joint venture
|
|
|
(538
|
)
|
|
|
(632
|
)
|
|
|
(678
|
)
|
|
|
(382
|
)
|
|
|
(589
|
)
|
Impairment charges
|
|
|
17,376
|
(a)
|
|
|
|
|
|
|
27,997
|
(a)
|
|
|
197
|
|
|
|
|
|
Restructuring, retention and severance
|
|
|
|
|
|
|
2,670
|
|
|
|
1,780
|
|
|
|
1,729
|
|
|
|
|
|
Payment in lieu of dividend
|
|
|
|
|
|
|
|
|
|
|
9,395
|
(b)
|
|
|
|
|
|
|
355
|
|
Refinancing charges
|
|
|
|
|
|
|
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses
|
|
|
|
|
|
|
270
|
|
|
|
1,660
|
|
|
|
557
|
|
|
|
1,613
|
|
Other
|
|
|
(935
|
)
|
|
|
98
|
|
|
|
1,066
|
|
|
|
1,076
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
186,040
|
|
|
$
|
190,479
|
|
|
$
|
226,114
|
|
|
$
|
103,990
|
|
|
$
|
117,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During 2008 and 2010, we implemented plans to convert and
rebrand our company-owned and franchised Party America stores
and our FCPO stores to Party City stores, respectively. As a
result, we recorded charges for the impairment of the Party
America trade name and the FCPO trade name of $17.4 million
and $27.4 million in the fourth quarters of 2008 and 2010,
respectively. |
|
(b) |
|
Represents payment to holders of vested time-based options in
connection with a one-time cash dividend paid in 2010. This
payment is included as stock-based compensation expense in
general and administrative expenses in 2010. |
We present Adjusted EBITDA because we believe it assists
investors and analysts in comparing our performance across
reporting periods on a consistent basis by excluding items that
we do not believe are indicative of our core operating
performance. In addition, we use Adjusted EBITDA: (i) as a
factor in determining incentive compensation, (ii) to
evaluate the effectiveness of our business strategies and
(iii) because the credit facility agreements use Adjusted
EBITDA to measure compliance with certain covenants.
Adjusted EBITDA has limitations as an analytical tool. Some of
these limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures, or
future requirements, for capital expenditures or contractual
commitments;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect the significant interest
expense, or the cash requirements necessary to service interest
or principal payments, on our 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 our
overall long-term incentive compensation package, although we
exclude it as an expense when evaluating our ongoing operating
performance for a particular period;
|
|
|
|
Adjusted EBITDA does not reflect the impact of certain cash
charges resulting from matters we consider not to be indicative
of our ongoing operations; and
|
|
|
|
other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
|
Because of these limitations, Adjusted EBITDA should not be
considered in isolation or as a substitute for performance
measures calculated in accordance with GAAP. We compensate for
these limitations by relying primarily on our GAAP results and
using Adjusted EBITDA only supplementally.
|
|
|
(4) |
|
Excludes temporary locations, principally under our Halloween
City banner, and includes Party City superstores. |
|
|
|
(5) |
|
Party City comparable store sales exclude FCPO store
conversions, as presented here. |
|
|
|
(6) |
|
The ratio of debt to Adjusted EBITDA is based on Adjusted EBITDA
for the previous twelve months. |
10
RISK
FACTORS
Investing in our common stock involves a certain degree of
risk. You should carefully consider the following risk factors,
as well as the other information in this prospectus, before
deciding to invest in our common stock. The occurrence of any of
the following risks could harm our business, financial
condition, results of operations or prospects. In that case, the
trading price of our common stock could decline, and you may
lose all or part of your investment. Certain statements in
Risk Factors are forward-looking
statements. See Special Note Regarding
Forward-Looking Statements elsewhere in this
prospectus.
Risks
Related to Our Business
We
operate in a competitive industry, and our failure to compete
effectively could cause us to lose our market share, revenues
and growth prospects.
We compete with many other manufactures and distributors,
including smaller, independent specialty manufacturers and
divisions or subsidiaries of larger companies with greater
financial and other resources than we have. Some of our
competitors control licenses for widely recognized images and
have broader access to mass market retailers that could provide
them with a competitive advantage.
The party goods retail industry is large and highly fragmented.
Our retail stores compete with a variety of smaller and larger
retailers, including specialty retailers, warehouse/merchandise
clubs, drug stores, supermarkets, dollar stores, mass merchants,
and catalogue and online merchants. Our stores compete, among
other ways, on the basis of location and store layout, product
mix and availability, customer convenience and price. We may not
be able to continue to compete successfully against existing or
future competitors in the retail space. Expansion into markets
served by our competitors and entry of new competitors or
expansion of existing competitors into our markets could
materially adversely affect our business, results of operations,
cash flows and financial performance.
We must remain competitive in the areas of quality, price,
breadth of selection, customer service and convenience.
Competing effectively may require us to reduce our prices or
increase our costs, which could lower our margins and adversely
affect our revenues and growth prospects.
Our
business may be adversely affected by fluctuations in commodity
prices.
The costs of our key raw materials (paper, petroleum-based resin
and cotton) fluctuate. In general, we absorb movements in raw
material costs that we consider temporary or insignificant.
However, cost increases that are considered other than temporary
may require us to increase our prices to maintain our margins.
Raw material prices may increase in the future and we may not be
able to pass on these increases to our customers. A significant
increase in the price of raw materials that we cannot pass on to
customers could have a material adverse effect on our results of
operations and financial performance. In addition, the
interruption in supply of certain key raw materials essential to
the manufacturing of our products may have an adverse impact on
our and our suppliers abilities to manufacture the
products necessary to maintain our existing customer
relationships.
Although not used in the actual manufacture of our products,
helium gas is currently used to inflate the majority of our
metallic balloons. Although adequate quantities of helium are
currently available for this purpose, we will rely upon future
exploration and refining of natural gas to assure continued
adequate supply.
Our
failure to appropriately respond to changing merchandise trends
and consumer preferences could significantly harm our customer
relationships and financial performance.
As a manufacturer, distributor and retailer of consumer goods,
our products must appeal to a broad range of consumers whose
preferences are constantly changing. We also sell certain
licensed products, with images such as cartoon or motion picture
characters, which are in great demand for short time periods,
making it difficult to project our inventory needs for these
products. In addition, if consumers demand for single-use,
disposable party goods were to diminish in favor of reusable
products for environmental or other reasons, our sales could
decline.
11
The success of our business depends upon many factors, such as
our ability to accurately predict the market for our products
and our customers purchasing habits, to identify product
and merchandise trends, to innovate and develop new products, to
manufacture and deliver our products in sufficient volumes and
in a timely manner and to differentiate our product offerings
from those of our competitors. We may not be able to continue to
offer assortments of products that appeal to our customers or
respond appropriately to consumer demands. We could misinterpret
or fail to identify trends on a timely basis. Our failure to
anticipate, identify or react appropriately to changes in
consumer tastes could, among other things, lead to excess
inventories and significant markdowns or a shortage of products
and lost sales. Our failure to do so could harm our customer
relationships and financial performance.
We may
not be able to successfully implement our store growth
strategy.
If we are unable to increase the number of retail stores we
operate and increase the productivity and profitability of
existing retail stores, our ability to increase sales,
profitability and cash flow could be impaired. To the extent we
are unable to open new stores as we planned, our sales growth
would come primarily from increases in comparable store sales.
We may not be able to increase our comparable store sales,
improve our margins or reduce costs as a percentage of sales.
Growth in profitability in that case would depend significantly
on our ability to increase margins or reduce costs as a
percentage of sales. Further, as we implement new initiatives to
reduce the cost of operating our stores, sales and profitability
may be negatively impacted.
Our ability to successfully open and operate new stores depends
on many factors including, among others, our ability to:
|
|
|
|
|
identify suitable store locations, including temporary lease
space for our Halloween City locations, the availability of
which is largely outside of our control;
|
|
|
|
negotiate and secure acceptable lease terms, desired tenant
allowances and assurances from operators and developers that
they can complete the project, which depend in part on the
financial resources of the operators and developers;
|
|
|
|
obtain or maintain adequate capital resources on acceptable
terms, including the availability of cash for rent outlays under
new leases;
|
|
|
|
manufacture and source sufficient levels of inventory at
acceptable costs;
|
|
|
|
hire, train and retain an expanded workforce of store managers
and other personnel;
|
|
|
|
successfully integrate new stores into our existing control
structure and operations, including information system
integration;
|
|
|
|
maintain adequate manufacturing and distribution facilities,
information system and other operational system capabilities;
|
|
|
|
identify and satisfy the merchandise and other preferences of
our customers in new geographic areas and markets; and
|
|
|
|
address competitive, merchandising, marketing, distribution and
other challenges encountered in connection with expansion into
new geographic areas and markets, including geographic
restrictions on the opening of new stores based on certain
agreements with our franchisees and other business partners.
|
In addition, as the number of our stores increases along with
our online sales, we may face risks associated with market
saturation of our product offerings. To the extent our new store
openings are in markets where we have existing stores, we may
experience reduced net sales in existing stores in those
markets. Finally, there can be no assurance that any newly
opened stores will be received as well as, or achieve net sales
or profitability levels comparable to those of, our existing
stores in the time periods estimated by us, or at all. If our
stores fail to achieve, or are unable to sustain, acceptable net
sales and profitability levels, our business may be materially
harmed and we may incur significant costs associated with
closing those stores. Our failure to effectively address
challenges such as these could adversely affect our
12
ability to successfully open and operate new stores in a timely
and cost-effective manner, and could have a material adverse
effect on our business, results of operations and financial
condition.
A
decrease in our Halloween sales could have a material adverse
effect on our operating results for the year.
Our retail business, including our Party City stores, online
sales from our
e-commerce
website and our temporary Halloween City locations, realizes a
significant portion of its revenues, net income and cash flow in
September and October, principally due to our Halloween sales.
We believe this general pattern will continue in the future. An
economic downturn during this period could adversely affect us
to a greater extent than if such downturn occurred at other
times of the year. Any unanticipated decrease in demand for our
products during the Halloween season could require us to
maintain excess inventory or sell excess inventory at a
substantial markdown, which could have a material adverse effect
on our business, profitability, ability to repay any
indebtedness and our brand image. In addition, our sales during
the Halloween season could be affected if we are not able to
find sufficient and adequate lease space for our temporary
Halloween City locations or if we are unable to hire temporary
personnel to adequately staff these stores and our distribution
facility during the Halloween season. Failure to have proper
lease space and adequate personnel could hurt our business,
financial condition and results of operations.
Disruption
to the transportation system or increases in transportation
costs may negatively affect our operating results.
We rely upon various means of transportation, including
shipments by air, sea, rail and truck, to deliver products to
our distribution centers from vendors and manufacturers and from
other distribution centers to our stores, as well as for direct
shipments from vendors to stores. Independent third parties with
whom we conduct business may employ personnel represented by
labor unions. Labor stoppages, shortages or capacity constraints
in the transportation industry, disruptions to the national and
international transportation infrastructure, fuel shortages or
transportation cost increases could adversely affect our
business, results of operations, cash flows and financial
performance.
Product
recalls and/or product liability may adversely impact our
business, merchandise offerings, reputation, results of
operations, cash flow and financial performance.
We may be subject to product recalls if any of the products that
we manufacture or sell are believed to cause injury or illness.
In addition, as a retailer of products manufactured by third
parties, we may also be liable for various product liability
claims for products we do not manufacture. Indemnification
provisions that we may enter into are typically limited by their
terms and depend on the creditworthiness of the indemnifying
party and its insurer and the absence of significant defenses.
We may be unable to obtain full recovery from the insurer or any
indemnifying third party in respect of any claims against us in
connection with products manufactured by such third party. In
addition, if our vendors fail to manufacture or import
merchandise that adheres to our quality control standards or
standards established by applicable law, our reputation and
brands could be damaged, potentially leading to an increase in
customer litigation against us. Furthermore, to the extent we
are unable to replace any recalled products, we may have to
reduce our merchandise offerings, resulting in a decrease in
sales, especially if a recall occurs near or during a peak
seasonal period. If our vendors are unable or unwilling to
recall products failing to meet our quality standards, we may be
required to recall those products at a substantial cost to us.
Our
business is sensitive to consumer spending and general economic
conditions, and an economic slowdown could adversely affect our
financial performance.
In general, our retail sales, and the retail sales of our
business partners to whom we sell, represent discretionary
spending by our customers and our business partners
customers. Discretionary spending is affected by many factors,
such as general business conditions, interest rates,
availability of consumer credit, unemployment levels, taxation,
weather and consumer confidence in future economic conditions.
Our customers and our business partners
customers purchases of discretionary items, including our
products,
13
often decline during periods when disposable income is lower or
during periods of actual or perceived unfavorable economic
conditions. If this occurs, our revenues and profitability will
decline. In addition, economic downturns may make it difficult
for us to accurately forecast future demand trends, which could
cause us to purchase excess inventories, resulting in increases
in our inventory carrying cost, or insufficient inventories,
resulting in our inability to satisfy our customer demand and
potential loss of market share.
Our
business may be adversely affected by the loss or actions of our
third-party vendors, and the loss of the right to use licensed
material could harm our business and our results of
operations.
Our ability to find new qualified vendors who meet our standards
and supply products in a timely and efficient manner can be a
significant challenge, especially for goods sourced from outside
the United States. Many of our vendors currently provide us with
incentives such as volume purchasing allowances and trade
discounts. If our vendors were to reduce or discontinue these
incentives, costs would increase. Should we be unable to pass
cost increases to consumers, our profitability would be reduced.
Additionally, certain of our suppliers may control various
product licenses for widely recognized images, such as cartoon
or motion picture characters. The loss of these suppliers, or
the termination of our ability to use certain licensed material,
would prevent us from manufacturing and distributing the
licensed products and could cause our customers to purchase
these products from our competitors. This could materially
adversely affect our business, results of operations, financial
performance and cash flow.
Because
we rely heavily on our own manufacturing operations, disruptions
at our manufacturing facilities could adversely affect our
business, results of operations, cash flows and financial
performance.
In 2010, we manufactured items representing approximately 40% of
our net sales at wholesale. Any significant disruption in our
manufacturing facilities, in the United States or abroad, for
any reason, including regulatory requirements, the loss of
certifications, power interruptions, fires, hurricanes, war or
other force of nature, could disrupt our supply of products,
adversely affecting our business, results of operations, cash
flows and financial performance. The occurrence of one or more
natural disasters, or other disruptive geo-political events,
could also result in increases in fuel (or other energy) prices
or a fuel shortage, the temporary or permanent closure of one or
more of manufacturing or distribution centers, the temporary
lack of an adequate work force in a market, the temporary or
long-term disruption in the supply of products from some local
and overseas suppliers, the temporary disruption in the
transport of goods from overseas or delays in the delivery of
goods to our distribution centers or stores or to third parties
who purchase from us. If one or more of these events occurred,
our revenues and profitability would be reduced.
Our
business and results of operations may be harmed if our
suppliers or third-party manufacturers fail to follow acceptable
labor practices or to comply with other applicable laws and
guidelines.
Many of the products sold in our stores and on our website are
manufactured outside of the United States, which may increase
the risk that the labor, manufacturing safety and other
practices followed by the manufacturers of these products may
differ from those generally accepted in the United States as
well as those with which we are required to comply under many of
our image or character licenses. Although we require each of our
vendors to sign a purchase order and vendor agreement that
requires adherence to accepted labor practices and compliance
with labor, manufacturing safety and other laws and we test
merchandise for product safety standards, we do not supervise,
control or audit our vendors or the manufacturers that produce
the merchandise we sell to our customers. The violation of
labor, manufacturing safety or other laws by any of our vendors
or manufacturers, or the divergence of the labor practices
followed by any of our vendors or manufacturers from those
generally accepted in the United States could interrupt or
otherwise disrupt the shipment of finished products to us,
damage our brand image, subject us to boycotts by our customers
or activist groups or cause some of our licensors of popular
images to terminate their licenses to us. Our future operations
and performance will be subject to these factors, which are
beyond our control and could materially hurt our business,
financial condition and results of operations or require us to
modify our current business practices or incur increased costs.
14
Our
international operations subject us to additional risks, which
risks and costs may differ in each country in which we do
business and may cause our profitability to
decline.
We conduct our business in a number of foreign countries,
including contracting with manufacturers and suppliers located
outside of the United States, many of which are located in Asia.
We recently expanded our international operations through the
acquisitions of the Christys Group in September 2010,
Riethmüller in January 2011 and Party Packagers in
July 2011. Our operations and financial condition may be
adversely affected if the markets in which we compete or source
our products are affected by changes in political, economic or
other factors. These factors, over which we have no control, may
include:
|
|
|
|
|
recessionary or expansive trends in international markets;
|
|
|
|
changes in foreign currency exchange rates, principally
fluctuations in the Euro, British pound sterling, Mexican peso,
Canadian dollar and Chinese renminbi;
|
|
|
|
hyperinflation or deflation in the foreign countries in which we
operate;
|
|
|
|
work stoppages or other employee rights issues;
|
|
|
|
the imposition of restrictions on currency conversion or the
transfer of funds;
|
|
|
|
transportation delays and interruptions;
|
|
|
|
increases in the taxes we pay and other changes in applicable
tax laws;
|
|
|
|
legal and regulatory changes and the burdens and costs of our
compliance with a variety of laws, including trade restrictions
and tariffs; and
|
|
|
|
political and economic instability.
|
We may
face risks associated with litigation and claims.
From time to time, we are involved in class actions and other
lawsuits, claims and other proceedings relating to the conduct
of our business, including but not limited to employee-related
and consumer matters. Additionally, as a retailer and
manufacturer of decorated party goods, we have been and may
continue to be subject to product liability claims if the use of
our products, whether manufactured by us or our third party
manufacturers, is alleged to have resulted in injury or if our
products include inadequate instructions or warnings. Due to the
uncertainties of litigation, we can give no assurance that we
will prevail on all claims made against us in the lawsuits that
we currently face or that additional claims will not be made
against us in the future. While it is not feasible to predict
the outcome of pending lawsuits and claims, we do not believe
that any such matters are material or that the disposition
thereof is likely to have a material adverse effect on our
business, financial condition and results of operations,
although the resolution in any reporting period of any matter
could have an adverse effect on our operating results for that
period. Also, we can give no assurance that any other lawsuits
or claims brought in the future will not have a material adverse
effect on our business, financial condition and results of
operations.
We may
require additional capital to fund our business, which may not
be available to us on satisfactory terms or at
all.
We currently rely on cash generated by operations and borrowings
available under our credit facilities to meet our working
capital needs. However, if we are unable to generate sufficient
cash from operations or if borrowings available under our credit
facilities are insufficient, we may be required to adopt one or
more alternatives to raise cash, such as incurring additional
indebtedness, selling our assets, seeking to raise additional
equity capital or restructuring. Additionally, Amscan
Holdings new senior secured asset-based revolving credit
facility (the New ABL Facility) matures in August
2015. If we cannot renew or refinance this facility upon its
maturity or, more generally, if adequate financing is
unavailable or is unavailable on acceptable terms, we may be
unable to maintain, develop or enhance our operations, products
and services, take advantage of future opportunities, service
our current debt costs or respond to competitive pressures.
15
Our
success depends on key personnel whom we may not be able to
retain or hire.
The success of our business depends, to a large extent, on the
continued service of our senior management team. Gerald C.
Rittenberg, our Chief Executive Officer, and James M. Harrison,
our President and Chief Operating Officer, have been with the
Company for approximately 20 and 15 years, respectively.
The loss of the services and leadership of either of these
individuals could have a negative impact on our business, as we
may not be able to find management personnel with similar
experience and industry knowledge to replace either of them on a
timely basis. We do not maintain key life insurance on any of
our senior officers.
As our business expands, we believe that our future success will
depend greatly on our continued ability to attract, motivate and
retain highly skilled and qualified personnel. Although we
generally have been able to meet our staffing requirements in
the past, our ability to meet our labor needs while controlling
costs is subject to external factors, such as unemployment
levels, minimum wage legislation and changing demographics. Our
inability to meet our staffing requirements in the future at
costs that are favorable to us, or at all, could impair our
ability to increase revenue, and our customers could experience
lower levels of customer service.
Additionally, we rely upon qualified personnel to staff our
temporary Halloween City locations during the Halloween season.
Our failure to attract qualified temporary personnel to
adequately staff these stores could negatively impact our
business.
We are
subject to risks associated with leasing substantial amounts of
space.
We lease all of our company-owned stores, our corporate
headquarters and most of our distribution facilities. Our
continued growth and success depends in part on our ability to
renew leases for successful stores and negotiate leases for new
stores, including temporary leases for our Halloween City
stores. There is no assurance that we will be able to negotiate
leases at similar or favorable terms, and we may decide not to
enter a market or be forced to exit a market if a favorable
arrangement cannot be made. If an existing or future store is
not profitable and we decide to close it, we may nonetheless be
committed to perform our obligations under the applicable lease,
including, among other things, paying the base rent for the
balance of the lease term. Moreover, even if a lease has an
early cancellation clause, we may not satisfy the contractual
requirements for early cancellation under the lease.
Our
business could be harmed if our existing franchisees do not
conduct their business in accordance with the standards that we
have agreed to.
Our success depends, in part, upon the ability of our
franchisees to operate their stores and promote and develop our
store concept. Although our franchise agreements include certain
operating standards, all franchisees operate independently and
their employees are not our employees. We provide certain
training and support to our franchisees, but the quality of
franchise store operations may be diminished by any number of
factors beyond our control. Consequently, franchisees may not
successfully operate stores in a manner consistent with our
standards and requirements, or may not hire and train qualified
managers and other store personnel. If they do not, our image,
brand and reputation could suffer.
Our
information systems, order fulfillment and distribution
facilities may prove inadequate or may be
disrupted.
We depend on our management information systems for many aspects
of our business. We will be materially adversely affected if our
management information systems are disrupted or we are unable to
improve, upgrade, maintain and expand our systems. In
particular, we believe our perpetual inventory, automated
replenishment and weighted average cost stock ledger systems are
necessary to properly forecast, manage and analyze our inventory
levels, margins and merchandise ordering quantities. We may fail
to properly optimize the effectiveness of these systems, or to
adequately support and maintain the systems. Moreover, we may
not be successful in developing or acquiring technology that is
competitive and responsive to our customers and might lack
sufficient resources to make the necessary investments in
technology needs
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and to compete with our competitors, which could have a material
adverse impact on our business, results of operations, cash
flows and financial performance.
In addition, we may not be able to prevent a significant
interruption in the operation of our electronic order entry and
information systems,
e-commerce
platform or manufacturing and distribution facilities due to
natural disasters, accidents, systems failures or other events.
Any significant interruption in the operation of these
facilities, including an interruption caused by our failure to
successfully expand or upgrade our systems or manage our
transition to utilizing the expansions or upgrades, could reduce
our ability to receive and process orders and provide products
and services to our stores, third-party stores, and other
customers, which could result in lost sales, cancelled sales and
a loss of loyalty to our brand.
We may
fail to adequately maintain the security of our electronic and
other confidential information.
We have become increasingly centralized and dependent upon
automated information technology processes. In addition, a
portion of our business operations is now conducted over the
Internet. We could experience operational problems with our
information systems and
e-commerce
platform as a result of system failures, viruses, computer
hackers or other causes. Any material disruption or
slowdown of our systems could cause information, including data
related to customer orders, to be lost or delayed, which
could especially if the disruption or slowdown
occurred during a peak sales season result in delays
in the delivery of merchandise to our stores and customers or
lost sales, which could reduce demand for our merchandise and
cause our sales to decline.
In addition, in the ordinary course of our business, we collect
and store certain personal information from individuals, such as
our customers and suppliers, and we process customer payment
card and check information, including via our
e-commerce
platform. Computer hackers may attempt to penetrate our computer
system and, if successful, misappropriate personal information,
payment card or check information or confidential Company
business information. In addition, a Company employee,
contractor or other third party with whom we do business may
attempt to circumvent our security measures in order to obtain
such information and may purposefully or inadvertently cause a
breach involving such information. Any failure to maintain the
security of our customers confidential information, or
data belonging to us or our suppliers, could put us at a
competitive disadvantage, result in deterioration in our
customers confidence in us, subject us to potential
litigation and liability, and fines and penalties, resulting in
a possible material adverse impact on our business, results of
operations, cash flows and financial performance.
Our
intellectual property rights may be inadequate to protect our
business.
We hold a variety of United States trademarks, service marks,
patents, copyrights, and registrations and applications
therefor, as well as a number of foreign counterparts thereto
and/or
independent foreign intellectual property asset registrations.
In some cases, we rely solely on unregistered trademarks and
copyrights under United States common law rights to distinguish
and/or
protect our products, services and branding from the products,
services and branding of our competitors. We cannot assure you
that no one will challenge our intellectual property rights in
the future. In the event that our intellectual property rights
are successfully challenged by a third party, we could be forced
to re-brand, re-design or discontinue the sale of certain of our
products or services, which could result in loss of brand
recognition
and/or sales
and could require us to devote resources to advertising and
marketing new branding or re-designing our products. Further, we
cannot assure you that competitors will not infringe our
intellectual property rights, or that we will have adequate
resources to enforce these rights. We also permit our
franchisees to use a number of our trademarks and service marks,
including Party
City®,
The Discount Party Super
Store®,
Halloween Costume
Warehouse®,
Party
America®,
The Paper
Factory®,
The Factory Card & Party
Outlet®
and Halloween
City®.
Our failure to properly control our franchisees use of
such trademarks could adversely affect our ability to enforce
them against third parties. A loss of any of our material
intellectual property rights could have a material adverse
effect on our business, financial condition and results of
operations.
We license from many third parties and do not own the
intellectual property rights necessary to sell products
capturing many popular images, such as cartoon or motion picture
characters. While none of these
17
licenses is individually material to our aggregate business, a
large portion of our business depends on the continued ability
to license the intellectual property rights to these images in
the aggregate. Any injury to our reputation or our inability to
comply with, in many cases, stringent licensing guidelines in
these agreements may adversely affect our ability to maintain
these relationships. A large loss of these licensed rights in
the aggregate could have a material adverse effect on our
business, financial condition and results of operations.
We also face the risk of claims that we have infringed third
parties intellectual property rights, which could be
expensive and time consuming to defend, cause us to cease using
certain intellectual property rights or selling certain products
or services, result in our being required to pay significant
damages or require us to enter into costly royalty or licensing
agreements in order to obtain the rights to use third
parties intellectual property rights, which royalty or
licensing agreements may not be available at all, any of which
could have a negative impact on our operating profits and harm
our future prospects.
Risks
Related to Our Indebtedness
Our
substantial indebtedness and lease obligations could adversely
affect our financial flexibility and our competitive
position.
We have, and will continue to have, a significant amount of
indebtedness. As of September 30, 2011, we had
$1,107 million of outstanding indebtedness. As of
September 30, 2011, we had $84.1 million excess
availability under the New ABL Facility. Our substantial level
of indebtedness increases the risk that we may be unable to
generate cash sufficient to pay amounts due in respect of our
indebtedness. We also have, and will continue to have,
significant lease obligations. As of September 30, 2011,
our minimum annual rental obligations under long-term operating
leases for 2012 and 2013 were $116.0 million and
$85.5 million, respectively, not including temporary
locations. Our substantial indebtedness and lease obligations
could have other important consequences to you and significant
effects on our business. For example, they could:
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increase our vulnerability to adverse changes in general
economic, industry and competitive conditions;
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require us to dedicate a substantial portion of our cash flow
from operations to make payments for our indebtedness and
leases, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures and other general
corporate purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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restrict us from exploiting business opportunities;
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make it more difficult to satisfy our financial obligations,
including payments on our indebtedness;
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place us at a disadvantage compared to our competitors that have
less debt and lease obligations; and
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limit our ability to borrow additional funds for working
capital, capital expenditures, acquisitions, debt service
requirements, execution of our business strategy or other
general corporate purposes.
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Restrictions
under our existing and future indebtedness may prevent us from
taking actions that we believe would be in the best interest of
our business.
The agreements governing our existing indebtedness contain and
the agreements governing our future indebtedness will likely
contain customary restrictions on us or our subsidiaries,
including covenants that, among other things and subject to
certain exceptions, restrict us or our subsidiaries, as the case
may be, from:
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incurring additional indebtedness or issuing disqualified stock;
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paying dividends or distributions on, redeeming, repurchasing or
retiring our capital stock;
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making payments on, or redeeming, repurchasing or retiring
indebtedness;
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making investments, loans, advances or acquisitions;
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entering into sale and leaseback transactions;
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engaging in transactions with affiliates;
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creating liens;
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transferring or selling assets;
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guaranteeing indebtedness;
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creating restrictions on the payment of dividends or other
amounts to us from our subsidiaries; and
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consolidating, merging or transferring all or substantially all
of our assets and the assets of our subsidiaries.
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In addition, we are required to maintain compliance with a fixed
charge coverage ratio if excess availability under the New ABL
Facility on any day is less than (a) 15% of the lesser of
the aggregate commitments or the then borrowing base under the
New ABL Facility or (b) $25 million. These
restrictions may prevent us from taking actions that we believe
would be in the best interest of our business. Our ability to
comply with these restrictive covenants will depend on our
future performance, which may be affected by events beyond our
control. If we violate any of these covenants and are unable to
obtain waivers, we would be in default under the applicable
agreements and payment of the indebtedness could be accelerated.
The acceleration of our indebtedness under one agreement may
permit acceleration of indebtedness under other agreements that
contain cross-default or cross-acceleration provisions,
including the New ABL Facility, Amscan Holdings senior
secured term loan facility (the New Term Loan Credit
Agreement) and the indenture governing Amscan
Holdings senior subordinated notes (the senior
subordinated notes). If our indebtedness is accelerated,
we may not be able to repay that indebtedness or borrow
sufficient funds to refinance it. Even if we are able to obtain
new financing, it may not be on commercially reasonable terms or
on terms that are acceptable to us. Furthermore, we and our
subsidiaries may still be able to incur substantially more debt.
This could further exacerbate the risks associated with our
substantial leverage. If we are for any reason in default under
any of the agreements governing our indebtedness, our business
could be materially and adversely affected. In addition,
complying with our covenants may also cause us to take actions
that are not favorable to holders of the common stock and may
make it more difficult for us to successfully execute our
business strategy and compete against companies that are not
subject to such restrictions.
Significant
interest rate changes could affect our profitability and
financial performance.
Our earnings are affected by changes in interest rates as a
result of our variable rate indebtedness under the New ABL
Facility and New Term Loan Credit Agreement. The interest rate
swap agreements that we use to manage the risk associated with
fluctuations in interest rates may not be able to fully
eliminate our exposure to these changes.
Risks
Related to This Offering
An
active public market for our common stock may not develop
following this offering.
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest in our company will lead to the development of an
active trading market in our common stock or how liquid that
market might become. An active market for our common stock may
not develop or be sustained after the offering. If an active
public market does not develop or is not sustained, it may be
difficult for you to sell your shares of common stock at a price
that is attractive to you, or at all. In addition, an inactive
market may impair our ability to raise capital by selling shares
and may impair our ability to acquire other companies by using
our shares as consideration, which, in turn, could materially
adversely affect our business.
The
Sponsors will have the ability to control the outcome of matters
submitted for stockholder approval and may have interests that
differ from those of our other stockholders.
Investment funds affiliated with the Sponsors own a majority of
our capital stock, on a fully-diluted basis, as of
December 31, 2011. After the completion of this offering,
the Sponsors will own
approximately % of our common
stock, or % on a fully-diluted
basis. The Sponsors have significant influence over corporate
transactions. So long as investment funds associated with or
designated by the Sponsors continue to
19
own a significant amount of the outstanding shares of our common
stock, even if such amount is less than 50%, the Sponsors will
continue to be able to strongly influence or effectively control
our decisions, regardless of whether or not other stockholders
believe that the transaction is in their own best interests.
Such concentration of voting power could also have the effect of
delaying, deterring or preventing a change of control or other
business combination that might otherwise be beneficial to our
stockholders.
Our
third amended and restated certificate of incorporation contains
a provision renouncing our interest and expectancy in certain
corporate opportunities, which could adversely affect our
business or future prospects.
Our third amended and restated certificate of incorporation
provides that we renounce any interest or expectancy in, or in
being offered an opportunity to participate in, any business
opportunity that may from time to time be presented to our
directors who are not our employees or employees of our
subsidiaries (Non-Employee Directors) and the
Sponsors or any of their respective officers, directors, agents,
shareholders, members, partners, affiliates and subsidiaries
(other than us and our subsidiaries) (collectively with
Non-Employee Directors, the Exempted Persons) and
that may be a business opportunity for such Exempted Person,
even if the opportunity is one that we might reasonably have
pursued or had the ability or desire to pursue if granted the
opportunity to do so. No such Exempted Person will be liable to
us for breach of any fiduciary or other duty, as a director or
officer or otherwise, by reason of the fact that such person,
acting in good faith, pursues or acquires any such business
opportunity, directs any such business opportunity to another
person or fails to present any such business opportunity, or
information regarding any such business opportunity, to us. None
of the Exempted Persons or their representatives has any duty to
refrain from engaging directly or indirectly in the same or
similar business activities or lines of business as us or any of
our subsidiaries.
As a result, the Non-Employee Directors the Sponsors and their
affiliates may become aware, from time to time, of certain
business opportunities, such as acquisition opportunities, and
may direct such opportunities to other businesses in which they
or their affiliates have invested, in which case we may not
become aware of or otherwise have the ability to pursue such
opportunity. Furthermore, the Sponsors may acquire interests in
businesses that directly or indirectly compete with certain
portions of our business. As a result, the Sponsors could have
differing interests than our other stockholders and our business
or future prospects could be adversely affected if attractive
business opportunities are procured by such parties for their
own benefit. See Description of Capital Stock
Anti-takeover Effects of the Delaware General Corporation Law
and our Third Amended and Restated Certificate of Incorporation
and Bylaws Renouncement of Corporate
Opportunity.
Our
stock price may be volatile or may decline regardless of our
operating performance, and you may not be able to resell your
shares at a price at or above the initial public offering
price.
The initial public offering price for the shares of our common
stock sold in this offering will be determined by negotiation
between the representatives of the underwriters and us. This
price may not reflect the market price of our common stock
following this offering. In addition, the market price of our
common stock is likely to be highly volatile and may fluctuate
substantially in response to a number of factors, most of which
we cannot control, including:
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actual or anticipated fluctuations in our results of operations;
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variance in our financial performance from the expectations of
equity research analysts;
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changes in consumer preferences or merchandise trends;
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announcements of new products or significant price reductions by
our competitors;
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additions or changes to key personnel;
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the timing of releases of new merchandise or promotional events;
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the level of customer service that we provide in our stores;
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our ability to source and distribute products effectively;
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weather conditions (particularly during the holiday season);
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the number of stores we open, close or convert in any period;
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the commencement or outcome of litigation;
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changes in market valuation or earnings of our competitors;
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the trading volume of our common stock;
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future sale of our equity securities; and
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economic, legal and regulatory factors unrelated to our
performance.
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The initial public offering price of our common stock will be
determined by negotiations between us and the underwriters based
upon a number of factors and may not be indicative of prices
that will prevail following the completion of this offering.
Volatility in the market price of our common stock may prevent
investors from being able to sell their common stock at or above
the initial public offering price. As a result, you may suffer a
loss on your investment.
In addition, the stock markets in general have experienced
extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance or
the particular companies affected. These broad market and
industry factors may materially harm the market price of our
common stock irrespective of our operating performance. As a
result of these factors, you might be unable to resell your
shares at or above the initial public offering price after this
offering. In addition, in the past, following periods of
volatility in the overall market and the market price of a
companys securities, securities class action litigation
has often been instituted against the affected company. This
type of litigation, if instituted against us, could result in
substantial costs and a diversion of our managements
attention and resources.
We do
not expect to pay any cash dividends for the foreseeable future
and, consequently, your only opportunity to achieve a return on
your investment is if the price of our common stock
appreciates.
Following this offering, we do not anticipate that we will pay
any cash dividend on shares of our common stock for the
foreseeable future. Any determination to pay dividends in the
future will be at the discretion of our board of directors and
will depend upon results of operations, financial performance,
contractual restrictions, restrictions imposed by applicable law
and other factors our board of directors deems relevant.
Additionally, the New ABL Facility, the New Term Loan Credit
Agreement and the indenture governing the senior subordinated
notes contain restrictive covenants which have the effect of
limiting our ability to pay cash dividends. Accordingly, if you
purchase shares in this offering, realization of a gain on your
investment will depend on the appreciation of the price of our
common stock, which may never occur. Investors seeking cash
dividends in the foreseeable future should not purchase our
common stock.
Future
sales of our common stock, or the perception in the public
markets that these sales may occur, may depress our stock
price.
Sales of substantial amounts of our common stock in the public
market after this offering, or the perception that these sales
could occur, could adversely affect the price of our common
stock and could impair our ability to raise capital through the
sale of additional shares. Upon completion of this offering, we
will
have million
shares of common stock outstanding, much of which will be
concentrated in the hands of the Sponsors. This concentration,
commonly referred to as a market overhang, could depress the
price at which our stock trades.
21
Upon
expiration of
lock-up
agreements between the underwriters and our officers, directors,
the selling stockholders and certain other holders of our common
stock, a substantial number of shares of our common stock could
be sold into the public market shortly after this offering,
which could depress our stock price.
Our officers, directors, the selling stockholders and holders of
substantially all of our common stock have entered into
lock-up
agreements with our underwriters which prohibit, subject to
certain limited exceptions, the disposal or pledge of, or the
hedging against, any of their common stock or securities
convertible into or exchangeable for shares of common stock for
a period through the date 180 days after the date of this
prospectus, subject to extension in certain circumstances. See
Shares Eligible for Future Sale for a more detailed
description of the restrictions on selling shares of our common
stock after this offering. The market price of our common stock
could decline as a result of sales by our existing stockholders
in the market after this offering and after the expiration of
these
lock-up
periods, or the perception that these sales could occur. Once a
trading market develops for our common stock, and after these
lock-up
periods expire, many of our stockholders will have an
opportunity to sell their stock for the first time. These
factors could also make it difficult for us to raise additional
capital by selling stock.
If you
purchase shares of common stock in this offering, you will incur
immediate and substantial dilution.
If you purchase shares of common stock in this offering, you
will incur immediate and substantial dilution in the amount of
$ per share because the initial
public offering price of $ per
share is substantially higher than the pro forma net tangible
book value per share of our common stock. This dilution is due
in large part to the fact that our earlier investors paid
substantially less than the initial public offering price when
they purchased their shares. In addition, you may also
experience additional dilution upon future equity issuances or
the exercise of stock options to purchase common stock granted
to our employees, consultants and directors under our equity
incentive plans.
We may
undertake acquisitions to expand our business, which may pose
risks to our business and dilute the ownership of our existing
shareholders.
We continuously seek to expand our business through strategic
acquisitions, both domestically and internationally. Our recent
acquisitions include the March 2010 acquisition of the
Designware party goods division from American Greetings, the
September 2010 acquisition of the Christys Group, a
U.K.-based costume company, the January 2011 acquisition of
Riethmüller, a German balloon and party goods producer and
the July 2011 acquisition of Party Packagers, a Canadian
retailer of party goods and outdoor toys. See
Business Evolution of Our Business for a
more detailed description of recent acquisitions and the growth
of our business.
We will continue to selectively pursue acquisitions of
businesses, technologies or services. Based on our previous
experiences, integrating any newly acquired business, technology
or service is an expensive and time consuming task. To finance
any future acquisitions, it may be necessary for us to raise
additional funds through public or private financings.
Additional funds may not be available on terms that are
favorable to us, and, in the case of equity financings, would
result in dilution to our shareholders. We may be unable to
operate any newly acquired businesses profitably or otherwise
implement our strategy successfully. If we are unable to
integrate any newly acquired entities, technologies or services
effectively, our business and results of operations will suffer.
The time and expense associated with finding suitable and
compatible businesses, technologies or services could also
disrupt our ongoing business and divert our managements
attention. Future acquisitions by us could also result in large
and immediate write-offs or assumptions of debt and contingent
liabilities, any of which could substantially harm our business
and results of operations.
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Our
management will have broad discretion over the use of the
proceeds we receive in this offering and might not apply the
proceeds in ways that increase the value of your
investment.
If the underwriters exercise their option to purchase additional
shares in this offering in full, we estimate that net proceeds
of the sale of the common stock that we are offering will be
approximately $ million. Our
management will have broad discretion to use our net proceeds
from this offering, and you will be relying on the judgment of
our management regarding the application of these proceeds. Our
management might not apply the net proceeds of this offering in
ways that increase the value of your investment. Our management
might not be able to yield any return on the investment and use
of these net proceeds. You will not have the opportunity to
influence our decisions on how to use the proceeds.
If
securities or industry analysts do not publish research or
reports or publish unfavorable research or reports about our
business, our stock price and trading volume could
decline.
The trading market for our common stock will depend in part on
the research and reports that securities and industry analysts
publish about us, our business, our market or our competitors.
We may not obtain research coverage by securities and industry
analysts. If no securities or industry analysts commence
coverage of our company, the trading price of our stock could be
negatively impacted. In the event we obtain securities or
industry analyst coverage, if one or more of the analysts who
covers us publishes unfavorable research or reports or
downgrades our stock, our stock price would likely decline. If
one or more of these analysts ceases to cover us or fails to
regularly publish reports on us, interest in our stock could
decrease, which could cause our stock price or trading volume to
decline.
Anti-takeover
provisions in our charter documents and Delaware law might
discourage, delay or prevent a change in control of our
company.
Our third amended and restated certificate of incorporation or
bylaws contain provisions that may make the acquisition of our
company more difficult without the approval of our board of
directors. These provisions include:
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the division of our board of directors into three classes and
the election of each class for three-year terms;
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advance notice requirements for stockholder proposals and
director nominations;
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the sole ability of the board of directors to fill a vacancy
created by the expansion of the board of directors;
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the required approval of holders of at least a majority of our
outstanding shares of capital stock entitled to vote generally
at an election of the directors to remove directors only for
cause;
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the required approval of holders of at least
662/3%
of our outstanding shares of capital stock entitled to vote at
an election of directors to adopt, amend or repeal our bylaws,
or amend or repeal certain provisions of our third amended and
restated certificate of incorporation once the Sponsors cease to
collectively own at least 50% of our outstanding common stock;
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limitations on the ability of stockholders to call special
meetings and, when the Sponsors cease to collectively own 50% of
our outstanding common stock, to take action by written
consent; and
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provisions that reproduce much of the provisions that limit the
ability of interested stockholders (other than the
Sponsors and certain of their transferees) from engaging in
specified business combinations with us absent prior approval of
the board of directors or holders of
662/3%
of our voting stock.
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The existence of the foregoing provisions and anti-takeover
measures could limit the price that investors might be willing
to pay in the future for shares of our common stock. They could
also deter potential acquirers of our company, thereby reducing
the likelihood that you could receive a premium for your common
stock in the acquisition.
23
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that convey
our current expectations or forecasts of future events. All
statements in this prospectus other than statements of
historical fact are forward-looking statements. Forward-looking
statements include statements about our future financial
position, business strategy, budgets, projected costs, plans and
objectives of management for future operations. The words
may, might, should,
predict, potential,
continue, estimate, intend,
plan, will, believe,
project, expect, seek,
anticipate and similar expressions may identify
forward-looking statements, but the absence of these words does
not necessarily mean that a statement is not forward-looking.
Any or all of our forward-looking statements in this prospectus
may turn out not to occur as contemplated. They are based
largely on our current expectations and projections about future
events and financial trends that we believe may affect our
financial condition, results of operations, business strategy
and financial needs. There are important factors that could
cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by
the forward-looking statements. These factors include the
effects of competition in the industry, the failure by us to
anticipate changes in tastes and preferences of party goods
retailers and consumers, the inability to increase store growth,
the inability to increase prices to recover fully future
increases in commodity prices, the loss of key employees,
changes in general business conditions and other factors which
are beyond our control. In particular, you should consider the
numerous risks described in the Risk Factors section
of this prospectus.
Although we believe the expectations reflected in the
forward-looking statements are reasonable, in light of these
risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur as
contemplated and actual results could differ materially from
those anticipated or implied by the forward-looking statements.
You should not unduly rely on these forward-looking statements,
which speak only as of the date of this prospectus. Unless
required by law, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect new
information or future events or otherwise. You should, however,
review the factors and risks we describe in the reports we will
file from time to time with the SEC after the date of this
prospectus. See Where You Can Find Additional
Information.
24
USE OF
PROCEEDS
We estimate that the net proceeds of the sale of the common
stock that we are offering will be approximately
$ million,
or
$ million
if the underwriters exercise their option to purchase additional
shares in full, assuming an initial public offering price of
$ per share, which is the midpoint
of the range listed on the cover page of this prospectus, and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us. We will not
receive any proceeds from the sale of shares of common stock by
the selling stockholders.
We expect to use approximately
$ million
of the net proceeds from this offering received by us to
repurchase or redeem our senior subordinated notes, of which
$175.0 million were outstanding at September 30, 2011,
and approximately $3.7 million to terminate the management
agreement.
We may also use any remaining portion of the net proceeds to
repay amounts borrowed under the New ABL Facility, for working
capital and other general corporate purposes. At
September 30, 2011, approximately $250.6 million was
outstanding under the New ABL Facility due 2015 at interest
rates ranging from 2.72% to 4.75%. Certain of the underwriters
and their affiliates serve in various capacities, including as
lenders, under the New ABL Facility and, accordingly, may
receive a portion of the net proceeds from this offering through
repayment of such indebtedness. See
Underwriting Conflicts of Interest.
For additional information on our liquidity and outstanding
indebtedness, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
This expected use of net proceeds from this offering represents
our intentions based upon our current plans and business
conditions. The amounts and timing of our actual expenditures
may vary significantly depending on numerous factors and any
unforeseen cash needs. As a result, our management will retain
broad discretion over the allocation of the net proceeds from
this offering. Pending our use of the net proceeds from this
offering as described above, we intend to invest the net
proceeds in a variety of capital preservation investments,
including short-term, investment-grade, interest-bearing
instruments and U.S. government securities.
25
DIVIDEND
POLICY
We currently intend to retain all of our future earnings, if
any, to finance operations, development and growth of our
business, and repay debt. Most of our indebtedness contains
restrictions on our activities, including paying dividends on
our capital stock and restricting dividends or other payments to
us. Any future determination relating to our dividend policy
will be made at the discretion of our board of directors and
will depend on a number of factors, including future earnings,
capital requirements, financial conditions, future prospects,
contractual restrictions and covenants and other factors that
our board of directors may deem relevant.
In December 2010, in connection with the refinancing of our term
loan agreement, Amscan Holdings board of directors
declared and paid to us a one-time cash dividend totaling
approximately $311.2 million. We used the aggregate
proceeds from this dividend to pay a one-time cash dividend to
our holders of common stock and to make a cash payment in lieu
of a dividend to certain option and warrant holders (such
dividend and payments, the 2010 Dividend). In
addition, holders of unvested options at the date such dividend
was declared will receive a comparable distribution, if and when
the options vest. The 2010 Dividend was the only dividend that
we have paid on our common stock during the past four years.
26
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2011:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on an as adjusted basis to give effect to the issuance and sale
by us
of
shares of our common stock in the offering at an assumed initial
public offering price of $ per
share, the mid-point of the range set forth on the cover of this
prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us and
the application of the net proceeds from this offering as
described in Use of Proceeds.
|
You should read this table in conjunction with Use of
Proceeds, Selected Consolidated Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
19,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Revolving credit facilities(1)
|
|
$
|
263,398
|
|
|
|
|
|
Term loan due 2017
|
|
|
662,337
|
|
|
|
|
|
Mortgage obligation
|
|
|
3,646
|
|
|
|
|
|
Capital lease obligations
|
|
|
2,772
|
|
|
|
|
|
8.75% senior subordinated notes
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,107,153
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value,
80,000,000 shares
authorized, shares
issued and outstanding,
actual; shares
authorized,
and shares
issued and outstanding, as adjusted(2)
|
|
|
|
|
|
|
|
|
Class B common stock, $0.01 par value,
30,400,000 shares
authorized, shares
issued and outstanding, actual; no shares authorized, and
no shares
issued and outstanding, as adjusted(2)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000 shares
authorized, no shares issued and outstanding,
actual; shares
authorized, and no shares issued and outstanding, as adjusted
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
286,257
|
|
|
|
|
|
Retained (deficit) earnings
|
|
|
(21,512
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(9,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity(3)
|
|
|
255,400
|
|
|
|
|
|
Noncontrolling interests
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
257,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
1,364,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2011, there were $263.4 million of
outstanding borrowings under the secured revolving credit
facilities, a total of $15.3 million of outstanding letters
of credit and excess availability of $84.1 million. |
|
|
|
(2) |
|
The Class B common stock will convert into Class A
common stock upon completion of the offering. At that time, the
Class A common stock will be renamed Common
Stock. |
|
|
|
(3) |
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would (decrease) increase our total long-term obligations and
would increase (decrease) stockholders equity by
$ and
$ , respectively, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions and estimated
expenses payable by us. To the extent we raise more proceeds in
this offering, we may repay additional indebtedness. To the
extent we raise less proceeds in this offering, we may reduce
the amount of indebtedness that will be repaid. |
27
DILUTION
If you purchase our common stock in this offering, you will
experience an immediate dilution of net tangible book value per
share from the initial public offering price. Dilution in net
tangible book value per share of our common stock represents the
difference between the initial public offering price per share
and the net tangible book value per share immediately after this
offering. We calculate net tangible book value per share of our
common stock by dividing the net tangible book value (total
consolidated tangible assets less total consolidated
liabilities) by the number of outstanding shares of our common
stock
At September 30, 2011, the net tangible book value of our
common stock was approximately $(609.0) million, or
approximately
$
per share of our common stock. After giving effect to
(1) the sale of shares of our common stock in this offering
at an assumed initial public offering price of
$ per share, and after deducting
estimated underwriting discounts and commissions and the
estimated offering expenses of this offering, and (2) the
Common Stock Conversion, the as adjusted net tangible book value
at September 30, 2011 attributable to common stockholders
would have been approximately
$ million, or approximately
$ per share of our common stock.
This represents a net increase in net tangible book value of
$ per existing share and an
immediate dilution in net tangible book value of
$ per share to new stockholders.
The following table illustrates this per share dilution to new
stockholders:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share as of September 30, 2011
|
|
$
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to
this offering
|
|
$
|
|
|
|
|
|
|
As adjusted net tangible book value per share after this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book value per share to new stockholders
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes, as of September 30, 2011, the
differences for (1) our existing stockholders, and
(2) investors in this offering, with respect to the number
of shares of common stock purchased from us, the total
consideration paid, and the average price per share paid before
deducting fees and expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Shares Issued
|
|
|
Total Consideration
|
|
|
Price per
|
|
|
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Share
|
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
|
New stockholders in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the shares issued to and total consideration paid by existing
stockholders in the table above, our directors and officers were
issued a total
of
shares in connection with the exercise of options for a total
consideration of $10,000, or
$
per share.
The foregoing discussion and tables assume no exercise of stock
options to
purchase shares
of our common stock subject to outstanding stock options with a
weighted average exercise price of
$
per share as of September 30, 2011 and
excludes shares
of our common stock available for future grant or issuance under
our stock plans. To the extent that any options having an
exercise price that is less than the offering price of this
offering are exercised, new investors will experience further
dilution.
28
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data
sets forth our unaudited historical and pro forma
consolidated statements of operations for the year ended
December 31, 2010 and the nine months ended
September 30, 2011 and our unaudited historical and pro
forma balance sheet at September 30, 2011. Such information
is based on the historical consolidated financial statements of
the Company appearing elsewhere in this prospectus.
The unaudited pro forma consolidated income statement data for
the year ended December 31, 2010 gives effect to the
following as if each had occurred on January 1, 2010:
|
|
|
|
|
Refinancing. On August 13, 2010, we
entered into the New ABL Facility for an aggregate principal
amount, as amended, of up to $350 million. Proceeds from
the New ABL Facility were used to refinance Amscan
Holdings prior senior secured asset-based revolving credit
facility and the Party City Franchise Group (PCFG)
revolving credit facility and term loan agreement, in an
aggregate amount equal to $157 million. In addition, on
December 2, 2010, we entered into the $675 million New
Term Loan Credit Agreement. The proceeds from the New Term Loan
Credit Agreement were used to terminate our previously existing
$342 million term loan guaranty credit agreement and to pay
a one time cash dividend to common stockholders and a cash
payment in lieu of a dividend to certain option and warrant
holders aggregating $311.2 million.
|
|
|
|
|
|
Initial Public Offering. The issuance
of shares
of common stock by us in this offering (the IPO) at
a price equal to $ per share, the
midpoint of the price range set forth on the cover of this
prospectus, and the impact of using the proceeds to us, net of
transaction fees and expenses, to (1) repurchase or redeem
all of our senior subordinated notes, (2) terminate the
management agreement with the Sponsors and (3) repay a
portion of our borrowings under the New ABL Facility.
|
The unaudited pro forma consolidated statement of operations for
the nine months ended September 30, 2011 and the unaudited
pro forma consolidated balance sheet at September 30, 2011
give effect to the IPO and the application of net proceeds
therefrom as if each had occurred on January 1, 2010 and
September 30, 2011, respectively.
The unaudited pro forma adjustments are based on available
information and certain assumptions that we believe are
reasonable. The unaudited pro forma consolidated financial
information was prepared on a basis consistent with that used in
preparing our audited consolidated financial statements and
includes all adjustments, consisting of normal and recurring
items, that we consider necessary for a fair presentation of our
financial position and results of operations for the unaudited
periods.
The unaudited pro forma consolidated financial information
should be read in conjunction with Use of Proceeds,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our historical
consolidated financial statements and related notes included
elsewhere in this prospectus. The unaudited pro forma
consolidated financial information is for informational purposes
only and is not intended to represent or be indicative of the
consolidated results of operations or financial position that we
would have reported had the refinancing transactions and this
offering been completed on the dates indicated and should not be
taken as representative of our future consolidated results of
operations or financial position.
29
PARTY
CITY HOLDINGS INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Adjustments
|
|
|
Pro
|
|
|
|
Historical
|
|
|
Refinancing
|
|
|
IPO
|
|
|
Forma
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,579,677
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,599,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
943,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale selling expenses
|
|
|
42,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail operating expenses
|
|
|
296,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise expenses
|
|
|
12,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
134,392
|
|
|
|
(9,370
|
)(a)
|
|
|
|
(e)
|
|
|
|
|
Art and development costs
|
|
|
14,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of trade name
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
127,436
|
|
|
|
9,370
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
40,850
|
|
|
|
35,426
|
(b)
|
|
|
|
(f)
|
|
|
|
|
Other expense, net
|
|
|
4,208
|
|
|
|
(2,448
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
82,378
|
|
|
|
(23,608
|
)
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
32,945
|
|
|
|
(8,853
|
)(d)
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
49,433
|
|
|
|
(14,755
|
)
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
49,319
|
|
|
$
|
(14,755
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
PARTY
CITY HOLDINGS INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
IPO
|
|
|
Pro
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Forma
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,200,188
|
|
|
$
|
|
|
|
$
|
|
|
Royalties and franchise fees
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,212,381
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
760,947
|
|
|
|
|
|
|
|
|
|
Wholesale selling expenses
|
|
|
42,970
|
|
|
|
|
|
|
|
|
|
Retail operating expenses
|
|
|
216,956
|
|
|
|
|
|
|
|
|
|
Franchise expenses
|
|
|
10,294
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
98,055
|
|
|
|
|
(g)
|
|
|
|
|
Art and development costs
|
|
|
12,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
70,905
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
60,252
|
|
|
|
|
(h)
|
|
|
|
|
Other expense, net
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,703
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
3,438
|
|
|
|
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,046
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
31
PARTY
CITY HOLDINGS INC.
UNAUDITED
PRO FORMA CONSOLIDATED BALANCE SHEET
AT
SEPTEMBER 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Forma
|
|
|
|
(dollars in thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,484
|
|
|
$
|
|
|
|
$
|
|
|
Accounts receivable, net of allowances
|
|
|
143,971
|
|
|
|
|
|
|
|
|
|
Inventories, net of allowances
|
|
|
523,135
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
78,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
765,346
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
208,148
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
685,448
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
133,370
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
|
47,931
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
26,528
|
|
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,866,771
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
$
|
263,398
|
|
|
$
|
|
(k)
|
|
$
|
|
|
Accounts payable
|
|
|
187,258
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
131,694
|
|
|
|
|
(k)
|
|
|
|
|
Income taxes payable
|
|
|
32,414
|
|
|
|
|
(l)
|
|
|
|
|
Redeemable warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
|
8,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
623,609
|
|
|
|
|
|
|
|
|
|
Long-term obligations, excluding current portion
|
|
|
834,910
|
|
|
|
|
(k)
|
|
|
|
|
Deferred income tax liabilities
|
|
|
93,947
|
|
|
|
|
|
|
|
|
|
Deferred rent and other long-term liabilities
|
|
|
20,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,573,214
|
|
|
|
|
|
|
|
|
|
Redeemable common securities (including 1,172.56 common shares
issued and outstanding at September 30, 2011)
|
|
|
35,765
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value, 80,000,000
shares authorized, 19,051.31 shares issued and outstanding
at September 30,
2011; shares
issued and outstanding pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock, $0.01 par value, convertible
into Class A common stock, 30,400,000 shares authorized,
11,918.71 shares issued and outstanding at
September 30, 2011; no shares issued and outstanding pro
forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 per value, 10,000 shares authorized, no
shares issued and outstanding at September 30, 2011; no
shares issued and outstanding pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
286,257
|
|
|
|
|
(m)
|
|
|
|
|
Retained deficit
|
|
|
(21,512
|
)
|
|
|
|
(n)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(9,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
255,400
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
257,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,866,771
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
NOTES TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(dollars in thousands except share and per share data)
Unaudited
Pro Forma Consolidated Statement of Income for the Year ended
December 31, 2010
(a) Reflects the elimination of the
one-time
cash distribution paid to stock option holders and charged to
general and administrative expenses during 2010, in connection
with the New Term Loan Credit Agreement and dividend refinancing.
(b) Reflects the change in interest expense arising from:
i. our use of the proceeds from the New ABL Facility to
refinance the prior asset-based revolving facility and the PCFG
revolving credit facility and term loan agreement; and
ii. our use of the net proceeds from the $675,000 New Term
Loan Credit Agreement to terminate the previously existing term
loan guaranty credit agreement and to pay a
one-time
cash dividend to common stockholders and a cash payment in lieu
of a dividend to certain option and warrant holders aggregating
$311,200.
During the periods prior to the refinancing, interest rates
ranged from 1.2% to 3.3% for the prior asset-based revolving
facility, the interest rate was 10% for the PCFG revolving
credit facility and term loan agreement and interest rates
ranged from 2.5% to 4.5% for the previously existing term loan
guaranty credit agreement.
During the periods prior to the refinancing, interest rates
ranging from 2.7% to 3.8% were assumed for the New ABL Facility
and a 6.8% interest rate was assumed for the New Term Loan
Credit Agreement.
The increase includes cash interest expense of $33,463 and the
amortization of deferred finance charges and the New Term Loan
Credit Agreement original issue discount totaling $1,963.
(c) Reflects the elimination of the non-recurring write-off
of deferred finance charges during 2010 associated with the
refinancing of the prior asset-based revolving facility and the
PCFG revolving credit facility and term loan agreement.
(d) Reflects the tax effect of the pro forma adjustments,
based upon a statutory federal income tax rate of 35% and an
estimated state income tax rate, net of federal tax benefit, of
2.5%.
(e) Reflects the elimination of management fees paid to the
Sponsors during the year under the terms of the management
agreement, which will be terminated in connection with the IPO.
(f) Reflects the decrease in interest expense as a result
of the proposed use of the net proceeds from the IPO to redeem
the $175,000 aggregate principal amount of
83/4% senior
subordinated notes and to reduce borrowings under the New ABL
Facility. The decrease includes cash interest expense of $15,499
and deferred finance charges of $754.
Unaudited
Pro Forma Consolidated Statement of Operations for the Nine
Months ended September 30, 2011
(g) Reflects the elimination of management fees of
$ paid to the Sponsors during the nine months ended
September 30, 2011 under the terms of the management
agreement, which will be terminated in connection with the IPO.
(h) Reflects the decrease in interest expense as a result
of the proposed use of IPO proceeds to repay the $175,000
aggregate principal amount of
83/4% senior
subordinated notes and to reduce borrowings under the New ABL
Facility. The decrease includes cash interest expense of
$ and deferred finance charges of
$ .
(i) Reflects the tax effect of the pro forma adjustments,
based upon a statutory federal income tax rate of 35% and an
estimated state income tax rate, net of federal income tax
benefit, of 2.5%.
Unaudited
Pro Forma Consolidated Balance Sheet as of September 30,
2011
(j) Reflects the write off of deferred finance charges of
$ associated with the redemption
of the $175,000 aggregate principal amount of
83/4% senior
subordinated notes.
33
(k) Reflects the use of the net proceeds from the IPO to
repurchase or redeem the $175,000 aggregate principal amount of
83/4% senior
subordinated notes at %, or
$ , together with accrued interest
of $ , to pay a management
agreement cancellation fee of $
and to repay a portion of the borrowings under the New ABL
facility.
(l) Reflects the income tax benefits arising from
the % premium paid to repurchase or
redeem the $175,000 aggregate principal amount of
83/4% senior
subordinated notes, the write off of deferred finance charges of
$ associated with the repurchase
or redemption of the $175,000 aggregate principal amount of
83/4
senior subordinated notes and the payment of the management
agreement cancellation fee of $ ,
based on a statutory federal income tax rate of 35% and an
estimated state income tax rate, net of federal income tax
benefit, of 2.5%.
(m) Reflects the proceeds from the issuance
of shares
of common stock in connection with the IPO, net of discounts of
$ .
(n) Reflects the payment of
the % premium related to the
repurchase or redemption of the $175,000 aggregate principal
amount of
83/4%
senior subordinated notes, the write off of deferred finance
charges of $ associated with the
repurchase or redemption and the payment of the management
agreement cancellation fee of $ ,
net of income tax benefits based upon a statutory federal income
tax rate of 35% and an estimated state income tax rate, net of
federal income tax benefit, of 2.5%.
34
SELECTED
CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below are
derived from our audited consolidated financial statements. The
consolidated financial data as of December 31, 2009 and
2010 and for the years ended December 31, 2008, 2009 and
2010 were derived from our audited consolidated financial
statements included elsewhere in this prospectus. The
consolidated financial data as of December 31, 2006, 2007
and 2008 and for the years ended December 31, 2006 and 2007
have been derived from our audited consolidated financial
statements for such years, which are not included in this
prospectus. The condensed consolidated financial data as of
September 30, 2010 and 2011 and for the nine months ended
September 30, 2010 and 2011 were derived from our unaudited
condensed consolidated financial statements included elsewhere
in this prospectus. Our unaudited condensed consolidated
financial statements for the nine months ended
September 30, 2010 and 2011 have been prepared on the same
basis as the annual consolidated financial statements and
include all adjustments, which include only normal recurring
adjustments, necessary for fair presentation of this data in all
material respects.
Our historical results are not necessarily indicative of future
operating performance, and our results for any interim period
are not necessarily indicative of results for a full fiscal
year. The information set forth below should be read in
conjunction with, and is qualified in its entirety by reference
to, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006(1)
|
|
|
2007(2)
|
|
|
2008
|
|
|
2009
|
|
|
2010(3)
|
|
|
2010
|
|
|
2011(4)
|
|
|
|
(dollars in thousands)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
993,342
|
|
|
$
|
1,221,516
|
|
|
$
|
1,537,641
|
|
|
$
|
1,467,324
|
|
|
$
|
1,579,677
|
|
|
$
|
1,015,856
|
|
|
$
|
1,200,188
|
|
Royalties and franchise fees
|
|
|
21,746
|
|
|
|
25,888
|
|
|
|
22,020
|
|
|
|
19,494
|
|
|
|
19,417
|
|
|
|
12,333
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,015,088
|
|
|
|
1,247,404
|
|
|
|
1,559,661
|
|
|
|
1,486,818
|
|
|
|
1,599,094
|
|
|
|
1,028,189
|
|
|
|
1,212,381
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
676,527
|
|
|
|
777,586
|
|
|
|
966,426
|
|
|
|
899,041
|
|
|
|
943,058
|
|
|
|
637,100
|
|
|
|
760,947
|
|
Wholesale selling expenses
|
|
|
39,449
|
|
|
|
41,899
|
|
|
|
41,894
|
|
|
|
39,786
|
|
|
|
42,725
|
|
|
|
31,759
|
|
|
|
42,970
|
|
Retail operating expenses
|
|
|
126,224
|
|
|
|
191,423
|
|
|
|
273,627
|
|
|
|
261,691
|
|
|
|
296,891
|
|
|
|
191,161
|
|
|
|
216,956
|
|
Franchise expenses
|
|
|
13,009
|
|
|
|
12,883
|
|
|
|
13,686
|
|
|
|
11,991
|
|
|
|
12,269
|
|
|
|
9,203
|
|
|
|
10,294
|
|
General and administrative expenses
|
|
|
84,836
|
|
|
|
105,707
|
|
|
|
120,272
|
|
|
|
119,193
|
|
|
|
134,392
|
|
|
|
86,302
|
|
|
|
98,055
|
|
Art and development costs
|
|
|
10,338
|
|
|
|
12,149
|
|
|
|
12,462
|
|
|
|
13,243
|
|
|
|
14,923
|
|
|
|
11,044
|
|
|
|
12,254
|
|
Impairment of trade name(5)
|
|
|
|
|
|
|
|
|
|
|
17,376
|
|
|
|
|
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
64,705
|
|
|
|
105,757
|
|
|
|
113,918
|
|
|
|
141,873
|
|
|
|
127,436
|
|
|
|
61,620
|
|
|
|
70,905
|
|
Interest expense, net
|
|
|
54,887
|
|
|
|
54,590
|
|
|
|
50,915
|
|
|
|
41,481
|
|
|
|
40,850
|
|
|
|
28,261
|
|
|
|
60,252
|
|
Other (income) expense, net(6)
|
|
|
(1,000
|
)
|
|
|
18,214
|
|
|
|
(818
|
)
|
|
|
(32
|
)
|
|
|
4,208
|
|
|
|
758
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,818
|
|
|
|
32,953
|
|
|
|
63,821
|
|
|
|
100,424
|
|
|
|
82,378
|
|
|
|
32,601
|
|
|
|
9,703
|
|
Income tax expense
|
|
|
4,295
|
|
|
|
13,246
|
|
|
|
24,188
|
|
|
|
37,673
|
|
|
|
32,945
|
|
|
|
11,766
|
|
|
|
3,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,523
|
|
|
|
19,707
|
|
|
|
39,633
|
|
|
|
62,751
|
|
|
|
49,433
|
|
|
|
20,835
|
|
|
|
6,265
|
|
Less: net income (loss) attributable to noncontrolling interests
|
|
|
83
|
|
|
|
446
|
|
|
|
(877
|
)
|
|
|
198
|
|
|
|
114
|
|
|
|
184
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,440
|
|
|
$
|
19,261
|
|
|
$
|
40,510
|
|
|
$
|
62,553
|
|
|
$
|
49,319
|
|
|
$
|
20,651
|
|
|
$
|
6,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma outstanding basic(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends, per share(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of cash flow data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
31,005
|
|
|
$
|
9,644
|
|
|
$
|
79,928
|
|
|
$
|
123,942
|
|
|
$
|
61,168
|
|
|
$
|
(1,500
|
)
|
|
$
|
26,589
|
|
Investing activities
|
|
|
(40,119
|
)
|
|
|
(133,406
|
)
|
|
|
(51,199
|
)
|
|
|
(54,358
|
)
|
|
|
(102,766
|
)
|
|
|
(71,583
|
)
|
|
|
(131,844
|
)
|
Financing activities
|
|
|
3,542
|
|
|
|
134,576
|
|
|
|
(23,033
|
)
|
|
|
(70,157
|
)
|
|
|
46,515
|
|
|
|
79,746
|
|
|
|
105,918
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006(1)
|
|
|
2007(2)
|
|
|
2008
|
|
|
2009
|
|
|
2010(3)
|
|
|
2010
|
|
|
2011(4)
|
|
|
|
(dollars in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale (after intercompany eliminations)
|
|
$
|
432,534
|
|
|
$
|
453,333
|
|
|
$
|
438,505
|
|
|
$
|
411,359
|
|
|
$
|
470,892
|
|
|
$
|
347,606
|
|
|
$
|
445,896
|
|
Retail
|
|
|
582,554
|
|
|
|
794,071
|
|
|
|
1,121,156
|
|
|
|
1,075,459
|
|
|
|
1,128,202
|
|
|
|
680,583
|
|
|
|
766,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
1,015,088
|
|
|
|
1,247,404
|
|
|
|
1,559,661
|
|
|
|
1,486,818
|
|
|
|
1,599,094
|
|
|
|
1,028,189
|
|
|
|
1,212,381
|
|
EBITDA(9)
|
|
|
104,324
|
|
|
|
125,636
|
|
|
|
162,014
|
|
|
|
186,287
|
|
|
|
172,646
|
|
|
|
97,538
|
|
|
|
113,039
|
|
Adjusted EBITDA(9)
|
|
|
121,926
|
|
|
|
152,045
|
|
|
|
186,040
|
|
|
|
190,479
|
|
|
|
226,114
|
|
|
|
103,990
|
|
|
|
117,207
|
|
Number of company-owned and franchised retail superstores (at
end of period)(10)
|
|
|
768
|
|
|
|
955
|
|
|
|
916
|
|
|
|
851
|
|
|
|
828
|
|
|
|
825
|
|
|
|
843
|
|
Number of Party City superstores
|
|
|
339
|
|
|
|
392
|
|
|
|
385
|
|
|
|
382
|
|
|
|
439
|
|
|
|
423
|
|
|
|
486
|
|
Party City comparable store sales growth(11)
|
|
|
6.5
|
%
|
|
|
5.8
|
%
|
|
|
0.5
|
%
|
|
|
(3.3
|
)%
|
|
|
1.4
|
%
|
|
|
0.9
|
%
|
|
|
4.0
|
%
|
Capital expenditures including assets under capital leases
(excluding acquisitions)
|
|
|
40,904
|
|
|
|
36,648
|
|
|
|
53,701
|
|
|
|
26,254
|
|
|
|
50,242
|
|
|
|
36,100
|
|
|
|
36,694
|
|
Working capital (excluding cash)
|
|
|
162,595
|
|
|
|
91,100
|
|
|
|
63,846
|
|
|
|
146,823
|
|
|
|
169,539
|
|
|
|
136,229
|
|
|
|
122,253
|
|
Ratio of debt to Adjusted EBITDA(9)(12)
|
|
|
4.7
|
x
|
|
|
4.9
|
x
|
|
|
3.9
|
x
|
|
|
3.4
|
x
|
|
|
4.4
|
x
|
|
|
3.6
|
x
|
|
|
4.6
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006(1)
|
|
|
2007(2)
|
|
|
2008
|
|
|
2009
|
|
|
2010(3)
|
|
|
2010
|
|
|
2011(4)
|
|
|
|
(dollars in thousands)
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,966
|
|
|
$
|
17,274
|
|
|
$
|
13,058
|
|
|
$
|
15,420
|
|
|
$
|
20,454
|
|
|
$
|
22,743
|
|
|
$
|
19,484
|
|
Working capital
|
|
|
167,561
|
|
|
|
108,374
|
|
|
|
76,904
|
|
|
|
162,243
|
|
|
|
189,993
|
|
|
|
158,972
|
|
|
|
141,737
|
|
Total assets
|
|
|
1,217,371
|
|
|
|
1,498,845
|
|
|
|
1,507,977
|
|
|
|
1,480,501
|
|
|
|
1,653,151
|
|
|
|
1,719,507
|
|
|
|
1,866,771
|
|
Total debt
|
|
|
567,005
|
|
|
|
746,126
|
|
|
|
721,635
|
|
|
|
651,433
|
|
|
|
1,000,256
|
|
|
|
730,983
|
|
|
|
1,107,153
|
|
Total equity
|
|
|
361,891
|
|
|
|
378,074
|
|
|
|
412,117
|
|
|
|
479,122
|
|
|
|
256,422
|
|
|
|
524,328
|
|
|
|
257,792
|
|
|
|
|
(1) |
|
Party America is included in the balance sheet data beginning
with December 31, 2006, and the income statement and other
financial data from its acquisition date (September 29,
2006). |
|
(2) |
|
FCPO and PCFG are included in the balance sheet data as of
December 31, 2007, and the income statement and other
financial data from their respective acquisition dates (PCFG-
November 2, 2007 and FCPO-November 16, 2007). |
|
(3) |
|
The acquisitions of Designware and the Christys Group are
included in the balance sheet data as of December 31, 2010, and
the income statement and other financial data from their
respective acquisition dates (March 1, 2010 and
September 30, 2010). |
|
|
|
(4) |
|
The acquisitions of Riethmüller and Party Packagers are
included in the financial statements from their respective
acquisition dates (January 30, 2011 and July 29, 2011). |
|
|
|
(5) |
|
During 2008 and 2010, we implemented plans to convert and
rebrand our company-owned and franchised Party America stores
and our FCPO stores to Party City stores, respectively. As a
result, we recorded charges for the impairment of the Party
America trade name and the FCPO trade name of $17.4 million
and $27.4 million in the fourth quarters of 2008 and 2010,
respectively. |
|
|
|
(6) |
|
In connection with the refinancing of debt in May 2007, we
recorded non-recurring expenses of $16.2 million, including
$6.2 million of debt retirement costs, $6.3 million
write off of deferred finance costs, and a $3.7 million
write-off of original issue discount associated with the
repayment of debt. In connection with the refinancing of the
Company and its subsidiaries revolving and term debt
credit facilities in August and December 2010, we wrote off
$2.4 million of deferred finance charges. |
|
|
|
(7) |
|
The pro forma earnings per share calculations give effect to the
issuance and sale of a number of shares the proceeds of which
would be used to pay the amount of the 2010 cash dividend that
exceeded our 2010 earnings. |
|
|
|
(8) |
|
For a discussion of our dividend payment in 2010 and our
dividend policy generally, please refer to Dividend
Policy. |
36
|
|
|
(9) |
|
For a discussion of our use of Adjusted EBITDA, please refer to
Prospectus Summary Summary Financial
Data. The reconciliation from net income to EBITDA and
Adjusted EBITDA for the period presented is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(dollars in thousands)
|
|
|
Net Income
|
|
$
|
6,523
|
|
|
$
|
19,707
|
|
|
$
|
39,633
|
|
|
$
|
62,751
|
|
|
$
|
49,433
|
|
|
$
|
20,835
|
|
|
$
|
6,265
|
|
Interest expense, net
|
|
|
54,887
|
|
|
|
54,590
|
|
|
|
50,915
|
|
|
|
41,481
|
|
|
|
40,850
|
|
|
|
28,261
|
|
|
|
60,252
|
|
Income taxes
|
|
|
4,295
|
|
|
|
13,246
|
|
|
|
24,188
|
|
|
|
37,673
|
|
|
|
32,945
|
|
|
|
11,766
|
|
|
|
3,438
|
|
Depreciation and amortization
|
|
|
38,619
|
|
|
|
38,093
|
|
|
|
47,278
|
|
|
|
44,382
|
|
|
|
49,418
|
|
|
|
36,676
|
|
|
|
43,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
104,324
|
|
|
|
125,636
|
|
|
|
162,014
|
|
|
|
186,287
|
|
|
|
172,646
|
|
|
|
97,538
|
|
|
|
113,039
|
|
Equity based compensation and other charges
|
|
|
1,208
|
|
|
|
1,928
|
|
|
|
4,546
|
|
|
|
882
|
|
|
|
6,019
|
|
|
|
514
|
|
|
|
1,076
|
|
Non-cash purchase accounting adjustments
|
|
|
2,509
|
|
|
|
1,332
|
|
|
|
2,329
|
|
|
|
(344
|
)
|
|
|
2,533
|
|
|
|
1,825
|
|
|
|
556
|
|
Management fee
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
1,248
|
|
|
|
936
|
|
|
|
936
|
|
Gain from joint venture
|
|
|
|
|
|
|
(628
|
)
|
|
|
(538
|
)
|
|
|
(632
|
)
|
|
|
(678
|
)
|
|
|
(382
|
)
|
|
|
(589
|
)
|
Impairment charges
|
|
|
|
|
|
|
2,115
|
|
|
|
17,376
|
(a)
|
|
|
|
|
|
|
27,997
|
(a)
|
|
|
197
|
|
|
|
|
|
Restructuring, retention and severance
|
|
|
2,114
|
|
|
|
2,504
|
|
|
|
|
|
|
|
2,670
|
|
|
|
1,780
|
|
|
|
1,729
|
|
|
|
|
|
Payment in lieu of dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,395
|
(b)
|
|
|
|
|
|
|
355
|
|
Refinancing charges
|
|
|
|
|
|
|
16,360
|
|
|
|
|
|
|
|
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
Acquisition related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
1,660
|
|
|
|
557
|
|
|
|
1,613
|
|
Intercompany gross profit elimination(c)
|
|
|
10,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(378
|
)
|
|
|
1,550
|
|
|
|
(935
|
)
|
|
|
98
|
|
|
|
1,066
|
|
|
|
1,076
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
121,926
|
|
|
$
|
152,045
|
|
|
$
|
186,040
|
|
|
$
|
190,479
|
|
|
$
|
226,114
|
|
|
$
|
103,990
|
|
|
$
|
117,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During 2008 and 2010, we implemented plans to convert and
rebrand our company-owned and franchised Party America stores
and our FCPO stores to Party City stores, respectively. As a
result, we recorded charges for impairment of the Party America
trade and the FCPO trade name of $17.4 million and
$27.4 million in the fourth quarters of 2008 and 2010,
respectively. |
|
(b) |
|
Represents payment to holders of vested time-based options in
connection with a one-time cash dividend payment in 2010. This
payment is included as
stock-based
compensation expense in general and administrative expenses in
2010. |
|
(c) |
|
Prior to our May 2007 refinancing, the definition of Adjusted
EBITDA under our credit agreement provided for the add-back of
intercompany gross profit on sales from our wholesale operations
to our retail stores. |
|
|
|
(10) |
|
Excludes temporary locations, principally under our Halloween
City banner, and includes Party City superstores. |
|
|
|
(11) |
|
Party City comparable store sales exclude FCPO store
conversions, as presented here. |
|
|
|
(12) |
|
The ratio of debt to Adjusted EBITDA is based on Adjusted EBITDA
for the previous twelve months. |
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and
results of operations should be read in conjunction with our
consolidated financial statements and the notes to those
consolidated financial statements appearing elsewhere in this
prospectus. This discussion contains forward-looking statements
that involve significant risks and uncertainties. As a result of
many factors, such as those set forth under Risk
Factors and elsewhere in this prospectus, our actual
results may differ materially from those anticipated in these
forward-looking statements.
Business
Overview
Our
Company
We are a global leader in decorated party supplies. We make it
easy and fun to enhance special occasions with a wide assortment
of innovative and exciting merchandise at a compelling value.
With the 2005 acquisition of Party City, we created a vertically
integrated business combining the leading product design,
manufacturing and distribution platform, Amscan, with the
largest U.S. retailer of party supplies. We believe we have
the industrys broadest selection of decorated party
supplies, which we distribute to over 100 countries. Our party
superstore retail network consists of approximately 800
locations in the United States and approximately 25
locations in Canada and is approximately 15 times larger
than that of our next largest party superstore competitor. Our
vertically integrated business model and scale differentiate us
from other party supply companies and allow us to capture the
manufacturing-to-retail
margin on a significant portion of the products sold in our
stores. We believe our widely recognized brands, broad product
offering, low-cost global sourcing model and category-defining
retail concept are significant competitive advantages. We
believe these characteristics, combined with our vertical
business model and scale, position us for continued organic and
acquisition-led growth in the United States and internationally.
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 EBITDA and Adjusted EBITDA. For a discussion of our use of
Adjusted EBITDA and a reconciliation to net income, please refer
to Prospectus Summary Summary Financial Data.
Segments
Our Wholesale segment generates revenues globally through sales
of our Amscan, Designware, Anagram and other party supplies to
party goods superstores, including our company-owned and
franchised stores, independent party supply stores, dollar
stores, mass merchants, grocery retailers and gift shops.
Domestic and international sales accounted for 86% and 14%,
respectively, of our total wholesale sales in 2010 and 77% and
23%, respectively, during the first nine months of 2011.
International wholesale sales are expected to increase as a
result of our recent acquisitions and the further maturation of
international party supply markets.
Our Retail segment generates revenues from the sale of
merchandise to the end consumer through our chain of
company-owned party goods stores, online through our
e-commerce
websites, including PartyCity.com, and through our chain of
temporary Halloween locations. Franchise revenues include
royalties on franchise retail sales and franchise fees charged
for the initial franchise award and subsequent renewals. Our
retail sales of party goods are fueled by everyday events such
as birthdays, various seasonal events and other special
occasions occurring throughout the year. In addition, through
Halloween City, our temporary Halloween business, we seek to
maximize our Halloween seasonal opportunity. As a result, in the
year ended 2010, our Halloween business represented
approximately 25% of our total annual retail sales, generally
occurring in a five-week selling season ending on
October 31. We expect to continue to generate a significant
portion of our retail sales during the Halloween selling season.
Intercompany sales between the Wholesale and the Retail segment
are eliminated, and the profits on intercompany sales are
deferred and realized at the time merchandise is sold to the
consumer. For segment
38
reporting purposes, certain general and administrative expenses
and art and development costs are allocated based on total
revenues.
Financial
Measures
Revenues. Revenues from retail operations are
recognized at point of sale. We estimate future retail sales
returns and record a provision in the period in which the
related sales are recorded based on historical information.
Retail revenues include shipping revenue related to
e-commerce
sales. Retail sales are reported net of taxes collected.
Franchise royalties are recognized based on reported franchise
retail sales. Revenues from our wholesale operations represent
the sale of our products to third parties, less rebates,
discounts and other allowances. The terms of our wholesale sales
are generally FOB shipping point, and revenue is recognized when
goods are shipped. We estimate reductions to revenues for
volume-based rebate programs and subsequent credits at the time
sales are recognized. Intercompany sales from our wholesale
operations to our retail stores are eliminated in our
consolidated total revenues.
Comparable Retail Same-Store Sales. The growth
in same-store sales represents the percentage change in
same-store sales in the period presented compared to the prior
year. Same-store sales exclude the net sales of a store for any
period if the store was not open during the same period of the
prior year. Comparable sales are calculated based upon stores
that were open at least thirteen full months as of the end of
the applicable reporting period. When a store is reconfigured or
relocated within the same general territory, the store continues
to be treated as the same store. If, during the period
presented, a store was closed, sales from that store up to and
including the closing day are included as same-store sales as
long as the store was open during the same period of the prior
year. FCPO stores that are in the process of being converted
have not been included in Party City same store-sales and will
not be included until the thirteenth month following conversion.
Cost of Sales. Cost of sales at wholesale
reflects the production costs (i.e., raw materials, labor and
overhead) of manufactured goods and the direct cost of purchased
goods, inventory shrinkage, inventory adjustments, inbound
freight to our manufacturing and distribution facilities,
distribution costs and outbound freight to get goods to our
wholesale customers. At retail, cost of sales reflects the
direct cost of goods purchased from third parties and the
production or purchase costs of goods acquired from our
wholesale operations. Retail cost of sales also includes
inventory shrinkage, inventory adjustments, inbound freight,
occupancy costs related to store operations (such as rent and
common area maintenance, utilities and depreciation on assets)
and all logistics costs associated with our
e-commerce
business.
Our cost of sales increases in higher volume periods as the
direct costs of manufactured and purchased goods, inventory
shrinkage and freight are generally tied to 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, such as changes in the proportion of
company manufactured goods, which have higher margins, may also
impact our overall cost of sales. The direct costs of
manufactured and purchased goods are influenced by raw material
costs (principally paper, petroleum-based resins and cotton),
domestic and international labor costs in the countries where
our goods are purchased or manufactured and logistics costs
associated with transporting our goods. We monitor our inventory
levels on an on-going basis in order to identify slow-moving
goods and generally use our outlet stores to clear such goods.
Wholesale Selling Expenses. Selling expenses
include the costs associated with our wholesale sales and
marketing efforts, including licensing, merchandising and
customer service. Costs include the salaries and benefits of the
related work force, including sales-based bonuses and
commissions. Other costs include catalogues, showroom rent,
travel and other operating costs. Certain selling expenses, such
as sales-based bonuses and commissions, vary in proportion to
sales, while other costs vary based on other factors, such as
our marketing efforts, or are largely fixed and do not
necessarily increase as sales volume increases.
Retail Operating Expenses. Retail operating
expenses include all of the costs associated with retail store
operations, excluding occupancy-related costs included in the
cost of sales. Costs include store payroll and
39
benefits, advertising, supplies and credit card costs. Retail
expenses are largely variable but do not necessarily vary in
proportion to sales.
Franchise Expenses. Franchise expenses include
the costs associated with operating our franchise network,
including salaries and benefits of the administrative work force
and other administrative costs. These expenses generally do not
vary proportionally with net sales or franchise-related income.
General and Administrative Expenses. General
and administrative expenses include all operating costs not
included elsewhere. These expenses include payroll and other
expenses related to operations at our corporate offices
including occupancy costs, related depreciation and
amortization, legal and professional fees and data-processing
costs. These expenses generally do not vary proportionally with
net sales.
Art and Development Costs. Art and development
costs include the costs associated with art production, creative
development and product management. Costs include the salaries
and benefits of the related work force. These expenses generally
do not vary proportionally with net sales.
EBITDA and Adjusted EBITDA. We define EBITDA
as net income (loss) before interest expense, income taxes,
depreciation and amortization. We define Adjusted EBITDA as
EBITDA further adjusted to exclude certain cash and non-cash,
non-recurring items. We caution investors that amounts presented
in accordance with our definitions of EBITDA and Adjusted EBITDA
may not be comparable to similar measures disclosed by other
issuers, because not all issuers and analysts calculate EBITDA
or Adjusted EBITDA in the same manner. We present EBITDA in this
prospectus because we consider it an important supplemental
measure of our performance and believe it is frequently used by
securities analysts, investors and other interested parties in
the evaluation of companies in our industry. We present Adjusted
EBITDA in this prospectus as a further supplemental measure of
our performance and in connection with our annual cash incentive
plan.
Executive
Overview
Our recent financial results demonstrate continued growth and
profitability enhancements during a difficult economic
environment. For the year ended December 31, 2010, we
posted revenue growth of 7.6% and Adjusted EBITDA growth of
18.7% as compared to the same period in 2009. The revenue growth
reflects the impact of our acquisitions as well as increased
purchases from our customers across all channels after the
decline in consumer demand experienced in 2009. In addition to
the higher sales, the Adjusted EBITDA growth also reflects an
increase in the percentage of Amscan products sold through our
company-owned stores allowing us to capture the manufacturing-
or
wholesale-to-retail
margin on a growing share of our sales. For a discussion of our
use of Adjusted EBITDA and a reconciliation to net income,
please refer to Prospectus Summary Summary Financial
Data.
In 2010, we completed two acquisitions that expanded our product
line and channel reach and, combined, contributed
$41.4 million to our revenue. The March 2010 acquisition of
the Designware party division of American Greetings strengthens
our juvenile licensed character portfolio while increasing our
reach into the grocery retail and mass merchant channels. The
September 2010 acquisition of the U.K.-based Christys
Group provides costume-design and sourcing capabilities as well
as additional resources in the U.K. and European markets. In
January 2011, we acquired Germany-based Riethmüller,
including the Malaysian operations of latex balloon manufacturer
Everts Balloon. This acquisition expanded our reach in Europe
while also enabling us to directly supply a significant portion
of our latex balloon requirements previously sourced from
third-party vendors. We expect these acquisitions to enhance our
distribution capabilities and product line and increase our
profits as we continue to capitalize on our vertical model by
increasing the percentage of our products sold through Party
City. In July 2011, we acquired Party Packagers, a Canadian
retailer of party goods and outdoor toys. The acquisition
further expanded our vertical business model, giving us a
significant retail presence in Canada.
We also experienced growth in our retail business driven by
increases in our same-store sales combined with the addition of
new locations. We increased our
company-owned
Party City store count by 57 locations in 2010, including
FCPO conversions and stores acquired from our franchisees. Our
extensive product selection combined with the new advertising
strategy launched in late 2009 resulted in higher traffic which
drove an improvement in same-store sales during the year with
0.6%, 0.2%, 1.6% and 2.6% growth in each of
40
the first, second, third and fourth quarters. Same-store sales
at our Party City stores, excluding FCPO conversions, increased
1.4% in 2010. The FCPO stores converted to the Party City format
in 2010 have experienced a 13.8% increase in sales over 2009. We
have also increased our number of temporary Halloween locations
from 247 in 2009 to 414 in 2011. While revenue resulting from
the increased store count contributed over $35.0 million to
our sales in 2011 versus 2009, average sales per location in
2011 were lower than in 2009. Our
e-commerce
platform, re-launched in 2009, experienced strong growth during
2010 and 2011, and we expect it will continue to provide
attractive growth opportunities for us.
Other
Factors Affecting Our Results
Important events that have impacted or will impact the results
presented in Managements Discussion and Analysis of
Financial Condition and Results of Operations include:
Christys Group. On September 30,
2010, we acquired the Christys Group for total
consideration of approximately $30.4 million. The
Christys Group designs and distributes costumes and other
garments and accessories through its operations in Asia and the
U.K. The results of operations of the Christys Group are
included in our consolidated financial statements from the date
of acquisition and included revenues of $11.4 million for
2010 and $38.9 million for the nine months ended
September 30, 2011. The Christys Group has
historically had a lower gross margin than we have and this
acquisition is expected to reduce our consolidated gross margin
in 2011.
Riethmüller GmbH. On January 30,
2011, we acquired Riethmüller for total consideration of
approximately $47.1 million. Riethmüller is a
150-year-old
German balloon producer and the pre-eminent brand for party and
carnival items in Germany, Austria and Switzerland. The
acquisition expands our vertical business model into the latex
balloon category and gives us a significant presence in Germany,
Poland and Malaysia. The results of operations of
Riethmüller are included in our consolidated financial
statements from the date of acquisition and included revenues of
$40.8 million for the nine months ended September 30,
2011. Similar to the Christys Group, the historical gross
margin of Riethmüller has been lower than the margins
generated by our wholesale operations. As a result, we expect
the inclusion of Riethmüller in our 2011 results of
operations to reduce our consolidated gross margin.
Party Packagers. On July 29, 2011, we
acquired Party Packagers for total consideration of
approximately $31.8 million. Party Packagers is a Canadian
retailer of party goods and outdoor toys. The acquisition
expands our vertical business model, giving us a significant
retail presence in Canada. The results of operations of Party
Packagers are included in our consolidated financial statements
from the date of acquisition and included revenues of
$8.2 million for the nine months ended September 30,
2011.
Refinancing. On August 13, 2010, we
entered into the New ABL Facility for an aggregate principal
amount of up to $350 million, as amended, for working
capital, general corporate purposes and the issuance of letters
of credit. The New ABL Facility, which matures in August 2015,
was used to refinance our prior asset-based revolver and certain
other term debt.
On December 2, 2010, we entered into the
$675.0 million New Term Loan Credit Agreement and used the
proceeds to refinance our existing $342.0 million term loan
facility, pay a one-time cash dividend to common stockholders
and make a cash dividend equivalent payment to vested time-based
option holders and warrant holders aggregating approximately
$311.2 million and to pay $18.1 million of related fees and
expenses. The New Term Loan Credit Agreement matures in December
2017.
As a result of higher interest rates and debt following these
refinancings, our interest expense will increase in future
periods.
Public Company Costs. As a result of the
initial public offering of our common stock we will incur
additional legal, accounting and other expenses that we did not
previously incur, including costs associated with public company
reporting and corporate governance requirements. These
requirements
41
include compliance with the Sarbanes-Oxley Act of 2002 as well
as other rules implemented by the SEC and New York Stock
Exchange.
Termination of Management Agreement. We have a
management agreement with our Sponsors. Pursuant to the
management agreement, we pay annual management fees of
approximately $1.2 million and an advisory fee of 1% of the
value of specified transactions they assist us with. We intend
to pay a termination fee of approximately $3.7 million to
terminate the agreement in connection with this offering. This
amount was determined through negotiations between the Company
and the Sponsors.
Equity Based Compensation. In December 2010,
in connection with the refinancing of our term loan agreement
(see Liquidity and Capital Resources),
our board of directors declared a one-time cash dividend
totaling $311.2 million, which included $9.4 million to holders
of vested time-based options, which was included in stock
compensation expense in 2010. In addition, holders of unvested
options at the date such dividend was declared will receive a
comparable distribution, if and when the options vest. At
December 31, 2010, the aggregate potential distribution
associated with unvested options was $18.5 million, which
could be paid out within 12 months following completion of
this offering and would result in a charge to stock compensation
expense.
Results
of Operations
Nine
Months Ended September 30, 2011 Compared To Nine Months
Ended September 30, 2010
The following tables set forth our operating results and
operating results as a percentage of total revenue for the nine
months ended September 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,200,188
|
|
|
|
99.0
|
%
|
|
$
|
1,015,856
|
|
|
|
98.8
|
%
|
Royalties and franchise fees
|
|
|
12,193
|
|
|
|
1.0
|
|
|
|
12,333
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,212,381
|
|
|
|
100.0
|
|
|
|
1,028,189
|
|
|
|
100.0
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
760,947
|
|
|
|
62.8
|
|
|
|
637,100
|
|
|
|
62.0
|
|
Wholesale selling expenses
|
|
|
42,970
|
|
|
|
3.5
|
|
|
|
31,759
|
|
|
|
3.1
|
|
Retail operating expenses
|
|
|
216,956
|
|
|
|
17.9
|
|
|
|
191,161
|
|
|
|
18.6
|
|
Franchise expenses
|
|
|
10,294
|
|
|
|
0.8
|
|
|
|
9,203
|
|
|
|
0.9
|
|
General and administrative expenses
|
|
|
98,055
|
|
|
|
8.1
|
|
|
|
86,302
|
|
|
|
8.4
|
|
Art and development costs
|
|
|
12,254
|
|
|
|
1.0
|
|
|
|
11,044
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,141,476
|
|
|
|
94.1
|
|
|
|
966,569
|
|
|
|
94.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
70,905
|
|
|
|
5.9
|
|
|
|
61,620
|
|
|
|
5.9
|
|
Interest expense, net
|
|
|
60,252
|
|
|
|
5.0
|
|
|
|
28,261
|
|
|
|
2.7
|
|
Other expense, net
|
|
|
950
|
|
|
|
0.1
|
|
|
|
758
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,703
|
|
|
|
0.8
|
|
|
|
32,601
|
|
|
|
3.1
|
|
Income tax expense
|
|
|
3,438
|
|
|
|
0.3
|
|
|
|
11,766
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,265
|
|
|
|
0.5
|
|
|
|
20,835
|
|
|
|
2.0
|
|
Less net income attributable to noncontrolling interests
|
|
|
219
|
|
|
|
0.0
|
|
|
|
184
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,046
|
|
|
|
0.5
|
%
|
|
$
|
20,651
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Revenues
Total revenues for the nine months ended September 30, 2011
were $1,212.4 million, or 17.9% higher than for the nine
months ended September 30, 2010. The following table sets
forth our total revenues for the nine months ended
September 30, 2011 and 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
707,478
|
|
|
|
58.4
|
%
|
|
$
|
564,400
|
|
|
|
54.9
|
%
|
Eliminations
|
|
|
(261,582
|
)
|
|
|
(21.6
|
)%
|
|
|
(216,794
|
)
|
|
|
(21.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net wholesale
|
|
|
445,896
|
|
|
|
36.8
|
%
|
|
|
347,606
|
|
|
|
33.8
|
%
|
Retail
|
|
|
754,292
|
|
|
|
62.2
|
%
|
|
|
668,250
|
|
|
|
65.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
1,200,188
|
|
|
|
99.0
|
%
|
|
|
1,015,856
|
|
|
|
98.8
|
%
|
Royalties and franchise fees
|
|
|
12,193
|
|
|
|
1.0
|
%
|
|
|
12,333
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,212,381
|
|
|
|
100.0
|
%
|
|
$
|
1,028,189
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
Net wholesale sales for the first nine months of 2011 of
$445.9 million were $98.3 million, or 28.3%, higher
than net sales for the first nine months of 2010. During the
first nine months of 2011, net sales to domestic party goods
retailers, including our franchisee network, and to other
domestic party goods distributors totaled $222.1 million
and were $8.8 million, or 4.1%, higher than during the
corresponding period of 2010. The increase in sales was
principally attributable to an increase in Halloween products
shipped directly to our franchise stores under a distribution
center bypass program including $3.1 million of synergistic
sales of Christys Halloween and other costumes. In
addition, sales for the nine months ended September 30,
2011 benefited from nearly three additional months of Designware
product sales or $0.4 million compared to 2010. Net sales
of metallic balloons of $77.8 million were
$5.8 million, or 8.1%, higher than in the first nine months
of 2010, with the sales growth occurring across most channels,
including domestic and international balloon distributors,
dollar stores and custom. International sales totaled
$146.0 million and were $83.7 million higher than in
the first nine months of 2010, principally reflecting the
acquisition of the Christys Group in September 2010 and
Riethmüller in late January 2011, which added sales of
$38.9 million and $40.8 million, respectively, in the
first nine months of 2011. In addition, changes in foreign
currency exchange rates resulted in a 7.7% increase in
international sales over 2010.
Intercompany sales to our retail affiliates of
$261.6 million were $44.8 million, or 20.7%, higher
than during the first nine months of 2010 and represented 37.0%
of total wholesale sales in the first nine months of 2011,
compared to 38.4% in the first nine months of 2010. The increase
in intercompany sales also reflects an increase in Halloween
products shipped under the distribution center bypass program,
including $8.1 million of synergistic sales of
Christys Halloween and other costumes and the
re-merchandising, during the past twelve months, of an
additional 34 FCPO retail stores to the Party City format, as
such stores carry a greater percentage of our wholesale
products. The increase in intercompany sales also reflects the
benefit from nearly three additional months of Designware
product sales compared to 2010, which represented an increase of
$0.6 million in the nine months of 2011. During the first
nine months of 2011, our wholesale sales to our permanent retail
stores represented 62.1% of the retail stores total
purchases, compared to 61.0% in 2010. The intercompany sales of
our wholesale segment are eliminated against the intercompany
purchases of our retail segment in the consolidated financial
statements.
43
Retail
Retail sales for the first nine months of 2011 of
$754.3 million were $86.0 million, or 12.9%, higher
than retail sales in the first nine months of 2010. The retail
sales at our Party City stores (including converted FCPO stores)
totaled $610.9 million and were $62.1 million, or
11.3%, higher than in 2010. Party City same-store sales
increased 4.0% during the nine months ended September 30,
2011, driven by a 2.5% increase in average transaction dollar
size and a 1.5% increase in transaction count. The increase in
sales is partially attributable to the successful shift in our
principal advertising strategy from free standing newspaper
inserts to a national broadcasting campaign. The increase in
Party City store sales also reflects the net addition of 29 new
stores during the twelve months ended September 30, 2011,
including the net acquisition of 23 stores from franchisees, and
the conversion of 34 FCPO stores to the Party City format during
that time period. During the first nine months of 2011, sales at
stores converted from the FCPO format to Party City during the
last twelve months were 17.4% higher than sales at these same
stores during the first nine months of 2010. Converted FCPO
stores will be included in Party Citys same-store sales
beginning with the thirteenth month following conversion. Our
e-commerce
sales totaled $44.4 million in the first nine months of
2011 and were $23.4 million, or 118.2%, higher than in the
first nine months of 2010 driven, in part, by our shift to the
national broadcast advertising campaign coupled with other
successful online initiatives implemented since our re-launch of
the PartyCity.com website in August 2009. Net sales at our
temporary Halloween City stores of $13.4 million were
$2.1 million higher than the nine months ended
September 30, 2010. The Party Packagers stores acquired at
the end of July 2011 added net sales of $8.2 million during
the nine months of 2011. Sales at all other store formats,
including unconverted FCPO and outlet stores, totaled
$77.4 million and were $9.8 million or 11.3% lower
than in 2010. The decrease principally reflects the net closure
of 19 stores during the twelve months ended September 30,
2011.
Royalties
and franchise fees
Royalties and franchise fees of $12.2 million for the first
nine months of 2011 were comparable to the first nine months of
2010, as the negative impact on royalty income from our
acquisition of 23 franchise stores, net, during the twelve
months ended September 30, 2011 was offset by the impact of
increased same-store sales at the remaining franchise stores.
Gross
Profit
Our total margin on net sales for the nine months ended
September 30, 2011 was 36.6% or 70 basis points lower
than for the nine months ended September 30, 2010. The
following table sets forth our gross profit on net sales for the
nine months ended September 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Dollars in
|
|
|
Associated
|
|
|
Dollars in
|
|
|
Associated
|
|
|
|
Thousands
|
|
|
Net Sales
|
|
|
Thousands
|
|
|
Net Sales
|
|
|
Wholesale
|
|
$
|
154,906
|
|
|
|
34.7
|
%
|
|
$
|
128,210
|
|
|
|
36.9
|
%
|
Retail
|
|
|
284,335
|
|
|
|
37.7
|
%
|
|
|
250,546
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
439,241
|
|
|
|
36.6
|
%
|
|
|
378,756
|
|
|
|
37.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross profit margin on net sales at wholesale for the first
nine months of 2011 was 34.7%, or 220 basis points, lower
than for the first nine months of 2010. The decrease in
wholesale gross profit margin reflects the dilutive impact of
our recent international acquisitions, the Christys Group
and Riethmüller, which have lower gross profit margins
relative to our historical wholesale operations. The impact of
the Christys Group and Riethmüller on wholesale gross
profit margin was 200 basis points of the decline in the
first nine months of 2011. The remaining 20 basis points of
the decline reflected a combination of increased sales of lower
margin products, including distribution center bypass sales, and
increases in certain raw material, product and freight costs.
44
Retail gross profit margin for the first nine months of 2011 was
37.7%, or 20 basis points, higher than in the first nine
months of 2010, as the impact of a greater percentage of our
wholesale products sold at retail and the realization of higher
previously deferred manufacturing and distribution margin in the
first nine months of 2011 compared to the first nine months of
2010 were partially offset by the inclusion of lower margin
Party Packager sales and the timing of temporary Halloween City
store occupancy expenses. During the nine months ended
September 30, 2011, 64.3% of our domestic retail store
sales were products supplied by our wholesale operations,
compared to 63.6% for 2010.
Operating
expenses
Wholesale selling expenses of $43.0 million for the first
nine months of 2011 were $11.2 million, or 35.3%, higher
than the first nine months of 2010. The increase in wholesale
selling expenses principally reflects the additional expenses of
the Christys Group and Riethmüller of
$5.4 million and $3.6 million, respectively, as well
as inflationary increases in compensation and employee benefits.
Wholesale selling expenses were 6.1% of total wholesale sales in
the first nine months of 2011, compared to 5.6% in the first
nine months of 2010.
Retail operating expenses for the first nine months of 2011 of
$217.0 million, were $25.8 million higher than for the
first nine months of 2010. The increase in retail operating
expenses reflects the growth in our retail store base, including
$2.8 million of expenses related to the acquisition of
Party Packagers, and the growth in our
e-commerce
operations.
E-commerce
costs reflect additional distribution, website and customer
service costs. The increase in retail operating expenses also
reflects additional costs associated with a national
broadcasting campaign and inflationary increases in retail
expenses. As a percent of retail sales, retail operating
expenses were 28.8% for the first nine months of 2011, compared
to 28.6% for the first nine months of 2010. Franchise expenses
for the first nine months of 2011 of, $10.3 million, were
$1.1 million, or 11.9%, higher than for the first nine
months of 2010, principally due to an increase in commissions
paid to franchisees on
e-commerce
sales originating in their territories.
As a percentage of total revenues, general and administrative
expenses decreased to 8.1% for the first nine months of 2011,
compared to 8.4% for the first nine months of 2010. General and
administrative expenses for the nine months ended
September 30, 2011 of $98.1 million were
$11.8 million, or 13.6%, higher than for the first nine
months of 2010, principally due to additional expenses from the
acquisitions of the Christys Group, Riethmüller and
Party Packagers of $2.0 million, $5.2 million and
$0.9 million, respectively, as well as the timing of
certain costs related to the Companys temporary Halloween
City store operations. The increase in general and
administrative expenses for the third quarter of 2011 also
reflects inflationary compensation and employee benefit cost
increases, which were substantially offset by nonrecurring costs
incurred in the nine months ended September 30, 2010
relating to the restructuring of the FCPO corporate offices.
Art and development costs of $12.3 million for the nine
months ended September 30, 2011 were $1.2 million, or
11.0%, higher than the first nine months of 2010, principally
reflecting increases in personnel, compensation and employee
benefits. As a percentage of total revenues, art and development
costs were 1.0% and 1.1% in the first nine months of 2011 and
2010, respectively.
Interest
expense, net
Interest expense of $60.3 million for the nine months ended
September 30, 2011 was $32.0 million higher than for
the first nine months of 2010. The increase was principally due
to higher interest rates and the $326.6 million increase in
our term loan borrowings following the New ABL Facility
refinancing in August 2010 and the New Term Loan Credit
Agreement refinancing in December 2010, the proceeds of which
were used to make a dividend distribution.
Other
expense, net
Other expense, net, was $1.0 million for the first nine
months of 2011 compared to $0.8 million for the first nine
months of 2010. Other expense, net, principally consists of our
share of (income) loss from an
45
unconsolidated balloon distribution joint venture in Mexico,
foreign currency (gains) losses and acquisition related expenses.
Income
tax expense
The income tax expense for the nine months ended
September 30, 2011 and 2010 were determined based upon the
Companys estimated consolidated effective income tax rates
of 36.2% and 36.4% for the years ending December 31, 2011
and 2010, respectively. The differences between the estimated
consolidated effective income tax rate and the U.S. federal
statutory rate are primarily attributable to state income taxes
and available domestic manufacturing deductions.
In addition, the income tax expense for the nine months ended
September 30, 2011 reflects the settlement of the audits of
the Companys 2008 and 2009 federal tax returns and the
settlement of the audits of several 2007 and 2008 state
income tax returns. Also, the income tax expense for the nine
months ended September 30, 2010 reflects the settlement of
the audit of the Companys 2007 federal tax return and the
expiration of state statutes of limitations resolving previously
unrecognized tax benefits.
Years
Ended December 31, 2010, 2009 and 2008
The following information presented for 2010, 2009 and 2008 was
derived from our audited consolidated financial statements and
related notes which are included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,579,677
|
|
|
|
98.8
|
%
|
|
$
|
1,467,324
|
|
|
|
98.7
|
%
|
|
$
|
1,537,641
|
|
|
|
98.6
|
%
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
1.2
|
|
|
|
19,494
|
|
|
|
1.3
|
|
|
|
22,020
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,599,094
|
|
|
|
100.0
|
|
|
|
1,486,818
|
|
|
|
100.0
|
|
|
|
1,559,661
|
|
|
|
100.0
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
943,058
|
|
|
|
59.0
|
|
|
|
899,041
|
|
|
|
60.5
|
|
|
|
966,426
|
|
|
|
62.0
|
|
Wholesale selling expenses
|
|
|
42,725
|
|
|
|
2.7
|
|
|
|
39,786
|
|
|
|
2.7
|
|
|
|
41,894
|
|
|
|
2.7
|
|
Retail operating expenses
|
|
|
296,891
|
|
|
|
18.6
|
|
|
|
261,691
|
|
|
|
17.6
|
|
|
|
273,627
|
|
|
|
17.5
|
|
Franchise expenses
|
|
|
12,269
|
|
|
|
0.8
|
|
|
|
11,991
|
|
|
|
0.8
|
|
|
|
13,686
|
|
|
|
0.9
|
|
General and administrative expenses
|
|
|
134,392
|
|
|
|
8.4
|
|
|
|
119,193
|
|
|
|
8.0
|
|
|
|
120,272
|
|
|
|
7.7
|
|
Art and development costs
|
|
|
14,923
|
|
|
|
0.9
|
|
|
|
13,243
|
|
|
|
0.9
|
|
|
|
12,462
|
|
|
|
0.8
|
|
Impairment of trade name
|
|
|
27,400
|
|
|
|
1.7
|
|
|
|
|
|
|
|
0.0
|
|
|
|
17,376
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,471,658
|
|
|
|
92.0
|
|
|
|
1,344,945
|
|
|
|
90.5
|
|
|
|
1,445,743
|
|
|
|
92.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
127,436
|
|
|
|
8.0
|
|
|
|
141,873
|
|
|
|
9.5
|
|
|
|
113,918
|
|
|
|
7.3
|
|
Interest expense, net
|
|
|
40,850
|
|
|
|
2.6
|
|
|
|
41,481
|
|
|
|
2.8
|
|
|
|
50,915
|
|
|
|
3.3
|
|
Other expense (income), net
|
|
|
4,208
|
|
|
|
0.3
|
|
|
|
(32
|
)
|
|
|
0.0
|
|
|
|
(818
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
82,378
|
|
|
|
5.2
|
|
|
|
100,424
|
|
|
|
6.7
|
|
|
|
63,821
|
|
|
|
4.1
|
|
Income tax expense
|
|
|
32,945
|
|
|
|
2.1
|
|
|
|
37,673
|
|
|
|
2.5
|
|
|
|
24,188
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
49,433
|
|
|
|
3.1
|
|
|
|
62,751
|
|
|
|
4.2
|
|
|
|
39,633
|
|
|
|
2.5
|
|
Less: net income (loss) attributable to noncontrolling interest
|
|
|
114
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
(877
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
49,319
|
|
|
|
3.1
|
%
|
|
$
|
62,553
|
|
|
|
4.2
|
%
|
|
$
|
40,510
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Revenues
Total revenues for 2010 were $1,599.1 million, or 7.6%,
higher than in 2009 reflecting growth in both reporting
segments. The following table sets forth the composition of our
total revenues for 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
769,247
|
|
|
|
48.1
|
%
|
|
$
|
633,006
|
|
|
|
42.6
|
%
|
Eliminations
|
|
|
(298,355
|
)
|
|
|
(18.7
|
)
|
|
|
(221,647
|
)
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net wholesale
|
|
|
470,892
|
|
|
|
29.4
|
|
|
|
411,359
|
|
|
|
27.7
|
|
Retail
|
|
|
1,108,785
|
|
|
|
69.3
|
|
|
|
1,055,965
|
|
|
|
71.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
1,579,677
|
|
|
|
98.8
|
|
|
|
1,467,324
|
|
|
|
98.7
|
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
1.2
|
|
|
|
19,494
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,599,094
|
|
|
|
100.0
|
%
|
|
$
|
1,486,818
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
Net sales for 2010 of $470.9 million were
$59.5 million, or 14.5%, higher than net sales for 2009.
Net sales to domestic party goods retailers, including our
franchisee network, and to other domestic party goods
distributors totaled $281.2 million and were
$35.3 million, or 14.4%, higher than 2009 sales. The
increase in sales principally reflects the acquisition of
Designware in March 2010, which added sales of approximately
$11.1 million, as well as a return to near normal
purchasing patterns and inventory levels by retailers, following
their reduction in purchasing during the economic downturn in
2009. Net sales of metallic balloons were $96.4 million, or
14.1%, higher than in 2009 and also reflect the normalization of
purchasing patterns by domestic balloon distributors.
International sales totaled $93.3 million and were
$12.3 million, or 15.2%, higher than in 2009, primarily the
result of the acquisition of the Christys Group in
September 2010. Changes in foreign currency exchange rates
resulted in a 2.1% increase in the international sales over 2009.
Intercompany sales to our retail affiliates of
$298.4 million were $76.7 million, or 34.6%, higher
than in 2009 and represented 38.8% of total wholesale sales in
2010 compared to 35.0% in 2009. The increase in intercompany
sales principally reflects the impact of the acquisition of
Designware and the growth of our products as a percentage of the
total products sold in our retail stores, particularly at our
rebranded and re-merchandised FCPO stores. During 2010, our
wholesale sales to our retail stores represented 61.3% of the
retail segments total purchases, compared to 53.7% in
2009. The intercompany sales of our wholesale segment are
eliminated against the intercompany purchases of our retail
segment in the consolidated financial statements.
Retail
Retail sales for 2010 at our company-owned stores of
$1,108.8 million were $52.8 million, or 5.0%, higher
than retail sales for 2009. The retail sales of our
company-owned Party City stores (excluding FCPO conversions)
totaled $770.7 million and were $15.8 million, or
2.1%, higher than in 2009. Party City same-store sales increased
1.4% during 2010, driven by a 2.0% increase in transaction
count, partially offset by a 0.6% decrease in average sale price
per transaction. Party City same-store sales accelerated during
2010, with growth of 0.6%, 0.2%, 1.6% and 2.6% for the first,
second, third and fourth quarters, respectively, driven in part
by the successful shift in our principal advertising strategy
from free standing newspaper inserts to a national broadcasting
campaign. The increase in Party City store sales also reflects
the addition of 33 stores (excluding FCPO conversions),
including the acquisition of 20 stores from franchisees,
partially offset by the
47
sale or closure of 16 stores in 2010. Additionally, we converted
40 FCPO stores to the Party City format, which generated sales
of $28.6 million in 2010, a $3.5 million or 13.8%
increase over 2009. Prior to this conversion to the Party City
format, these 40 FCPO stores generated comparable sales of
$25.1 million in 2009. Converted FCPO stores will be
included in Party Citys same-store sales beginning with
the thirteenth month following conversion. Net sales at our
temporary Halloween City locations totaled $101.4 million
and were $33.4 million, or 49.1%, higher than in 2009,
reflecting an increase in the number of locations to 404 in 2010
from 247 in 2009, partially offset by an 8.8% decrease in
average sales per location compared to 2009. The decrease in
average Halloween City sales per location is primarily
attributable to the expansion in 2010 into several new
territories with existing competition. Our
e-commerce
sales totaled $40.2 million in 2010 compared to
$13.4 million in 2009, reflecting the successful re-launch
of the PartyCity.com website. Sales at all other store formats,
including unconverted FCPO and outlet stores, totaled
$167.8 million and were $26.7 million or 13.7% lower
than in 2009. The decrease reflects the closure of six FCPO and
17 outlet stores during 2010 and the impact of liquidating
non-conforming FCPO inventories prior to the stores
remerchandising and rebranding.
Royalties
and franchise fees
Royalties and franchise fees for 2010 totaled $19.4 million
and were $0.1 million lower than in 2009 principally as a
result of a net decrease of 18 franchise stores that occurred
primarily during the fourth quarter of 2010.
Gross
profit
Our total margin on net sales for 2010 was 40.3%, or
160 basis points higher, than in 2009. The following table
sets forth our consolidated gross profit and gross margin on net
sales for 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
|
Thousands
|
|
|
Associated Net Sales
|
|
|
Thousands
|
|
|
Associated Net Sales
|
|
|
Net Wholesale
|
|
$
|
174,507
|
|
|
|
37.1
|
%
|
|
$
|
148,424
|
|
|
|
36.1
|
%
|
Retail
|
|
|
462,112
|
|
|
|
41.7
|
%
|
|
|
419,859
|
|
|
|
39.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
636,619
|
|
|
|
40.3
|
%
|
|
$
|
568,283
|
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross margin on net sales at wholesale for 2010 was 37.1%,
or 100 basis points higher than in 2009. The increase in
wholesale gross margin principally reflects changes in product
mix, including a greater percentage of higher margin decorated
tableware and accessories due, in part, to the acquisition of
Designware, the impact of product price increases and the
continued leveraging of our distribution infrastructure,
partially offset by increases in input costs.
Retail gross profit margin for 2010 was 41.7%, or 190 basis
points higher than in 2009, principally due to a greater
percentage of products sold at retail that were manufactured or
sourced by us, including Designware products, resulting in a
higher margin.
Operating
expenses
Wholesale selling expenses totaled $42.7 million and were
$2.9 million, or 7.4%, higher than in 2009. The increase in
2010 wholesale selling expenses, as compared to 2009,
principally reflects increases in compensation and employee
benefits and $0.8 million of expenses related to the
Christys Group. Wholesale selling expenses were 2.7% of
total revenue in both 2010 and 2009.
Retail operating expenses of $296.9 million for 2010 were
$35.2 million, or 13.5%, higher than 2009, principally
reflecting additional costs associated with the growth in our
temporary Halloween and
e-commerce
businesses.
E-commerce
costs reflect higher distribution, website and customer service
costs. The increase in retail operating expenses also reflects
the addition of 18 stores in 2010. In addition, during 2010, we
implemented a national broadcast-based advertising program, the
costs of which were partially offset by a
48
reduction in advertising through free standing newspaper
inserts. Retail operating expenses were 26.8% of retail sales in
2010 and 24.8% of retail sales in 2009. Franchise expenses for
2010 of $12.3 million were $0.3 million, or 2.3%,
higher than in 2009. Franchise expenses were 63.2% of
franchise-related revenue in 2010 compared to 61.5% in 2009.
General and administrative expenses for 2010 totaled
$134.4 million and were $15.2 million, or 12.8%,
higher than in 2009. The increase in general and administrative
expenses reflects increased equity-based expenses, an additional
$4.2 million to support our expanding temporary Halloween
operations and $1.9 million of additional expenses related
to the Christys Group in 2010. In 2010, equity-based
expenses included $9.4 million of stock compensation
expense arising from the payment of the December 2010 dividend
distribution to vested time-based option holders and a
$5.3 million non-cash charge related to certain redeemable
options and warrants held by employees that were marked to
market.
These increases in general and administrative expense were
partially offset by a lower provision for bad debts in 2010 as
compared to 2009 and the continued implementation of cost
reductions that began in 2009, including the consolidation of
FCPOs former corporate office operations in Naperville,
Illinois into those of Party City. As a percentage of total
revenues, general and administrative expenses were 8.4% for 2010
compared to 8.0% for 2009.
Art and development costs for 2010 totaled $14.9 million
and were $1.7 million higher than in 2009, principally
reflecting an increase in personnel and compensation and
employee benefits. As a percentage of total revenues, art and
development costs were 0.9% in 2010, comparable to 2009.
During 2010, we instituted a program to convert substantially
all of our FCPO stores to either Party City stores or to an
outlet format and recorded a $27.4 million non-cash charge
for the impairment of the Factory Card & Party Outlet
trade name.
Interest
expense, net
Interest expense of $40.9 million for 2010 was comparable
to 2009. Despite increases in our revolving and term loan
interest rates in August and December of 2010, respectively, and
a $326.6 million increase in our term debt following our
December 2010 dividend distribution, our average debt and
effective interest rate for 2010 were comparable to those of
2009.
Other
expense, net
Other expense, net, for 2010 totaled $4.2 million. Other
expense, net, includes costs of $2.4 million associated
with the refinancing of our revolving and term debt credit
facilities in 2010 and $1.6 million of acquisition-related
costs. These costs were partially offset by our share of income
from an unconsolidated balloon distribution joint venture
located in Mexico.
Income
tax expense
Income tax expense for 2010 and 2009 reflected consolidated
effective income tax rates of 40.0% and 37.5%, respectively. The
increase in the 2010 effective income tax rate is primarily
attributable to certain adjustments related to deferred tax
accounts recorded in the current year related to activities
associated with previous acquisitions and non-deductible,
non-cash stock option and warrant related charges, partially
offset by an increased domestic manufacturing deduction, a lower
average state income tax rate, the expiration of certain
states statutes of limitations that resulted in the
recognition of previous unrecognized tax benefits and the
favorable settlement of the audit of our 2007 federal tax
return. We expect our effective tax rate for 2011 to be
approximately 35.8%.
49
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Revenues
Total revenues for 2009 were $1,486.8 million, or 4.7%,
lower than in 2008. The following table sets forth our total
revenues for 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Thousands
|
|
|
Total Revenue
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
633,006
|
|
|
|
42.6
|
%
|
|
$
|
653,403
|
|
|
|
41.9
|
%
|
Eliminations
|
|
|
(221,647
|
)
|
|
|
(14.9
|
)
|
|
|
(214,898
|
)
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net wholesale
|
|
|
411,359
|
|
|
|
27.7
|
|
|
|
438,505
|
|
|
|
28.1
|
|
Retail
|
|
|
1,055,965
|
|
|
|
71.0
|
|
|
|
1,099,136
|
|
|
|
70.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
1,467,324
|
|
|
|
98.7
|
|
|
|
1,537,641
|
|
|
|
98.6
|
|
Royalties and franchise fees
|
|
|
19,494
|
|
|
|
1.3
|
|
|
|
22,020
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,486,818
|
|
|
|
100.0
|
%
|
|
$
|
1,559,661
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
Net sales for 2009 of $411.4 million were
$27.1 million, or 6.2%, lower than net sales for 2008,
principally as a result of the downturn in the United
States economy. Net sales to domestic party goods
retailers, including our franchise network, and to other
domestic party goods distributors totaled $245.9 million and
were $16.4 million, or 6.3%, lower than 2008 sales, as the
negative impact of the economy was partially offset by a large
seasonal direct import program for one of our retailers. Net
sales of metallic balloons were $84.5 million, or 8.9%,
lower than in 2008, as wholesale distributors and retailers
rationalized stock inventory levels in light of the economic
downturn. International sales totaled $81.0 million and
were $2.5 million, or 3.0%, lower than in 2008.
Fluctuations in foreign currency account for an
$11.0 million decrease in international sales, more than
offsetting volume-related growth in local currency sales,
principally at European national accounts.
Intercompany sales to our retail affiliates of
$221.6 million were $6.7 million, or 3.1%, higher than
in 2008 and represented 35.0% of the total wholesale sales in
2009 compared to 32.9% in 2008. The increase in intercompany
sales principally reflects the growth of our manufactured and
sourced products as a percentage of the total products sold in
company-owned retail stores, particularly the FCPO stores
acquired in November 2007. During 2009, our wholesale sales to
our retail segment represented 53.7% of the retail
segments total purchases compared to 50.4% in 2008. The
intercompany sales of our wholesale segment are eliminated
against the intercompany purchases of our retail segment in the
consolidated financial statements.
Retail
Retail sales for 2009 at our company-owned stores of
$1,056.0 million were $43.2 million, or 3.9%, lower
than retail sales for 2008, reflecting the downturn in the
United States economy, the operation of fewer FCPO and
outlet stores during 2009 and the inclusion of a 53rd week
in our 2008 fiscal year. Retail sales of our company-owned Party
City stores totaled $754.9 million and were
$35.3 million, or 4.5%, lower than in 2008. Party City
same-store sales during 2009 decreased 3.3% compared to 2008 as
the result of a decrease in transaction count, as the average
dollar per transaction remained consistent between 2009 and
2008. Retail sales at our temporary Halloween locations totaled
$68.0 million and were $28.6 million, or 72.3%, higher
than in 2008 due to a 7.5% increase in average sales per
location and a 65.7% increase in location count compared to
2008. During 2009, we generated $13.4 million in
e-commerce
sales compared to $5.9 million in 2008. The increase in
e-commerce
sales was driven by the re-launch of the PartyCity.com website
in August
50
2009. Sales at all other store formats, including unconverted
FCPO and outlet stores, totaled $219.6 million and were $43.9
million or 16.7% lower than in 2008.
Royalties
and franchise fees
Franchise-related revenue for the year ended December 31,
2009, consisting of royalties and franchise fees, totaled
$19.5 million, or 11.5%, lower than in 2008, as our
franchise store count decreased by 23 stores or 8.4% and the
stores experienced a same-store net sales decrease of 2.3%
compared to 2008.
Gross
profit
The following table sets forth our consolidated gross profit and
gross margin on net sales for 2009 and 2008;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
Dollars in
|
|
|
Percentage of
|
|
|
|
Thousands
|
|
|
Associated Net Sales
|
|
|
Thousands
|
|
|
Associated Net Sales
|
|
|
Net Wholesale
|
|
$
|
148,424
|
|
|
|
36.1
|
%
|
|
$
|
142,438
|
|
|
|
32.5
|
%
|
Retail
|
|
|
419,859
|
|
|
|
39.8
|
%
|
|
|
428,777
|
|
|
|
39.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
$
|
568,283
|
|
|
|
38.7
|
%
|
|
$
|
571,215
|
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross margin on net sales at wholesale for 2009 was 36.1%,
or 360 basis points higher than in 2008. The increase in
wholesale gross profit margin principally reflects cost reducing
initiatives including reductions in distribution costs, and
changes in product mix.
Retail gross profit margin for 2009 was 39.8%, or 80 basis
points higher than in 2008, primarily the result of favorable
variances in inventory shrink and damage reserves as compared to
2008.
Operating
expenses
Wholesale selling expenses totaled $39.8 million and were
$2.1 million, or 5.0%, lower than in 2008, reflecting a
decrease in variable wholesale selling expenses, consistent with
the decrease in wholesale sales, a reduction in the size of our
sales force and a $1.2 million reduction in expenses as a
result of changes in foreign currency exchange rates partially
offset by inflationary increases principally in compensation and
employee benefits. Wholesale selling expenses were 2.7% of total
revenue in both 2009 and 2008.
Retail operating expenses of $261.7 million for 2009 were
$11.9 million, or 4.4%, lower than 2008, principally
reflecting a reduction in store count. Retail operating expenses
were 24.8% of retail sales in 2009 and comparable to 2008.
Franchise expenses for 2009 of $12.0 million were
$1.7 million, or 12.4%, lower than in 2008, also reflecting
a reduction in store count. Franchise expenses were 61.5% of
franchise-related revenue in 2009 compared to 62.2% in 2008.
General and administrative expenses for 2009 totaled
$119.2 million and were $1.1 million, or 0.9%, lower
than in 2008. The decrease in general and administrative
expenses reflects a management-directed cost reduction program,
which included reductions in work force, travel and other
expenses, the reduction of a prior year purchase accounting
reserve of $2.4 million and a $1.3 million reduction
in expenses as a result of changes in foreign currency exchange
rates. These decreases were partially offset by inflationary
increases, particularly in base compensation and employee
benefits, an additional $2.4 million to support our
expanding temporary Halloween operations, a one-time consulting
fee of $2.0 million and a $2.9 million increase in the
provision for bad debts principally due to the bankruptcy of a
national account in Europe. As a percentage of total revenues,
general and administrative expenses were 8.0% for 2009 compared
to 7.7% for 2008.
Art and development costs of $13.2 million for 2009 were
comparable to 2008 expenses. As a percentage of total revenues,
art and development costs were 0.9% and 0.8% of total revenues
for 2009 and 2008, respectively.
51
Interest
expense, net
Interest expense of $41.5 million for 2009 was
$9.4 million lower than for 2008, reflecting the impact of
lower average debt balances and LIBOR rates.
Other
income, net
Other income, net, in 2009 primarily includes our share of
income from an unconsolidated balloon distribution joint venture
located in Mexico partially offset by foreign currency
transaction losses and other expenses.
Income
tax expense
Income tax expense for 2009 and 2008 reflected consolidated
effective income tax rates of 37.5% and 37.9%, respectively. The
decrease in the 2009 effective income tax rate is primarily
attributable to a lower average state income tax rate caused by
earnings mix shift among subsidiaries and the expiration of
state statutes of limitations for certain states that resulted
in the recognition of previous unrecognized tax benefits and the
favorable settlement of the audits of our 2006 and 2005 federal
tax returns. These tax rate reductions were partially offset by
a lower domestic manufacturing deduction, as a percentage of
pre-tax income.
Liquidity
and Capital Resources
Capital
Structure
On August 13, 2010, Amscan Holdings entered into the New
ABL Facility for an aggregate principal amount, as amended, of
up to $350 million for working capital, general corporate
purposes and the issuance of letters of credit. The New ABL
Facility was principally used to refinance the then existing
asset-based revolving loans.
On December 2, 2010, Amscan Holdings entered into the
$675 million New Term Loan Credit Agreement. Amscan
Holdings used the proceeds from this facility to refinance the
then existing $342 million term loan facility and to pay to
us a one-time cash dividend. We used the aggregate proceeds from
this dividend to pay a one-time cash dividend to common
stockholders and a cash payment in lieu of a dividend to certain
option and warrant holders aggregating approximately
$311.2 million and to pay related fees and expenses. The
term loan under the New Term Loan Credit Agreement was issued at
a 1%, or $6.8 million, discount that is being amortized by
the effective interest method over the life of the loan.
New
ABL Facility
The New ABL Facility provides for (a) revolving loans in an
aggregate principal amount at any time outstanding not to exceed
$350 million, subject to a borrowing base described below,
(b) swing-line loans in an aggregate principal amount at
any time outstanding not to exceed 10% of the aggregate
commitments under the facility and (c) letters of credit,
in an aggregate face amount at any time outstanding not to
exceed $50 million, to support payment obligations incurred
in the ordinary course of business by Amscan Holdings and its
subsidiaries.
Under the New ABL Facility, the borrowing base at any time
equals (a) 85% of eligible trade receivables plus
(b) 85% of eligible inventory at its net orderly
liquidation value and (c) 90% of eligible credit card
receivables, less (d) certain reserves.
Amounts borrowed under the New ABL Facility bear interest at a
rate per annum equal to an applicable margin plus, at our
option, either (a) an alternate base rate determined by
reference to the highest of (1) the prime rate of Wells
Fargo Bank, N.A., (2) the federal funds rate in effect on
such date plus
1/2
of 1.00% and (3) the LIBOR rate for a three-month interest
period plus 1.0% or (b) the LIBOR rate determined by
reference to the LIBOR cost of funds for U.S. dollar
deposits for the relevant interest period adjusted for certain
additional costs. The applicable margin percentage ranges from
1.25% to 1.75% for alternate base rate loans and from 2.25% to
2.75% for loans based on the LIBOR rate, in each case based on
average historical excess
52
availability (as defined in the New ABL Facility agreement).
The applicable margin at September 30, 2011 was 1.5% for
alternate base rate loans and 2.5% for loans based on the LIBOR
rate.
In addition to paying interest on outstanding principal under
the New ABL Facility, Amscan Holdings is required to pay a
commitment fee of between 0.375% and 0.50% per annum in respect
of the unutilized commitments thereunder. Amscan Holdings must
also pay customary letter of credit fees and agency fees.
The New ABL Facility also provides that Amscan Holdings has the
right from time to time to request additional commitments, of
which $100 million remains available. The lenders under the
New ABL Facility are not under any obligation to provide any
such additional commitments, and any increase in commitments is
subject to several conditions precedent and limitations. If
Amscan Holdings were to request any additional commitments, and
the existing lenders or new lenders were to agree to provide
such commitments, the facility size could be increased to up to
$450 million, but Amscan Holdings ability to
borrow under this facility would still be limited by the amount
of the borrowing base under this facility and limitations on
incurring additional indebtedness under the New Term Loan Credit
Agreement and the indenture governing the senior subordinated
notes.
In connection with the New ABL Facility, we incurred
$3.9 million in finance costs that have been capitalized
and will be amortized over the life of the loan.
On December 2, 2010, Amscan Holdings entered into an
amendment to the New ABL Facility to, among other things, permit
transactions related to paying the 2010 Dividend and amend the
maturity date under the New ABL Facility to provide for a
maturity date of August 13, 2015 or, if still outstanding,
the date that is 120 days prior to the scheduled maturity of the
senior subordinated notes or any indebtedness that refinances
the senior subordinated notes.
In September 2011, Amscan Holdings entered into amendments to
the New ABL Facility to, among other things, increase the
commitment by $25 million, amend the defined term
Change of Control to provide for a different
definition following the consummation of an initial public
offering that meets certain conditions and amend the restriction
on the payment of dividends or other amounts by Amscan Holdings
to allow for, among other things, payments of dividends used to
satisfy costs we incur as a public company.
All obligations under the New ABL Facility are jointly and
severally guaranteed by us and each existing and future domestic
subsidiary of Amscan Holdings. Amscan Holdings and each
guarantor has secured its obligations, subject to certain
exceptions and limitations, including obligations under its
guaranty, as applicable, by a first-priority lien on its
accounts receivable, inventory, cash and proceeds and assets
related thereto and a second-priority lien on substantially all
of its other assets, including a pledge of all of the capital
stock held by Amscan Holdings and each guarantor (which, in the
case of capital stock of any foreign subsidiary, is limited to
65% of the voting stock of such foreign subsidiary and 100% of
the non-voting stock of such foreign subsidiary).
The New ABL Facility contains negative covenants that, among
other things and subject to certain exceptions, restrict our
ability, and the ability of Amscan Holdings and any of its
restricted subsidiaries to:
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|
|
|
|
incur additional indebtedness;
|
|
|
|
pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of Amscan Holdings, us or any
restricted subsidiary or make payments on, or redeem, repurchase
or retire any indebtedness;
|
|
|
|
make certain investments, loans, advances and acquisitions;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
engage in transactions with affiliates;
|
|
|
|
create liens;
|
|
|
|
transfer or sell assets;
|
|
|
|
guarantee debt;
|
53
|
|
|
|
|
create restrictions on liens or the payment of dividends or
other amounts to us from our restricted subsidiaries;
|
|
|
|
consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries; and
|
|
|
|
engage in unrelated businesses.
|
In addition, Amscan Holdings must comply with a fixed charge
coverage ratio if our excess availability under the New ABL
Facility on any day is less than (a) 15% of the lesser of
the aggregate commitments and the then borrowing base under the
New ABL Facility or (b) $25 million. The fixed charge
coverage ratio is the ratio of (i) Adjusted EBITDA minus
the unfinanced portion of consolidated capital expenditures (as
defined in the New ABL Facility) to (ii) fixed charges (as
defined in the New ABL Facility). Amscan Holdings has not been
subjected to the fixed charge coverage ratio as its excess
availability has not fallen below the amounts specified above.
The New ABL Facility also contains certain customary affirmative
covenants and events of default, including a change in control
provision and a cross-default provision in the case of a default
according to the terms of any indebtedness with an aggregate
principal amount of $20 million or more.
Borrowings under the New ABL Facility at September 30, 2011
totaled $250.6 million at interest rates ranging from 2.72%
to 4.75%. Outstanding standby letters of credit totaled
$15.3 million and Amscan Holdings had $84.1 million of
excess availability under the terms of the New ABL Facility at
September 30, 2011.
For additional information on the New ABL Facility, please refer
to Description of Certain Debt.
New
Term Loan Credit Agreement
Amounts borrowed under the New Term Loan Credit Agreement bear
interest at a rate per annum equal to an applicable margin plus,
at Amscan Holdings option, either (a) an alternate
base rate determined by reference to the highest of (1) the
prime rate of Credit Suisse AG, (2) the federal funds rate
in effect on such date plus 1/2 of 1.00% and (3) the LIBOR
rate for a one-month interest period plus 1.0% or (b) a
LIBOR rate determined by reference to the cost of funds for
U.S. dollar deposits for the relevant interest period,
adjusted for certain additional costs. The applicable margin
percentage is 4.25% for alternate base rate loans and 5.25% for
loans based on the LIBOR rate.
In addition to paying interest on outstanding principal under
the New Term Loan Credit Agreement, Amscan Holdings must also
pay customary agency fees.
The New Term Loan Credit Agreement also provides that Amscan
Holdings has the right from time to time to request an amount of
additional term loans up to $175 million and to refinance,
replace or extend the maturity date of all or a portion of the
then existing term loans thereunder. The lenders under the New
Term Loan Credit Agreement are not under any obligation to
provide any such additional term loans, provide such refinancing
or replacement term loans or agree to extend the maturity date
of existing term loans held by them, and transactions to effect
any additional, refinancing, replacement or extended term loans
are subject to several conditions precedent and limitations.
The New Term Loan Credit Agreement provides that the term loans
are subject to a 1.0% prepayment premium if voluntarily repaid
under certain circumstances before December 2, 2011.
Otherwise, Amscan Holdings may voluntarily prepay the term loans
at any time without premium or penalty, other than customary
breakage costs with respect to loans based on the LIBOR rate.
The term loans are subject to mandatory prepayment, subject to
certain exceptions, with (i) 100% of net proceeds arising
from all non-ordinary course asset sales or other dispositions
of property (including casualty events) by Amscan Holdings or by
its subsidiaries, subject to reinvestment rights and certain
other exceptions, (ii) 100% of the net cash proceeds of any
incurrence of debt other than debt permitted under the New Term
Loan Credit Agreement, (iii) commencing with the fiscal
year ended December 31, 2011, 50% (which percentage will be
reduced to 25% if Amscan Holdings total leverage ratio is
less than 3.50 to 1.00, but greater than 2.50 to 1.00, and 0% if
Amscan Holdings total leverage ratio is less than 2.50 to
1.00) of Amscan Holdings annual excess cash flow (as
defined in the New Term Loan Credit Agreement). The total
leverage ratio is the ratio of our consolidated total debt (as
defined in the New Term Loan Credit Agreement) to Adjusted
EBITDA.
54
The term loans under the New Term Loan Credit Agreement mature
on December 2, 2017 (or January 30, 2014, if Amscan
Holdings senior subordinated notes are not refinanced with
indebtedness permitted to be incurred under the New Term Loan
Credit Agreement that matures at least 91 days after the
maturity date of the term loans). Amscan Holdings is required to
repay installments on the term loans in quarterly principal
amounts of 0.25%, with the remaining amount payable on the
maturity date.
All obligations under the New Term Loan Credit Agreement are
jointly and severally guaranteed by us and each existing and
future domestic subsidiary of Amscan Holdings. Amscan Holdings
and each guarantor has secured its obligations, subject to
certain exceptions and limitations, including obligations under
its guaranty, as applicable, by a first-priority lien on
substantially all of its assets (other than accounts receivable,
inventory, cash and proceeds and assets related thereto),
including a pledge of all of the capital stock held by Amscan
Holdings and each guarantor (which, in the case of capital stock
of any foreign subsidiary, is limited to 65% of the voting stock
of such foreign subsidiary and 100% of the non-voting stock of
such foreign subsidiary), and a second-priority lien on its
accounts receivable, inventory, cash and proceeds and assets
related thereto.
The New Term Loan Credit Agreement also contains certain
customary affirmative covenants and events of default, including
a change in control provision and a cross-default provision in
the case of a default according to the terms of any indebtedness
with an aggregate principal amount of $20 million or more.
The New Term Loan Credit Agreement contains negative covenants
that, among other things and subject to certain exceptions,
restrict our ability, and the ability of Amscan Holdings and any
of its restricted subsidiaries, to:
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|
|
|
|
incur additional indebtedness;
|
|
|
|
pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of Amscan Holdings, us, or
any restricted subsidiary or make payments on, or redeem,
repurchase or retire any subordinated indebtedness;
|
|
|
|
make certain investments, loans, advances and acquisitions;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
engage in transactions with affiliates;
|
|
|
|
create liens;
|
|
|
|
transfer or sell assets;
|
|
|
|
guarantee debt;
|
|
|
|
create restrictions on liens or the payment of dividends or
other amounts to us from our restricted subsidiaries;
|
|
|
|
consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries; and
|
|
|
|
engage in unrelated businesses.
|
In connection with the New Term Loan Credit Agreement, we
incurred $13.0 million in finance costs that have been
capitalized and will be amortized over the life of the loan.
At September 30, 2011, the outstanding principal amount of
term loans under the New Term Loan Credit Agreement was
$662.3 million, which reflects an original issue discount
of $6.8 million, net of $0.8 million of accumulated
amortization, and the interest rate on borrowings ranged from
6.75% to 7.50%.
Other
Credit Agreements
In connection with the acquisitions of the Christys Group,
Riethmüller and Party Packagers, during the nine months
ended September 30, 2011, the Company, through its
subsidiaries, entered into several foreign asset-based and
overdraft credit facilities that provide the Company with
borrowing capacity of GBP 19.0 million, CDN
4.0 million, EUR 1.8 million and MYR 5.0 million.
At September 30, 2011, borrowings under the foreign
facilities totaled $12.8 million. Borrowings under the
foreign facilities generally bear interest at prime plus margins
ranging from 1.0% to 1.75%. In connection with one of the
facilities, at September 30, 2011, the Company maintained a
compensating cash balance of $4.3 million to secure
outstanding standby letters of credit.
55
Long-term borrowings at September 30, 2011 include a
mortgage note with the New York State Job Development Authority
of $3.6 million. The mortgage note was amended on
December 18, 2009, extending the fixed monthly payments of
principal and interest for a period of 60 months up to and
including December 31, 2014. The note bears interest at the
rate of 2.22% and is subject to review and adjustment
semi-annually based on the New York State Job Development
Authoritys confidential internal protocols. The mortgage
note is collateralized by our Chester, New York distribution
facility.
8.75% Senior
Subordinated Notes due 2014
In connection with its acquisition by Berkshire Partners and
Weston Presidio on April 30, 2004, Amscan Holdings issued
and sold $175.0 million in principal amount of
8.75% senior subordinated notes due 2014. Interest on the
notes is payable semi-annually in arrears on May 1 and November
1 of each year. The senior subordinated notes are guaranteed,
jointly and severally, on an unsecured subordinated basis by
each of Amscan Holdings existing and future domestic
subsidiaries.
The indenture governing the senior subordinated notes contains
certain covenants limiting, among other things and subject to
certain exceptions, Amscan Holdings ability and the
ability of Amscan Holdings restricted subsidiaries, to:
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|
|
incur additional indebtedness or issue preferred stock;
|
|
|
|
pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of Amscan Holdings or any
restricted subsidiary or make payments on, or redeem, repurchase
or retire any indebtedness subordinated to the senior
subordinated notes;
|
|
|
|
make certain investments, loans, advances and acquisitions;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
engage in transactions with affiliates;
|
|
|
|
create liens;
|
|
|
|
guarantee debt;
|
|
|
|
create restrictions on the payment of dividends or other amounts
to us from our restricted subsidiaries;
|
|
|
|
consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries; and
|
|
|
|
engage in unrelated businesses.
|
The indenture governing the senior subordinated notes also
contains certain customary affirmative covenants and events of
default, including a cross-payment default provision and
cross-acceleration provision in the case of a payment default or
acceleration according to the terms of any indebtedness with an
aggregate principal amount of $15 million or more.
Amscan Holdings may redeem the senior subordinated notes, in
whole or in part, at the redemption prices (expressed as
percentages of principal amount of senior subordinated notes to
be redeemed) set forth below, plus accrued and unpaid interest
thereon, if redeemed during the twelve-month period beginning on
May 1 of each of the years indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
2011
|
|
|
101.458
|
%
|
2012 and thereafter
|
|
|
100.000
|
%
|
If Amscan Holdings experiences certain kinds of change in
control, it must offer to purchase the senior subordinated notes
at 101% of their principal amount, plus accrued and unpaid
interest.
If Amscan Holdings or its restricted subsidiaries engage in
certain asset sales, it generally must either invest the net
cash proceeds from such sales in its business within a period of
time, prepay senior debt or make an offer to purchase a
principal amount of the outstanding senior subordinated notes
equal to the excess
56
net cash proceeds, subject to certain exceptions. The purchase
price of the outstanding senior subordinated notes will be 100%
of their principal amount, plus accrued and unpaid interest.
We intend to use net proceeds from this offering to redeem or
repurchase all of the outstanding senior subordinated notes.
Other
As of September 30, 2011, Amscan Holdings has entered into
various capital leases for machinery and equipment and
automobiles with implicit interest rates ranging from 3.24% to
17.40% which extend to 2016. Amscan Holdings has numerous
non-cancelable operating leases for its retail store sites as
well as several leases for offices, distribution and
manufacturing facilities, showrooms and equipment. These leases
expire on various dates through 2024 and generally contain
renewal options and require Amscan Holdings to pay real estate
taxes, utilities and related insurance costs.
Restructuring
costs
Restructuring costs associated with the FCPO Acquisition of
$9.1 million were accrued as part of net assets acquired.
Through December 31, 2009, we spent $6.7 million,
including $3.8 million in 2009. Through December 31,
2010, we spent $7.6 million, including $0.9 million
spent in the year ended December 31, 2010. We expect to
spend $0.6 million in 2011.
During October 2009, we communicated our plan to close the FCPO
corporate office in Naperville, Illinois and to consolidate our
retail corporate office operations into those of Party City in
Rockaway, New Jersey. In connection with the closing, we
recorded severance costs of $1.8 million during 2009, all
of which were paid by December 2010. We continue to utilize the
Naperville facility as a distribution center for greeting cards
and other products.
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 these sources will be adequate to meet our liquidity
needs for at least the next twelve months. We cannot assure you,
however, that our business will generate sufficient cash flow
from operations or that future borrowings will be available to
us under the New ABL Facility and the New Term Loan Agreement in
an amount sufficient to enable us to repay our indebtedness,
including the notes, or to fund our other liquidity needs.
Cash
Flow Data Nine Months Ended September 30, 2011
Compared To Nine Months Ended September 30, 2010
Net cash provided by (used in) operating activities totaled
$26.6 million during the nine months ended
September 30, 2011, as compared to $(1.5) million
during the comparable nine months ended September 30, 2010.
Net cash flow provided by operating activities before changes in
operating assets and liabilities was $59.2 million during
the nine months ended September 30, 2011 and
$62.9 million during the comparable nine months ended
September 30, 2010. Changes in operating assets and
liabilities during the first nine months of 2011 and 2010
resulted in uses of cash of $32.6 million and
$64.4 million, respectively, principally due to increases
in inventories for both our permanent and temporary stores in
preparation for the Halloween selling season.
Net cash used in investing activities totaled
$131.8 million during the nine months ended
September 30, 2011, as compared to $71.6 million
during the comparable nine month period of 2010. Investing
activities during the nine months ended September 30, 2011
included $47.1 million paid in connection with the
acquisition of Riethmüller, $31.8 million paid in
connection with the acquisition of Party Packagers,
$4.0 million paid in connection with the acquisition of the
Christys Group, and $12.7 million paid in connection
with the purchase of retail franchise stores. Capital
expenditures totaled $36.3 million during the nine months
ended September 30, 2011 compared to $36.1 million in
the nine months ended September 30,
57
2010. Retail capital expenditures totaled $26.6 million in
2011 and were principally for new stores and store renovations,
while wholesale capital expenditures, principally for printing
plates and dyes and distribution equipment, totaled
$9.7 million.
Net cash provided by financing activities was
$105.9 million during the nine months ended
September 30, 2011, compared to $79.7 million in the
nine months ended September 30, 2010 and principally
reflects borrowings under our revolving credit facility, net of
scheduled term debt repayment.
Required repayments under our term debt for the remainder of
2011 will be $1.7 million. At September 30, 2011, we
had $84.1 million of excess availability under the New ABL
Facility.
Cash
Flow Data Year Ended December 31, 2010 Compared
to Year Ended December 31, 2009
Net cash provided by operating activities totaled
$61.2 million during 2010, as compared to
$123.9 million during 2009. Net cash flow provided by
operating activities before changes in operating assets and
liabilities was $133.4 million during 2010 and
$124.2 million during 2009. Changes in operating assets and
liabilities during 2010 resulted in the use of cash of
$72.2 million and principally reflect an increase in
inventories to support the replenishment of inventories across
the channels we serve from the intentionally low levels reached
in 2009, growth in Halloween City locations and additional
inventory build related to the Designware acquisition. Changes
in operating assets and liabilities resulted in the use of cash
of $0.2 million during 2009.
Net cash used in investing activities totaled
$102.8 million during 2010 and $54.4 million during
2009. Investing activities for 2010 included $30.4 million
paid in connection with the purchase of the Christys Group
and $21.5 million paid in connection with the purchase of
retail franchise stores. Capital expenditures totaled
$49.6 million in 2010 compared to $26.2 million in
2009. Retail capital expenditures totaled $37.2 million in
2010 and were principally for FCPO conversions, store
renovations and updated information systems, while wholesale
capital expenditures totaled $12.4 million.
Net cash provided from financing activities was
$46.5 million in 2010, compared to $70.2 million used
in financing activities in 2009. During 2010, net cash provided
by financing activities included $160.6 million from the
refinancing of our asset based revolving credit facility and
$675.0 million from the refinancing of our term loan credit
facility. Cash provided by the refinancing of the revolving
credit facility was principally used to pay off the
$137.6 million balance on the prior revolving credit
facility and the $19.2 million balance of the prior PCFG
term loan. The remaining cash from financing under the revolving
credit facility was principally used to pay down trade payables.
Cash provided by the refinancing of the term loan credit
facility was used to pay off the $341.6 million balance on
the prior term loan credit facility and to pay a
$301.8 million dividend to stockholders (excluding the
$9.4 million stock compensation expense). Additionally,
cash used in financing activities included scheduled payments on
our long-term obligations that totaled $2.6 million
compared to $11.0 million 2009.
Cash
Flow Data Year Ended December 31, 2009 Compared
to Year Ended December 31, 2008
Net cash provided by operating activities totaled
$123.9 million in 2009, as compared to $79.9 million
in 2008. Net cash provided by operating activities before
changes in operating assets and liabilities was
$124.2 million for 2009 and $102.6 million for 2008.
Changes in operating assets and liabilities resulted in the use
of cash of $0.2 million in 2009 and $22.7 million in
2008. The increase in cash provided by operating activities
during 2009 principally reflects an increase in income from
operations and decreases in interest expense and inventory
levels, partially offset by an increase in other assets.
Net cash used in investing activities totaled $54.4 million
in 2009 and $51.2 million in 2008. Investing activities for
2009 included $24.9 million paid in escrow in connection
with the acquisition of Designware. Retail capital expenditures,
principally for store renovations and updated information
systems, totaled $16.3 million in 2009, while wholesale
capital expenditures totaled $9.9 million.
Net cash used in financing activities was $70.2 million in
2009 and $23.0 million in 2008. During 2009, the majority
of cash used in financing activities was used to reduce
borrowings under our revolving credit facility. Additionally,
cash used in financing activities included scheduled payments on
our long-term obligations that totaled $11.0 million in
2009 compared to $8.9 million during 2008. Scheduled
payments
58
during 2009 included an additional $2.5 million for
payments on the PCFG term loan in connection with the amended
credit agreement.
Tabular
Disclosure of Contractual Obligations
Our contractual obligations at December 31, 2010 are
summarized by the year in which the payments are due in the
following table (in thousands):
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Long-term debt obligations(a)
|
|
$
|
846,183
|
|
|
$
|
6,810
|
|
|
$
|
6,835
|
|
|
$
|
6,860
|
|
|
$
|
181,982
|
|
|
$
|
5,737
|
|
|
$
|
637,959
|
|
Capital lease obligations(a)
|
|
|
3,975
|
|
|
|
2,236
|
|
|
|
1,446
|
|
|
|
147
|
|
|
|
131
|
|
|
|
15
|
|
|
|
|
|
Operating lease obligations(b)
|
|
|
425,164
|
|
|
|
112,172
|
|
|
|
95,026
|
|
|
|
67,314
|
|
|
|
45,510
|
|
|
|
33,369
|
|
|
|
71,773
|
|
Merchandise purchase commitments(c)
|
|
|
45,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
|
|
Minimum product royalty obligations
|
|
|
19,765
|
|
|
|
8,271
|
|
|
|
7,320
|
|
|
|
1,724
|
|
|
|
800
|
|
|
|
550
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,340,087
|
|
|
$
|
138,489
|
|
|
$
|
119,627
|
|
|
$
|
85,045
|
|
|
$
|
237,423
|
|
|
$
|
48,671
|
|
|
$
|
710,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Note 8 to our audited consolidated financial statements
which are included elsewhere in this prospectus. |
|
(b) |
|
We are also an assignor with continuing lease liability for
sixteen stores sold to franchisees that expire through 2016. The
assigned lease obligations continue until the applicable leases
expire. The maximum amount of the assigned lease obligations may
vary, but is limited to the sum of the total amount due under
the lease. At December 31, 2010, the maximum amount of the
assigned lease obligations was approximately $7.4 million
and is not included in the table above. |
|
|
|
The operating lease obligations included above do not include
contingent rent based upon sales volume (which represented less
than 1% of minimum lease obligations in 2010), or other variable
costs such as maintenance, insurance and taxes. See Note 17
to our audited consolidated financial statements which are
included elsewhere in this prospectus. |
|
(c) |
|
We have a product purchase agreement with a vendor requiring
minimum purchase commitments through 2015. |
At December 31, 2010 there were no non-cancelable purchase
orders related to capital expenditures.
At December 31, 2010, there were $150.1 million of
borrowings under the New ABL Facility and standby letters of
credit totaling $12.9 million.
Not included in the above table are $0.7 million of net
potential cash obligations associated with unrecognized tax
benefits due to the high degree of uncertainty regarding the
timing of future cash outflows associated with such obligations.
See Note 16 to our audited consolidated financial
statements for further information related to unrecognized tax
benefits.
Additionally, not included in the above table are expected term
debt interest payments, which includes payments on the New Term
Loan Credit Agreement, the senior subordinated notes, capital
lease obligations and mortgage obligations, of approximately
$63.0 million in 2011, $60.0 million in 2012,
$58.8 million in 2013, $43.5 million in 2014,
$28.9 million in 2015 and $35.2 million thereafter.
Interest payments are estimates based on our term debts
scheduled maturities and stated interest rates including, where
applicable, LIBOR rates as of March 31, 2011. Our estimates
do not reflect interest payments on the New ABL Facility or the
possibility of additional interest from the refinancing of our
term debt at maturity as such amounts are not determinable.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
59
Effects
of Inflation
Although we expect that our operating results will be influenced
by general economic conditions, we do not believe that inflation
has had a material effect on our results of operations during
the periods presented. However, there can be no assurance that
our business will not be affected by inflation in the future.
Critical
Accounting Policies and 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
re-evaluated and adjustments are made when facts and
circumstances dictate a change. Historically, we have found the
application of accounting policies to be reasonable, and actual
results generally do not differ materially from those determined
using necessary estimates.
Revenue
Recognition
Our terms of sale to retailers and other distributors for
substantially all of our sales is FOB shipping point and,
accordingly, title and the risks and rewards of ownership are
transferred to the customer, and revenue is recognized, when
goods are shipped. We estimate reductions to revenues for
volume-based rebate programs at the time sales are recognized.
Should customers earn rebates higher than estimated by us,
additional reductions to revenues may be required.
Revenue from retail operations is recognized at the point of
sale. We estimate future retail sales returns and, when
material, record a provision in the period that the related
sales are recorded based on historical information. Should
actual returns differ from our estimates, we would be required
to revise estimated sales returns. Retail sales are reported net
of taxes collected.
Store
Closure Costs
We record estimated store closure costs, estimated lease
commitment costs net of estimated sublease income and other
miscellaneous store closing costs when the liability is
incurred. Such estimates, including sublease income, may be
subject to change.
Product
Royalty Agreements
We enter into product royalty agreements that allow us to use
licensed designs on certain of our products. These contracts
require us to pay royalties, generally based on the sales of
such product, and may require guaranteed minimum royalties, a
portion of which may be paid in advance. We match royalty
expense with revenue by recording royalties at the time of sale,
at the greater of the contractual rate or an effective rate
calculated based on the guaranteed minimum royalty and our
estimates of sales during the contract period. If a portion of
the guaranteed minimum royalty is determined to be
unrecoverable, the unrecoverable portion is charged to expense
at that time.
Doubtful
Accounts
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers and
franchisees to make required payments. A considerable amount of
judgment is required in assessing the ultimate realization of
these receivables, including consideration of our history of
receivable write-offs, the level of past due accounts and the
economic status of our customers. In an effort to identify
adverse trends relative to customer economic status, we assess
the financial health of the markets we operate
60
in and perform periodic credit evaluations of our customers and
ongoing reviews of account balances and aging of receivables.
Amounts are considered past due when payment has not been
received within the time frame of the credit terms extended.
Write-offs are charged directly against the allowance for
doubtful accounts and occur only after all collection efforts
have been exhausted. Because we cannot predict future changes in
economic conditions and in the financial stability of our
customers, actual future losses from uncollectible accounts may
differ from our estimates and could impact our allowance for
doubtful accounts.
Inventories
Our policy requires that we state our inventories at the lower
of cost or market value. In assessing the ultimate realization
of inventories, we are required to make judgments regarding,
among other things, future demand and market conditions, current
inventory levels and the impact of the possible discontinuation
of product designs. If actual conditions are less favorable than
those projected by us, additional inventory write-downs to
market value may be required and future period merchandise
margin rates may be unfavorably or favorably affected.
We estimate retail inventory shortage, for the period from the
last inventory date to the end of the reporting period, on a
store-by-store
basis. Our inventory shortage estimate can be affected by
changes in merchandise mix and changes in actual shortage
trends. The shrinkage rate from the most recent physical
inventory, in combination with historical experience, is the
basis for estimating shrinkage.
Long-Lived
and Intangible Assets
We review the recoverability of our long-lived assets, including
definite-lived intangible assets other than goodwill, whenever
facts and circumstances indicate that the carrying amount may
not be fully recoverable. For purposes of recognizing and
measuring impairment, we evaluate long-lived assets other than
goodwill based upon the lowest level of independent cash flows
ascertainable to evaluate impairment. If the sum of the
undiscounted future cash flows expected over the remaining asset
life is less than the carrying value of the assets, we may
recognize an impairment loss. The impairment related to
long-lived assets is measured as the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. When fair values are not readily available, we estimate
fair values using expected discounted future cash flows. Such
estimates of fair value require significant judgment, and actual
fair value could differ due to changes in the expectations of
cash flows or other assumptions including discount rates.
During 2010 and 2008, we instituted programs to convert our FCPO
stores and our company-owned and franchised Party America stores
to Party City stores and recorded fourth quarter non-cash
charges of $27.4 million and $17.4 million,
respectively, for the impairment of the FCPO and Party America
trade names.
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 on a
store-by-store
basis. Various factors including future sales growth and profit
margins are included in this analysis. To the extent these
future projections or strategies change, the conclusion
regarding impairment may differ from the current estimates.
Goodwill is reviewed for potential impairment, on an annual
basis or more frequently if circumstances indicate a possible
impairment, by comparing the fair value of a reporting unit with
its carrying amount, including goodwill. Reporting units are
determined by evaluating for individual components within our
organization which constitute a business for which descrete
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.
We estimate the fair value of each reporting unit using expected
discounted cash flows. If the carrying amount of a reporting
unit exceeds its fair value, the excess, if any, of the fair
value of the reporting unit over amounts allocable to the
units other assets and liabilities is the implied fair
value of goodwill. If the carrying amount of a reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss will be recognized in an amount
equal to that excess. The fair value of a reporting unit refers
to the amount at
61
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.
Insurance
Accruals
Our consolidated balance sheet includes significant liabilities
with respect to self-insured workers compensation, medical
and general liability claims. We estimate the required liability
for such claims based upon various assumptions, which include,
but are not limited to, our historical loss experience,
projected loss development factors, actual payroll and other
data. The required liability is also subject to adjustment in
the future based upon changes in claims experience, including
changes in the number of incidents (frequency) and changes in
the ultimate cost per incident (severity). Adjustments to
earnings resulting from changes in historical loss trends have
been insignificant. Further, we do not anticipate any
significant change in loss trends, settlements or other costs
that would cause a significant change in our earnings.
Income
Taxes
Temporary differences arising from differing treatment of income
and expense items for tax and financial reporting purposes
result in deferred tax assets and liabilities that are recorded
on the balance sheet. These balances, as well as income tax
expense, are determined through managements estimations,
interpretation of tax law for multiple jurisdictions and tax
planning. However, inherent in the measurement of deferred
balances are certain judgments and interpretations of enacted
tax laws and published guidance with respect to applicability to
our operations. If our actual results differ from estimated
results due to changes in tax laws or tax planning, our
effective tax rate and tax balances could be affected. As such,
these estimates may require adjustment in the future as
additional facts become known or as circumstances change.
During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax
determination is uncertain. A valuation allowance is established
against deferred tax assets when it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. These provisions prescribe a comprehensive model of
how a company should recognize, measure, present and disclose in
its financial statements uncertain tax positions that the
company has taken or expects to take on a tax return. In
accordance with these provisions, we recognize a tax benefit
when a tax position is more-likely-than-not to be sustained upon
examination, based solely on its technical merits. We measure
the recognized tax benefit as the largest amount of tax benefit
that has greater than a 50% likelihood of being realized upon
the ultimate settlement with a taxing authority. We reverse
previously recognized tax benefits if we determine that the tax
position no longer meets the more-likely-than-not threshold of
being sustained. We accrue interest and penalties related to
unrecognized tax benefits in income tax expense.
Stock-Based
Compensation
Accounting for stock-based compensation requires measurement of
compensation cost for all stock-based awards at fair value on
the date of grant and recognition of compensation over the
service period for awards expected to vest. We use the
Black-Scholes-Merton option pricing model to determine the fair
value of our stock options. This model uses assumptions that
include the risk free interest rate, expected volatility,
expected dividend yield and expected life of the options. The
value of our stock-based awards is recognized as expense over
the service period, net of estimated forfeitures. The estimation
of stock awards that will ultimately vest requires judgment, and
to the extent actual results or updated estimates differ from
our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised.
Actual results and future estimates may differ substantially
from our current estimates.
Recently
Issued Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board
issued ASU
2011-05,
Comprehensive Income (Topic 220), Presentation of
Comprehensive Income. The new US GAAP guidance gives two
choices of how to present items of net income, items of other
comprehensive income (OCI) and total comprehensive
62
income: one continuous statement of comprehensive income or two
separate consecutive statements can be presented. OCI is no
longer allowed to be presented in the statement of
stockholders equity. The guidance also requires the
reclassification adjustments for each component of OCI to be
displayed in both net income and OCI. For public companies,
these amendments are effective for fiscal year and interim
periods beginning after December 15, 2011 and should be
applied retrospectively. Since the update only requires a change
in presentation, we do not expect that the adoption of this will
have a material impact on our results of operations, cash flows
or financial condition.
In May 2011, the Financial Accounting Standards Board issued ASU
2011-04,
Fair Value Measurement (Topic 820), Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and International Financial Reporting Standards,
or IFRS. The ASU amends the fair value measurement and
disclosure guidance in ASC 820, Fair Value
Measurement, to converge US GAAP and IFRS requirements for
measuring amounts at fair value as well as disclosures about
these measurements. Many of the amendments clarify existing
concepts and are generally not expected to result in significant
changes to application of fair value principles. In certain
instances, however, the FASB changed a principle to achieve
convergence, and while limited, these amendments have the
potential to significantly change practice. These amendments are
effective during interim and annual periods beginning after
December 15, 2011. Although we continue to review this
update, we do not believe it will have a material impact on our
financial statements or the notes thereto.
In April 2011, the Financial Accounting Standards Board issued
ASU 2011-02,
Receivables (Topic 310), A Creditors Determination of
Whether a Restructuring is a Troubled Debt Restructuring.
The FASB believes there has been diversity in practice related
to identifying and disclosing troubled debt restructurings, and
this diversity has been amplified over the last several years
given the economic conditions. The amendments in this ASU
clarify the accounting guidance for all banks and other
creditors that make concessions to borrowers who are
experiencing financial difficulties. The changes clarify the
guidance on determining whether a concession has been granted
and whether a borrower is considered to be experiencing
financial difficulty. The amendments are effective for the first
interim or annual period beginning on or after
September 15, 2011, and should be applied retrospectively
to the beginning of the annual period of adoption. For purposes
of measuring impairment of those receivables, an entity should
apply the amendments prospectively for the first interim or
annual period beginning on or after September 15, 2011. We
do not anticipate any material impact from this update.
Quarterly
Results
Despite a concentration of holidays in the fourth quarter of the
year, as a result of our expansive product lines and wholesale
customer base and increased promotional activities, the impact
of seasonality on the quarterly results of our wholesale
operations in recent years has been limited. Promotional
activities, including special dating terms, particularly with
respect to Halloween and Christmas products sold to retailers
and other distributors in the third quarter, and the
introduction of our new everyday products and designs during the
fourth quarter generally result in higher accounts receivables
and inventory balances. Our retail operations are subject to
substantial seasonal variations. Historically, our retail stores
have realized a significant portion of their net sales, net
income and cash flow in the fourth quarter of the year,
principally due to the sales in October for the Halloween season
and, to a lesser extent, due to sales for end of year holidays.
63
The following table sets forth our historical revenues, gross
profit, income from operations and net income (loss), by
quarter, for 2011, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
352,501
|
|
|
$
|
411,502
|
|
|
$
|
436,186
|
|
|
|
|
|
Royalties and franchise fees
|
|
|
3,681
|
|
|
|
4,550
|
|
|
|
3,962
|
|
|
|
|
|
Gross profit
|
|
|
127,486
|
|
|
|
163,715
|
|
|
|
148,039
|
|
|
|
|
|
Income from operations
|
|
|
16,608
|
|
|
|
43,022
|
|
|
|
11,276
|
|
|
|
|
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
|
(2,563
|
)
|
|
|
14,532
|
|
|
|
(5,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
304,379
|
|
|
$
|
352,705
|
|
|
$
|
358,772
|
|
|
$
|
563,821
|
|
Royalties and franchise fees
|
|
|
3,844
|
|
|
|
4,453
|
|
|
|
4,035
|
|
|
|
7,085
|
|
Gross profit
|
|
|
104,479
|
|
|
|
141,840
|
|
|
|
132,437
|
|
|
|
257,863
|
|
Income from operations
|
|
|
8,288
|
|
|
|
35,367
|
|
|
|
17,963
|
|
|
|
65,818
|
(a)
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
|
(412
|
)
|
|
|
16,460
|
|
|
|
4,603
|
|
|
|
28,668
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
309,046
|
|
|
$
|
337,536
|
|
|
$
|
336,944
|
|
|
$
|
483,798
|
|
Royalties and franchise fees
|
|
|
3,694
|
|
|
|
4,536
|
|
|
|
4,164
|
|
|
|
7,100
|
|
Gross profit
|
|
|
103,629
|
|
|
|
128,425
|
|
|
|
121,453
|
|
|
|
214,776
|
|
Income from operations
|
|
|
12,201
|
|
|
|
27,818
|
|
|
|
14,937
|
|
|
|
86,917
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
2,403
|
|
|
|
10,952
|
|
|
|
3,079
|
|
|
|
46,119
|
|
|
|
|
(a) |
|
During the fourth quarter of 2010, we recorded a pre-tax charge
of $27,400 to write off the FCPO trade name. |
Quantitative
and Qualitative Disclosures about Market Risk
Our earnings are affected by changes in interest rates as a
result of our variable rate indebtedness. However, we utilize
interest rate swap agreements to manage the market risk
associated with fluctuations in interest rates. If market
interest rates for our variable rate indebtedness averaged 2%
more than the interest rate actually paid for the years ended
December 31, 2010, 2009 and 2008, our interest expense,
after considering the effects of our interest rate swap
agreements, would have increased, and income before income taxes
would have decreased, by $7.1 million, $6.7 million,
and $7.3 million, respectively. If market interest rates
for our variable rate indebtedness averaged 2% more than the
interest rate actually paid for the nine months ended
September 30, 2011 and 2010, our interest expense, after
considering the effects of our interest rate swap agreements,
would have increased and income before income taxes would have
decreased by $11.8 million and $4.8 million,
respectively. These amounts are determined by considering the
impact of the hypothetical interest rates on our borrowings and
interest rate swap agreements. This analysis does not consider
the effects of the reduced level of overall economic activity
that could exist in such an environment. Further, in the event
of a change of such magnitude, management would likely take
actions to further mitigate our exposure to the change. However,
due to the uncertainty of the specific actions that we would
take and their possible effects, the sensitivity analysis
assumes no changes in our financial structure.
Our earnings are also affected by fluctuations in the value of
the U.S. dollar as compared to foreign currencies,
predominately in European countries, as a result of the sales of
our products in foreign markets. Although we periodically enter
into foreign currency forward contracts to hedge against the
earnings effects of such fluctuations, we (1) may not be
able to achieve hedge effectiveness to qualify for
hedge-accounting treatment and, therefore, would record any gain
or loss on the fair value of the derivative in other expense
64
(income) and (2) may not be able to hedge such risks
completely or permanently. A uniform 10% strengthening in the
value of the U.S. dollar relative to the currencies in which our
foreign sales are denominated would have resulted in a decrease
in gross profit of $6.7 million, $5.5 million, and
$5.6 million for the years ended December 31, 2010,
2009 and 2008, respectively. A uniform 10% strengthening in the
value of the U.S. dollar relative to the currencies in which our
foreign sales are denominated would have resulted in a decrease
in gross profit of $11.6 million and $4.3 million for
the nine months ended September 30, 2011 and 2010,
respectively. These calculations assume that each exchange rate
would change in the same direction relative to the
U.S. dollar. In addition to the direct effects of changes
in exchange rates, which could change the U.S. dollar value
of the resulting sales, changes in exchange rates may also
affect the volume of sales or the foreign currency sales price
as competitors products become more or less attractive.
Our sensitivity analysis of the effects of changes in foreign
currency exchange rates does not factor in a potential change in
sales levels or local currency prices.
65
BUSINESS
Our
Company
We are a global leader in decorated party supplies. We make it
easy and fun to enhance special occasions with a wide assortment
of innovative and exciting merchandise at a compelling value.
With the 2005 acquisition of Party City, we created a vertically
integrated business combining the leading product design,
manufacturing and distribution platform, Amscan, with the
largest U.S. retailer of party supplies. We believe we have
the industrys broadest selection of decorated party
supplies, which we distribute to over 100 countries, and a party
superstore retail network that consists of approximately 800
locations in the United States and approximately 25 locations in
Canada and is approximately 15 times larger than that of
our next largest party superstore competitor. Our vertically
integrated business model and scale differentiate us from other
party supply companies and allow us to capture the
manufacturing-to-retail
margin on a significant portion of the products sold in our
stores. We believe our widely recognized brands, broad product
offering, low-cost global sourcing model and category-defining
retail concept are significant competitive advantages. We
believe these characteristics, combined with our vertical
business model and scale, position us for continued organic and
acquisition-led growth in the United States and internationally.
Founded in 1947, we started as a wholesaler and have grown to
become one of the largest global designers, manufacturers and
distributors of decorated party supplies. Today, our broad
selection of decorated party supplies, with approximately 37,000
SKUs, includes paper and plastic tableware, decorations,
metallic and latex balloons, to novelties, costumes, party kits,
stationery and gifts for everyday, themed and seasonal events.
Our products are available in over 40,000 retail outlets
worldwide, including our own retail network, independent party
supply stores, dollar stores, mass merchants, grocery retailers
and gift shops. We have a history of driving innovation in the
category with an in-house product development team that over the
last three years has introduced an average of 3,500 new products
annually. Our global network of owned and third-party
manufacturers combined with our
state-of-the-art
distribution systems position us to deliver high-quality,
cost-competitive products with turnaround times and fill rates
that we believe are among the best in the industry. We have
long-term relationships with many of our wholesale customers,
for whom we provide sales support through in-store signage,
planogram support and product training. We believe that through
our extensive offering of party supplies combined with
industry-leading innovation, customer service levels and value,
we will continue to win with our customers.
The acquisition of Party City represented an important step in
the evolution of our business. Over the last five years, we have
established the largest network of party supply stores in the
United States with over 1,200 locations consisting of
approximately 800 party superstores (including approximately 230
franchised stores), principally under the Party City banner, and
a temporary Halloween network of approximately 400 temporary
locations, principally under the Halloween City banner. We
believe we are the only party supply retailer with a national
footprint. We also operate PartyCity.com, our primary
e-commerce
site, which provides a convenient alternative shopping
experience, a broader merchandise selection and party-planning
ideas while also allowing us to reach markets where we do not
currently have a retail presence. As underscored by our
Nobody Has More Party for Less slogan, we believe we
offer a superior one-stop shopping experience with a broad
selection, high in-stock positions and compelling value, making
us the favored destination for all of our customers
party-supply needs. Over the last five years, we have steadily
increased the selection of Amscan merchandise offered in Party
City stores from approximately 25% to over 60%, allowing us to
capture the
manufacturing-to-retail
margin on a significant portion of our retail sales.
We believe our scale and scope, extending from design and
manufacturing to retail and
e-commerce,
provide numerous competitive advantages and opportunities for
growth. Through a combination of organic growth and strategic
acquisitions, we increased our consolidated revenues from
$1,015 million in 2006 to $1,599 million in 2010,
representing a compounded annual growth rate of 12.0%. Our
Adjusted EBITDA has grown from $122 million in 2006 to
$226 million in 2010, representing a compounded annual
growth rate of 16.7%. For a discussion of our use of Adjusted
EBITDA and a reconciliation to net income, please refer to
Prospectus SummarySummary Financial Data and
Selected Consolidated Financial Data.
66
Evolution
of Our Business
Over the last 60 years, we have grown from a manufacturer
and distributor of selected paper goods to a global, vertically
integrated wholesaler and retailer of decorated party supplies.
This evolution was accomplished organically and through
strategic acquisitions that were successfully integrated over
the years. More recently, we implemented and completed several
strategic initiatives to further strengthen our business and
position us for continued growth. Below we summarize some of our
key acquisitions and strategic initiatives:
Enhancing
Our Wholesale Platform
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We believe that the acquisition of Anagram International in 1998
and the subsequent acquisition of M&D Balloons in 2002
positioned us as the largest manufacturer and distributor of
metallic balloons in the world.
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In 2001, we opened a new distribution center in Chester, New
York, which was significantly expanded in 2005, for an aggregate
investment of approximately $60 million. This
state-of-the-art,
approximately 900,000 square foot facility enables us to
deliver industry-leading service levels to our third-party
customers and network of company-owned stores.
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In 2003, we opened a Hong Kong office to support our Asian-based
sourcing and sales organization that has grown to over 40
employees.
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Establishing
Retail Leadership and Our Vertically Integrated Model
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Through the acquisitions of Party City in 2005, Party America in
2006 and FCPO in 2007, we have become the largest party goods
specialty retailer in the United States.
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Subsequent to our acquisition of Party City and other party
store banners, we focused on rebranding acquired businesses and
remerchandising our stores. Following each acquisition, we
capitalized on our vertically integrated model by increasing the
percentage of Amscan products available for sale at our retail
stores, allowing us to capture the
manufacturing-to-retail
margin on a significant portion of our retail sales.
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Between 2007 and 2010, we converted all of the Party America
company-operated stores to the Party City banner. In 2010 we
began converting the FCPO stores to the Party City format; we
converted 40 in 2010 and expect to have the remaining FCPO
stores converted to the Party City banner by the end of 2013.
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In 2007, we acquired Gags & Games Inc., the parent
company of Halloween USA, which operated 94 locations, enabling
us to enter the growing temporary Halloween business. Since the
acquisition, we have grown to approximately 400 locations and
changed the banner to Halloween City.
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Re-Launching
Our
E-commerce
Platform
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In August 2009, we re-launched PartyCity.com with
e-commerce
capabilities, providing us with an additional
direct-to-consumer
sales channel. Since the re-launch, we have grown our
e-commerce
revenues to over $40 million in 2010 as we continue to
capitalize on our competitive advantages, which include a
nationwide store base, strong brand recognition and vertical
business model. The average basket size on our e-commerce site
is approximately three times larger than it is in our Party City
stores. We expect our
e-commerce
platform to continue to generate significant revenue growth as
we execute our planned initiatives to drive traffic and increase
customer interactions through social networking interfaces as
well as through the three million email addresses that we have
captured through our stores and website.
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Broadening
Products and Channel Reach
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Our March 2010 acquisition of the Designware party goods
division from American Greetings strengthened our juvenile
licensed character portfolio and enhanced our reach into the
grocery retailers and mass merchant channels. In connection with
this acquisition, American Greetings granted us rights to
manufacture and distribute Designware-branded and licensed
character-based products into select
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67
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retail venues, including the party supply store channel. We also
agreed to supply substantially all of American Greetings
party supply requirements, allowing us to grow our distribution
with American Greetings, specifically in the mass market, drug
and grocery retail channels.
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Our September 2010 acquisition of the Christys Group, a
U.K.-based costume company, provided costume design and
additional sourcing capabilities as well as additional resources
in the U.K. and European markets. The Christys Group
accelerates our entry into the costume wholesale business and
enables us to further increase the percentage of our own
products sold at Party City, Halloween City and PartyCity.com.
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Growing
International Presence
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In the past five years, we have grown our international
operations, which now represent 6.9% of total revenues. We
believe international sales are likely to grow to 10% to 15% of
our total revenues over the next three to five years through
organic and acquisition-generated growth.
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Our January 2011 acquisition of Riethmüller, which included
the Malaysian operations of latex balloon manufacturer Everts
Balloon, expanded our reach in Europe while also enabling us to
directly supply a significant portion of our latex balloon
requirements previously sourced from third-party vendors.
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Our July 2011 acquisition of Party Packagers, a Canadian
retailer of party goods and outdoor toys, expanded our vertical
business model and gave us a significant retail presence in
Canada.
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As a result of these investments, we have created a
differentiated, vertically integrated business model. We believe
that our superior selection of party supplies, scale, innovation
and service positions us for future growth across all of our
channels.
Competitive
Strengths
We are well-positioned to continue to attract customers who
celebrate lifes memorable events as a result of the
following competitive strengths:
Leading Market Position with Industry Defining
Brands. Through our category-defining brands,
Amscan and Party City, we believe we are the largest vertically
integrated provider of decorated party supplies in the world.
Our history of growth and established global relationships have
been driven by our broad selection of continuously updated and
innovative merchandise at a compelling value. Additionally, with
approximately 800 party superstores in 41 states, our
domestic footprint is approximately 15 times larger than that of
our next largest party superstore retail competitor. We believe
that our scale, brand recognition and value proposition
underscore our credibility as the destination of choice for
party supplies in any channel.
Unique Vertically Integrated Operating
Model. We manufacture, source and distribute
party supplies acting as a one-stop shop for party goods to both
wholesale customers and end consumers through our company-owned
retail network. Our vertically integrated model provides us with
a number of advantages by allowing us to:
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enhance our profitability as we realize the
manufacturing-to-retail
margin on a significant portion of our retail sales;
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leverage our global sourcing network and scale to reinforce our
position as the low-cost provider of quality party supplies;
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effectively respond to changes in consumer trends through our
in-house design and innovation team;
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sustain high standards of product quality and safety;
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maintain greater control of the design, production, cost and
introduction of new products across our multiple
channels; and
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monitor sell-through at retail in real-time to limit markdowns
and excessive promotions.
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68
Broad and Innovative Product Offering. We
offer broad and deep product assortments with approximately
37,000 SKUs available in wholesale and an average of 25,000 SKUs
offered at any one time in our Party City superstores. Our
extensive selection offers customers a single source for all of
their party needs. The majority of our products are designed and
developed by a staff of approximately 135 artists and product
developers who keep the product portfolio fresh and exciting.
Our vertically integrated model allows our product development
team to test new products and effectively respond to changes in
consumer preferences. Over the last three years, we have
introduced an average of 3,500 new products and 50 new party
goods ensembles annually, and we believe that this ability to
consistently introduce innovative items drives newness in our
product offering and supports increased sales across our
channels.
Category Defining Retail Concept. With an
average of 25,000 SKUs at any one time, we believe our Party
City stores offer one of the most extensive selections in the
industry. We keep our assortment current by frequently
introducing new products, and we organize our stores by events
and themes to make it easy to shop while consistently presenting
customers with additional product ideas that will enhance their
events and our sales. We also maintain high in-stock positions
of core products and related items, so we are able to address
party needs of any size. With our extensive selection,
convenient locations, consistently high in-stock positions and
compelling value proposition, we believe customers associate
Party City with successful celebrations, and, as a result, our
stores will continue to be seen as the favored destination for
party supplies and innovative ideas.
Highly Efficient Global Sourcing and Distribution
Capabilities. Over the last 60 years, we
have developed a global network of owned and third-party
manufacturers that we believe optimizes speed to market, quality
and cost. In 2010, we manufactured approximately 40% of our
wholesale product sales, principally in the United States, with
the balance sourced from low-cost, third-party manufacturers
primarily in Asia. Our in-house manufacturing is focused on
high-volume party essentials that can be manufactured through
highly automated processes, such as paper and plastic tableware
products and metallic balloons. We believe our manufacturing
capabilities are cost-competitive and allow us to offer rapid
turnaround times on key product categories. With respect to our
third-party supply network, we have over
20-year
relationships with many of our vendors and often represent a
significant portion of their overall business. We also have
warehousing and distribution facilities around the world
including our
state-of-the-art
distribution center in Chester, New York, which has nearly
900,000 square feet under one roof. Our manufacturing,
sourcing and distribution capabilities offer our company-owned
stores, third-party retailers, distributors and our retail
consumers
best-in-class
levels of service, rapid fulfillment and competitive prices.
World-Class Management Team with a Proven Track
Record. Our senior management team averages
approximately 20 years of industry experience and possesses
a unique combination of management skills and experience in the
party goods sector. Our team has operated the business during
various economic cycles and through several business
transformations. Mr. Rittenberg, our Chief Executive
Officer, and Mr. Harrison, our Chief Operating Officer,
have worked together at the Company for 15 years and have
grown our business with an almost tenfold increase in revenues
during that period. Additionally, our team has a strong track
record of successful acquisitions and integrations, which
continue to be an important part of our overall strategy.
Despite these strengths, we continue to face competition in the
marketplace, particularly in our retail business. We compete
with a variety of retailers, including independent party goods
supply stores, specialty stores, dollar stores,
warehouse/merchandise clubs, drug stores, mass merchants,
grocery retailers and catalogue and Internet merchandisers. In
order to maintain our market position, we need to remain
competitive with respect to quality, price, breadth of
selection, customer service and convenience. See Risk
Factors and Competition.
69
Growth
Strategy
We believe we have significant opportunities to enhance our
leadership position in the party goods industry and improve
profitability through the further implementation of our
operating strategy both organically and through strategic
acquisitions. Key elements of our growth strategy include:
Growing Market Share and Earnings. We believe
we have significant opportunities to continue to grow our
business by capitalizing on our leading scale, vertical
operating model and strong innovation capabilities as well as
strategic acquisitions. Over the past five years, we have
successfully grown our wholesale revenues at a 13.6% CAGR to
$769 million in 2010 (including sales to company-owned
Party City superstores). We will continue to broaden our product
assortment by adding new party themed events and licenses. We
recently began manufacturing and selling licensed themed party
products for MLB, NBA and NHL teams and acquired Christys
Group, which significantly enhanced our in-house costume
capabilities. These and other opportunities will position us to
continue to increase our market share and grow the percentage of
our own products sold at retail, including our company-owned and
franchised stores. Since the acquisition of Party City in 2005,
we have increased the selection of Amscan merchandise offered in
Party City stores from approximately 25% to over 60%, with a
target of 70% to 75% over the long term. Our ability to create
new and enhance existing celebration opportunities will continue
to be a consistent driver of our growth.
Expand Our Retail Store Base. Our retail
network includes approximately 800 party superstores in the
United States, approximately 25 locations in Canada and
approximately 400 temporary locations. We believe there is an
opportunity to open more than 400 additional Party City stores
in North America. Our primary focus over the past five years has
been on optimizing our superstore base by integrating and
rebranding acquired retail stores. In 2011, we opened 16 Party
City stores, acquired eight Party City stores from franchisees
and closed seven locations. Starting in 2012, we plan to open 25
to 35 Party City stores per year, representing annual
company-owned party superstore growth of approximately 5%. Based
on historical performance and the margin generated from our
vertically integrated model we expect our new stores to have a
payback period of approximately three years and to generate
an average pre-tax
cash-on-cash
return on invested capital of approximately 50% in year four.
Drive Additional Growth and Productivity From Existing Retail
Stores. We plan to grow our comparable store
sales by continuing to improve our brand image and awareness,
offering new, innovative party ideas and by converting FCPO
stores to the Party City banner. In late 2009, we modified our
advertising strategy to minimize our dependency on newspaper
inserts and focus instead on a national broadcasting campaign to
further develop brand awareness and expand our customer base.
This shift, which emphasizes brand building and our price-value
proposition, has resonated well with our customers. In addition,
in 2010 we began converting our FCPO stores to the Party City
banner and expect to have the remaining FCPO stores converted to
the Party City banner by the end of 2013. We expect the
converted stores to realize an average sales improvement of
approximately 10% in the first year following the conversion
relative to the unconverted FCPO stores.
Increase International Presence. International
sales grew 15.1% in 2010 and currently comprise 6.9% of our
total revenues. The market for party goods outside the United
States is less mature due to lower consumer awareness of party
products and less developed retail distribution channels. We
believe international growth will be driven, in part, through
increasing customization of our products to local tastes and
holidays and the expansion of our retail presence, particularly
through our store-within-a-store concept with selected
international retailers. Our recent acquisitions of
Christys Group, Riethmüller and Party Packagers
expanded our presence in select markets, including the U.K.,
Germany, Poland and Canada. We believe international sales are
likely to grow to 10% to 15% of our total revenues over the next
three to five years through organic and acquisition-led growth.
Grow Our
E-commerce
Platform. In August 2009, we re-launched our
primary
e-commerce
platform PartyCity.com, providing us with an additional
direct-to-consumer
sales channel. In 2010,
e-commerce
sales were over $40 million, representing approximately
3.6% of our total retail sales. We expect
e-commerce
will continue to experience significant growth as we increase
online content for
70
products, party ideas and promotional offerings, invest in
additional online advertising to drive traffic and target
customers through the three million email addresses that we have
captured through our stores and website. Our dedicated
e-commerce
distribution center, located in Naperville, Illinois, provides
sufficient capacity to support our growth plans.
Pursue Accretive Acquisitions. Over the past
15 years, we have successfully integrated nine
acquisitions, strengthening our manufacturing, distribution and
retail platforms. We have also acquired, and will continue to
acquire, our franchised stores as such opportunities emerge. We
believe our significant experience in identifying attractive
acquisition targets, proven integration process and global
infrastructure create a strong platform for future acquisitions.
Through future acquisitions we can leverage our existing
marketing, distribution and production capabilities, expand our
presence in various retail distribution channels, further
broaden and deepen our product lines and increase penetration in
both domestic and international markets.
Industry
Overview
We operate in the broadly defined $10 billion retail party
goods industry (including decorative paper and plastic
tableware, decorations, accessories and balloons), which is
supported by a range of suppliers from commodity paper goods
producers to party goods specialty retailers. Sales of party
goods are fueled by everyday events such as birthdays, baby
showers, weddings and anniversaries, as well as seasonal events
such as holidays and other special occasions (Christmas, New
Years Eve, graduations, Easter, Super Bowl, Fourth of
July). As a result of numerous and diverse occasions, the
U.S. party goods market enjoys broad demographic appeal. We
also operate in the Halloween market, which represents a
$6 billion retail opportunity and includes costumes, candy
and makeup.
The retail landscape is comprised primarily of party
superstores, dollar stores, mass merchants, grocery retailers
and craft stores. The party superstore has emerged as a
preferred destination for party goods shoppers, similar to the
dominance of specialty retailers in other categories such as
office supplies, pet products and sporting goods. This is
typically due to the superstore chains ability to offer a
wider variety of merchandise at more compelling prices in a
convenient setting. Other retailers that cater to the party
goods market typically offer a limited assortment of party
supplies and seasonal items. Mass merchants tend to focus
primarily on juvenile and seasonal goods, greeting cards and
gift wrap; craft stores on decorations and seasonal merchandise;
and dollar stores on general and seasonal party goods items.
The consumable nature and low per-item prices in the party goods
market have historically driven demand among consumers seeking
to enhance the quality of their gatherings and celebrations.
Party goods are an economical means by which to make events and
occasions more festive and as a result have continued to sell
well during economic downturns. Manufacturers and retailers
continue to create and market party goods and gifts that
celebrate a greater number of events, holidays and occasions.
Additionally, the number and types of products offered for each
occasion continues to expand, encouraging add-on and impulse
purchases by consumers.
Business
Overview
We believe we are the leading vertically integrated provider of
decorated party goods with a national footprint of party
superstores offering an unrivaled selection of party supplies.
We have two primary reporting segments: Wholesale and Retail. In
2010, we generated 29.4% of our total revenues from our
wholesale segment and 70.6% from our retail segment (which
includes 1.2% of total revenues from franchising activities).
Our wholesale revenues are generated from the sales of party
goods for all occasions, including paper and plastic tableware,
accessories and novelties, metallic and latex balloons,
stationery and gift items. Our products are sold at wholesale to
party goods superstores, including our company-owned and
franchised retail stores, other party goods retailers, dollar
stores, mass merchants, independent card and gift stores, and
other retailers and distributors throughout the world. Our
retail operations generate revenue primarily through the sale of
Amscan and other party supplies through Party City, Halloween
City and PartyCity.com. Our
71
franchising revenues are generated from an initial one-time
franchise fee, renewal fees and ongoing franchise royalty
payments based on retail sales from the franchised stores.
Financial
Information about Geographic Areas
For a discussion of financial information about geographic
areas, please see Note 18 to the audited consolidated
financial statements included elsewhere in this prospectus.
Wholesale
Operations
Overview
We are one of the leading designers, manufacturers and
distributors of decorated party goods in the world, offering an
extensive selection with approximately 37,000 SKUs. We currently
offer over 400 party goods ensembles, which range from
approximately five to 100 design-coordinated items spanning
tableware, accessories, novelties, balloons, decorations and
gifts. The breadth of these ensembles enables retailers to
promote additional sales of related products for every occasion.
To enhance our customers celebrations of lifes
important events, we market party goods ensembles for a wide
variety of occasions, including seasonal and religious holidays,
special events and themed celebrations.
Our Amscan, Anagram and Designware branded products are offered
in over 40,000 retail outlets around the world, ranging from
party goods superstores, including our company-owned and
franchised retail stores, other party goods retailers, dollar
stores, mass merchants, independent card and gift stores. We
have long-term relationships with many of our wholesale
customers for whom we provide sales support through in-store
signage, planogram support and product training. Party goods
superstores, the Companys primary channel of distribution,
provide consumers with a one-stop source for all of their party
needs. Amscan, Anagram and Designware branded products represent
a significant portion of party goods carried by both
company-owned and third-party stores with the overall percentage
continuing to increase, reflecting the breadth of our product
line and, based on our scale, our ability to manufacture and
source quality products at competitive prices.
The table below shows the breakdown of our total wholesale sales
by channel for the year ended December 31, 2010.
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Channel
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Sales
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(dollars in millions)
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Party City owned stores
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$
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298
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Party City franchised stores
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133
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Other retailers
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149
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Domestic and international balloon distributors
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96
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International
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93
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Total wholesale sales
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$
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769
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International party supply markets are generally less mature
than the U.S. markets. However, we believe this will change over
time, and we are making significant investments to ensure we are
well positioned to benefit from growth in these markets.
Investments include our September 2010 acquisition of
Christys Group and the January 2011 acquisition of
Riethmüller, both of which will provide us with an expanded
international platform and lead to an increase of international
sales as a percentage of our total sales in subsequent periods.
72
Product
Lines
We believe we have the industrys most extensive selection
of party supplies. The following table sets forth the principal
products we distribute by product category, and the
corresponding percentage of revenue that each category
represents:
Wholesale
Sales by Product for the Year Ended
December 31, 2010
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Category
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Items
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% of Sales
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Tableware
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Plastic Plates, Paper Plates, Plastic Cups, Paper Cups, Paper
Napkins, Plastic Cutlery, Tablecovers
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33
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%
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Favors, Stationery & Other
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Party Favors, Gift Bags, Gift Wrap, Invitations, Bows, Stationery
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27
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%
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Decorations
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Latex balloons, Piñatas, Crepes, Flags & Banners,
Decorative Tissues, Stickers and Confetti, Scene Setters,
Garland, Centerpieces
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16
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%
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Metallic Balloons
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Bouquets, Standard 18 Inch Sing-A-Tune, SuperShapes, Weights
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14
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%
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Costumes & Accessories
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Costumes, Other Wearables, Wigs
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10
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%
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Our products span a wide range of lifestyle events from
birthdays to theme parties and sporting events, as well as
holidays such as Halloween and New Years. In 2010,
approximately 78% of our wholesale sales consisted of items
designed for everyday occasions, with the remaining 22%
comprised of items used for holidays and seasonal celebrations
throughout the year. Our product offerings cover the following
broad range of occasions and life celebrations:
Current
Product Offering
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Everyday
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Seasonal
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Birthdays
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New Years
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Anniversaries
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Valentines Day
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Bar Mitzvahs
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St. Patricks Day
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Bridal/Baby Showers
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Easter
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Christenings
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Passover
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Confirmations
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Fourth of July
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First Communions
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Halloween
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Graduations
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Fall
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Theme-oriented*
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Thanksgiving
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Weddings
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Hanukkah
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Christmas
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* |
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Our theme-oriented ensembles enhance every celebration and
include Bachelorette, Card Party, Casino, Chinese New Year,
Cocktail Party, Disco, Fiesta, Fifties
Rock-and-Roll,
Hawaiian Luau, Hollywood, Mardi Gras, Masquerade, Patriotic,
Retirement, Sports, Summer Barbeque and Western. |
Product
Development and Design Capabilities
Our 135 person in-house design staff continuously develops
innovative and contemporary product designs and concepts. Our
continued investment in art and design results in a steady
supply of fresh ideas and the creation of unique ensembles that
appeal to consumers. Our creative staff is constantly in the
market identifying trends and new product concepts. Over the
last three years, we have introduced an average of 3,500 new
73
products and 50 new party goods ensembles annually. In addition,
in 2011, our recently acquired Christys Group expects to
introduce 150 Halloween costumes and 250 related accessories.
Our proprietary designs and strength in developing new items at
attractive prices help differentiate our products from those of
our competitors.
Sales
and Marketing
Our principal wholesale sales and marketing efforts are
conducted through an employee sales force of approximately 100
professionals servicing approximately 15,000 retail accounts in
the United States. In addition to the employee sales team, a
select group of manufacturers representatives handles
specific account situations. International customers are
generally serviced by employees of our subsidiaries outside the
United States. We have our own sales force of over 40
professionals in the U.K., Mexico, Canada, Germany, France,
Spain and Hong Kong and operate through third-party distributors
elsewhere. Our Anagram subsidiary utilizes a group of
approximately 35 independent distributors in the United States
to bring our metallic balloons to the grocery, retail gift and
floral markets, as well as to our party superstore and specialty
retailer customers. Additionally, through our agreement with
American Greetings, we are able to leverage American
Greetings sales force to place our product into other
distribution channels, including mass market, drug and grocery
retailers.
To support our sales and marketing efforts, we produce five key
decorative party product catalogues annually (four catalogues
for seasonal products and one catalogue for everyday products),
with additional catalogues produced to market our metallic
balloons and gift products and for international markets. We
have also developed a website which displays and describes our
product assortment and capabilities. We utilize this website as
a marketing tool, providing us with the ability to announce
special product promotions, new program launches and other
information in an expeditious manner. To further promote our
products, we participate in a variety of industry trade shows
throughout the year.
We have long-term relationships with many of our wholesale
customers for whom we provide sales support through in-store
signage, planogram support and product training. We believe our
value-added services contribute to our reputation as the
one-stop shop for our customers.
Manufacturing
and Sourcing
We are one of the largest manufacturers of decorated party goods
products globally. Our in-house manufacturing capabilities
enable us to control costs, monitor product quality, better
manage inventory and provide more efficient order fulfillment.
Our domestic manufacturing facilities allow us to react rapidly
to changing consumer trends and fulfill our customers
needs for key products with fast turnaround times. We
manufacture approximately 40% of products we sell at wholesale.
Our facilities in Rhode Island, Kentucky, Minnesota,
New York, Mexico and Malaysia are highly automated and
produce paper and plastic plates and cups, paper napkins,
metallic and latex balloons and other party and novelty items at
a globally competitive cost.
State-of-the-art
printing, forming, folding and packaging equipment support these
manufacturing operations. Given our size and sales volume, we
are generally able to operate our manufacturing equipment on the
basis of at least two shifts per day, thus lowering production
costs per unit. In select cases, we use available capacity to
manufacture products for third parties which allows us to
maintain a satisfactory level of equipment utilization.
The table below summarizes our manufacturing facilities.
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Approximate
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Location
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Principal Products
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Square Feet
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East Providence, Rhode Island
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Plastic plates, cups and bowls
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229,230(1)
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Louisville, Kentucky
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Paper plates
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189,175
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Eden Prairie, Minnesota
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Metallic balloons and accessories
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115,600
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Tijuana, Mexico
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Piñatas and other party products
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100,000
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Melaka, Malaysia
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|
Latex balloons
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|
100,000
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Harriman, New York
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Paper napkins
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74,400
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Newburgh, New York
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Paper napkins and paper cups
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|
52,400
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(1) |
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This figure represents an industrial park, which includes a
48,455 square foot office and warehouse. |
74
Complementing our manufacturing facilities, we have a diverse
global network of third-party suppliers that supports our
strategy of consistently offering a broad selection of high
quality, innovative and competitively priced product. We have
over 20-year
relationships with many of our vendors and often represent a
significant portion of their overall business. Third-party
manufacturers supplied approximately 60% of product sold at
wholesale in 2010. These manufacturers generally produce items
designed by and created for us, are located in Asia and are
managed by our sourcing office in Hong Kong. We actively work
with our third-party suppliers to ensure product cost quality
and safety.
The principal raw materials used in manufacturing our products
are paper, petroleum-based resin and cotton. While we currently
purchase such raw materials from a relatively small number of
sources, paper, resin and cotton are available from numerous
sources. Therefore, we believe our current suppliers could be
replaced without adversely affecting our manufacturing
operations in any material respect.
Product
Safety and Quality Assurance
We are subject to regulatory requirements in the United States
and internationally, and we believe that all products that we
manufacture comply with the requirements in the markets in which
they are sold. Third-party manufactured products are tested both
at the manufacturing site and upon arrival at our distribution
center. We have a full-time staff of approximately 65
professionals in the United States, Asia and Europe
dedicated to product safety and quality assurance.
Distribution
and Systems
We ship our products directly to retailers and distributors
throughout the world from our distribution facilities, as well
as on an FOB basis directly from our domestic and international
factories. Our electronic order entry and information systems
allow us to manage our inventory with minimal obsolescence while
maintaining strong fill rates and quick order turnaround time.
Our main distribution facility for domestic party and gift
customers is located in Chester, New York with nearly
900,000 square feet under one roof. This
state-of-the-art
facility, built in 2001 and expanded in 2005, serves as the main
point of distribution for our Amscan-branded products and
utilizes paperless,
pick-by-light
systems, shipping an average of over 140,000 inners a day and
offering superior inventory management including fill rate in
excess of 95% and turnaround times as short as 48 hours.
Over the last 10 years, we have invested over
$60 million to customize and upgrade our Chester
distribution facility and believe it has sufficient capacity to
support our continued growth.
We utilize a by-pass system which allows us to ship products
directly from selected third-party suppliers to our
company-owned and franchised stores thus bypassing our
distribution facilities. In addition to lowering our
distribution costs, this by-pass system creates warehouse
capacity. We expect to grow the percentage of our products
shipped via by-pass which will lead to additional savings.
We sell metallic balloons domestically from our facilities in
Minnesota and New York.
The distribution center for our
e-commerce
platform is located in Naperville, Illinois. We also have other
distribution centers in the U.K., Germany, Mexico and Australia
and, beginning in 2011, Poland, to support our international
customers.
Retail
Operations
Overview
Opening its first
company-owned
store in 1986, Party City has grown to become what we believe is
the largest operator of owned and franchised party superstores
in the United States. At the time of our acquisition in 2005,
Party City operated 502 stores, including 254 franchised
locations. Since the acquisition, we have expanded the Party
City network to approximately 800 superstore locations in the
United States, including approximately 230 franchised
stores, and approximately 25 locations in Canada. We also
operated approximately 400 temporary Halloween locations,
principally under the Halloween City banner during fiscal year
2011.
75
The 2005 combination of Party City and Amscan has led to the
creation of a vertically integrated business from which we
derive a number of competitive advantages. We offer customers a
differentiated shopping experience with extensive selection and
consistently high in-stock positions of quality products with a
compelling value proposition making us the premier destination
for party supplies. Through our vertical model, we also enhance
our total profitability by capturing the
manufacturing-to-retail
margin on a significant portion of our retail sales and by
leveraging our access to multiple channels to limit mark-downs
and excessive promotions. Moreover, we believe that our
direct-to-consumer
channels enable our product development teams to effectively
respond to trends and changes in consumer preferences, which
allows us to keep our assortment fresh and exciting.
Party City was founded on the idea that life should be
celebrated in monumental ways, with a passion for inspiring
celebrations from Super Bowl to New Years Eve
parties and all the celebrations and seasons in between. With
our brands slogan, Nobody Has More Party for
Less, Party City offers an assortment of party supplies,
decorations and costumes perfect for every type of party
occasion. With dynamic merchandising displays combined with
organized seasonal aisles and hundreds of party themes to match
any type of celebration, party planning has never been simpler
or more fun.
In recent years, Party City has made substantial investments to
enhance the customers in-store experience and become the
ultimate retail destination for party supplies. Stores now
showcase dynamic balloon counters displaying hundreds of
balloons to coordinate with any occasion. Additionally,
store-within-a-store concepts for sports, candy and party favors
are focal points in all new stores. Aptly named Sports
City, Candy City and Favor City,
these specialty areas create a fun shopping environment, expand
product offering and allow us to better showcase the merchandise.
The following table summarizes our company-owned retail
footprint by format as well as our strategy going forward:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Stores as
|
|
|
# of Stores as of
|
|
|
Average Size of
|
|
|
|
Format
|
|
of December 31, 2008
|
|
|
December 31, 2011
|
|
|
Stores (sq. ft.)
|
|
|
Strategy/Focus
|
|
Party City
|
|
|
385
|
|
|
|
487
|
|
|
|
10,000-12,000
|
|
|
Grow the store base opening 25-35 new stores per year
|
Factory Card & Party Outlet (FCPO)
|
|
|
166
|
|
|
|
62
|
|
|
|
10,000-12,000
|
|
|
Convert the remaining FCPO stores to Party City banner by the
end of 2013
|
The Paper Factory and other outlets
|
|
|
92
|
|
|
|
37
|
|
|
|
3,500-5,000
|
|
|
Product liquidation channel
|
Halloween City and other Halloween Stores
|
|
|
149*
|
|
|
|
414
|
*
|
|
|
5,000-20,000
|
|
|
Grow locations and improve profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party Packagers
|
|
|
|
|
|
|
26
|
|
|
|
8,000-10,500
|
|
|
Enter the Canadian market
|
|
|
|
* |
|
Represents Halloween City locations opened and operated during
the preceding Halloween season. These locations operate only
during the Halloween selling season typically from the day after
Labor Day through November 1 of each year. |
We believe that our stores are typically destination shopping
locations. We seek to maximize customer traffic and quickly
build the visibility of new stores by situating them in high
traffic areas. Our stores are predominantly located in strip
centers and are generally co-located with other destination
retailers. Site selection criteria include population density,
demographics, traffic counts, location of complementary
retailers, storefront visibility and presence (either in a
stand-alone building or in dominant strip shopping centers),
competition, lease rates and accessible parking.
76
As of December 31, 2011, we had 487 company-owned Party
City stores. The following table shows the change in our
company-owned Party City store network:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stores open at beginning of year
|
|
|
439
|
|
|
|
382
|
|
|
|
385
|
|
|
|
392
|
|
Stores opened
|
|
|
16
|
|
|
|
13
|
|
|
|
6
|
|
|
|
9
|
|
FCPO stores converted to Party City
|
|
|
31
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Stores acquired from franchisees
|
|
|
8
|
|
|
|
20
|
|
|
|
3
|
|
|
|
5
|
|
Stores closed
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(10
|
)
|
Stores sold
|
|
|
|
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at end of year
|
|
|
487
|
|
|
|
439
|
|
|
|
382
|
|
|
|
385
|
|
We spent the last five years integrating our retail acquisitions
and rationalizing our store base. We believe there are more than
400 locations in North America that present opportunities for us
to expand our party superstore base. In 2011, we opened 16 Party
City stores, acquired eight Party City stores from franchisees
and closed seven Party City store locations, as well as
converted 31 FCPO stores to the Party City banner. Starting in
2012, we plan to open
25-35 Party
City stores per year and continue to convert FCPO stores to the
Party City banner. A new Party City location costs an average of
$765,000, which includes $90,000 in pre-openings expenses and
$350,000 of net startup inventory. The cost to convert an FCPO
store to the Party City banner ranges from $200,000 to $300,000.
A typical new store reaches approximately 80% maturity in the
first year of operation and reaches maturity in its fourth year
of operation. We target locations where stores have the
potential to generate annual sales of at least $2 million
at maturity and achieve consolidated pre-tax store contribution
of approximately 18% to 20%. We expect our new stores to have a
payback period of approximately three years and to generate
an average pre-tax
cash-on-cash
return on invested capital of approximately 50% at maturity
(including margin generated from our vertical model).
Merchandising
Our merchandising strategy is based on three core principles:
|
|
|
|
|
Broad Assortment of Merchandise We believe we
offer a greater assortment of products than our national
competitors including mass merchants. Our products span a wide
range of lifestyle events from birthdays to themed parties and
sporting events, as well as holidays such as Halloween and New
Years. A typical retail store offers a wide selection of
Amscan and other merchandise consisting of an average of 25,000
SKUs at any one time to satisfy a broad range of styles and
tastes.
|
|
|
|
Deep Merchandise Selection We maintain high
in-stock positions of core products and related items, so we are
able to address party needs of any size. These high in-stock
positions are enabled by our vertical integration model, which
results in a high percentage of Amscan merchandise in our
company-owned stores and quick turnaround times.
|
|
|
|
Compelling Value Our pricing strategy is to
provide the best value to our customers. Our vertically
integrated business model enables us to provide our customers
with leading prices for most of our product categories. We
negotiate pricing with suppliers on behalf of all stores in our
network (company-owned and franchised) and believe that our
buying power enables us to receive favorable pricing terms and
enhances our ability to obtain high demand merchandise. We
reinforce our value message through our advertising and
marketing campaigns with the Nobody Has More Party for
Less slogan.
|
We generally organize the aisles in our stores into four-foot
sections based on themed products, which include basic products
like cups and plates and other coordinated accessories that
enhance sales and customers shopping experience. This
presentation makes it simple and easy for our customers to find
all their party needs in one convenient location and allows us
to achieve a higher average basket size compared to
non-specialty channels. We manage each category by product and
by SKU and use planograms to ensure a consistent merchandise
presentation across our store base. Our coordinated product
offering drives add-on purchases as customers are presented with
additional decorations, favors and accessories that match their
party theme. Our low individual price points encourage impulse
buys by customers resulting in higher unit sales.
77
We have many product categories that relate to birthdays, making
this event the largest non-seasonal occasion at approximately
20% of our total annual retail sales. We aim to be the
pre-eminent resource for the party goods associated with
birthday celebrations. Each birthday product category includes a
wide assortment of merchandise to fulfill customer needs,
including invitations, thank you cards, tableware, hats, horns,
banners, cascades, balloons, novelty gifts, piñatas, favors
and candy.
Halloween is our retail segments largest seasonal product
category in dollars. As a key component of our sales strategy,
our stores provide an extensive selection of Halloween products
throughout the year to position us as the premier Halloween
shopping destination. The stores also carry a broad array of
related decorations and accessories for the Halloween season. In
2010, Halloween business represented approximately 25% of our
total annual retail sales for our Party City branded stores. To
maximize our seasonal opportunity, the Company also operates a
chain of temporary Halloween locations principally under the
Halloween City banner during the months of September and October
of each year. During both 2011 and 2010, our domestic temporary
Halloween locations generated revenues of approximately
$101 million.
As a vertically integrated business, our wholesale operation is
the largest supplier to our retail party superstores, providing
61%, 54% and 50% of the merchandise purchased for the years
ended December 31, 2010, 2009 and 2008, respectively. The
increase was primarily driven by our expanded Amscan product
offerings, rebranding and remerchandising of the FCPO stores and
increased utilization of our by-pass initiative. We expect this
percentage to reach 70% to 75% over the long term mainly driven
by additional product capabilities including products provided
through the recently acquired Christys Group.
We also offer products supplied by other vendors, which include
licensed products, candies, greeting cards and costumes. In
2010, no other supplier accounted for more than 10% of our
retail segments purchases.
E-commerce
In August 2009, we re-launched
e-commerce
capabilities through PartyCity.com, providing us with an
additional
direct-to-consumer
sales channel. Our website offers a convenient, user-friendly
and secure online shopping option for new and existing
customers. In addition to the ability to order products, we
expect our website to provide a substantial amount of content
about our party products, party planning ideas and promotional
offers. Our website will also be one of our key marketing
vehicles, specifically as it relates to social marketing
initiatives.
Compared to our Party City superstores, PartyCity.com offers a
broader assortment of products with over 35,000 SKUs available
online versus an average of 25,000 SKUs at any one time in our
party superstores. By seamlessly linking our website to our
store network, we intend to offer our customers the option to
purchase products online which are not physically available at
the store.
We also operate PartyAmerica.com which has a commercial
arrangement with Amazon.com, Inc. to supply party goods.
In 2010, sales from
e-commerce
were over $40 million or approximately 3.6% of total retail
sales. We believe that our website is well positioned to
continue to capture market share of online purchases, which
represent one of the fastest growing distribution channels for
party related goods, as we capitalize on our competitive
advantages which include a nationwide store base, strong brand
recognition and vertical integration. The average basket size
through our
e-commerce
site is approximately three times as large as the average basket
size in our Party City stores. We plan to drive future traffic
to our website through continuation of our
pay-per-click
advertising strategy, implementation of a CRM initiative, which
we have recently started testing, and through the three million
email addresses that we have captured through our stores and
website.
Advertising
and Marketing
Our advertising focuses on promoting specific seasonal occasions
and general party themes, with a strong emphasis on our
price-value proposition Nobody Has More Party
for Less with the goal of increasing customer
traffic and further building our brand. In late 2009, we
modified our advertising strategy to minimize our dependency on
newspaper inserts and focus instead on a national broadcasting
campaign to further
78
develop brand awareness and expand our customer base. This
shift, which emphasizes brand building and our price-value
proposition, has resonated well with our customers. As a result,
our use of newspaper inserts has decreased from 71% of gross
advertising spend in 2008 to 30% in 2010 while the use of
national broadcasts has increased from 3% to 43% over the same
period. We expect to continue to increase the use of national
broadcasting to enhance our overall brand awareness with
consumers.
Franchise
Operations
As of December 31, 2011, we had 221 franchised stores
throughout the United States and Puerto Rico. Stores run by
franchisees utilize our format, design specifications, methods,
standards, operating procedures, systems and trademarks. Our
wholesale sales to our franchised stores generally mirror, with
respect to relative size, mix and category, those to our
company-owned stores. The following table shows the change in
our franchise-owned store network:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stores open at beginning of year
|
|
|
232
|
|
|
|
250
|
|
|
|
273
|
|
|
|
283
|
|
Stores opened/acquired by existing franchisees
|
|
|
2
|
|
|
|
7
|
|
|
|
5
|
|
|
|
20
|
|
Stores sold to the Company
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Stores closed or converted to independent
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at end of year
|
|
|
221
|
|
|
|
232
|
|
|
|
250
|
|
|
|
273
|
|
We are not currently marketing nor plan to market new franchise
territories.
We receive revenue from our franchisees, consisting of an
initial one-time fee and ongoing royalty fees generally ranging
from 4% to 6%. In exchange for these franchise fees, franchisees
receive brand value and company support with respect to
planograms, information technology, purchasing and marketing. In
addition, each franchisee has a mandated advertising budget,
which consists of a minimum initial store opening promotion and
ongoing local advertising and promotions. Further, franchisees
must pay an additional 1% to 2.25% of net sales to a group
advertising fund to cover common advertising materials. The
terms of our franchise agreements provide for payments to
franchisees based on e-commerce sales originating from specified
areas relating to the franchisees contractual territory.
The amounts paid by us vary based on several factors, including
the profitability of our e-commerce sales, and are expensed at
the time of sale. We do not offer financing to our franchisees
for one-time fees or ongoing royalty fees. Our franchise
agreements provide us with a right of first refusal should any
franchisee look to dispose of its operation(s).
Current franchise agreements provide for an assigned area or
territory that typically equals a
three- or
four-mile
radius from the franchisees store location and the right
to use the Party
City®
and Party
America®
logos and trademarks. In addition, certain agreements with our
franchisees and other business partners contain geographic
limitations on opening new stores. In most stores, the
franchisee or the majority owner of a corporate franchisee
devotes full time to the management, operation and on-premises
supervision of the stores or groups of stores.
Information
Systems
We continually evaluate and upgrade our information systems to
enhance the quantity, quality and timeliness of information
available to management and to improve the efficiency of our
manufacturing and distribution facilities as well as our service
at the store level. We have implemented merchandise
replenishment software to complement our distribution, planning
and allocation processes. The system enhances the store
replenishment function by improving in-stock positions,
leveraging our distribution infrastructure and allowing us to
become more effective in our use of store labor. We have
implemented a new Point of Sale system and upgraded
merchandising systems to standardize technology across all of
our retail superstores and, in 2010, we implemented similar
systems at our temporary Halloween City locations. In addition,
in 2010, our retail operations implemented a system conversion
to upgrade and enhance the current Oracle system in order to
maintain support, streamline divisional reporting and allow for
future growth.
79
Competition
In our wholesale segment, we compete primarily on the basis of
diversity and quality of our product designs, breadth of product
line, product availability, price, reputation and customer
service. Although we have many competitors with respect to one
or more of our products, we believe that there are no
competitors who design, manufacture, source and distribute
products with the complexity of design and breadth of product
lines that we do. Furthermore, our design and manufacturing
processes create efficiencies in manufacturing that few of our
competitors can achieve in the production of numerous
coordinated products in multiple design types. Competitors
include smaller independent specialty manufacturers, as well as
divisions or subsidiaries of large companies. Certain of these
competitors control various party goods product licenses for
widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive
advantage. However, we control a strong portfolio of character
licenses for use in the design and production of our metallic
balloons and, as a result of the acquisition of Designware, we
have access to a strong portfolio of character and other
licenses for party goods.
In our retail segment, our stores compete primarily on the basis
of product mix and variety, store location and layout, customer
convenience and value. Although we compete with a variety of
smaller and larger retailers, including, but not limited to,
independent party goods supply stores, specialty stores, dollar
stores, warehouse/merchandise clubs, drug stores, mass merchants
and catalogue and Internet merchandisers, we believe that our
retail stores maintain a leading position in the party goods
business by offering a wider breadth of merchandise than most
competitors and a greater selection within merchandise classes,
at a compelling value. We are one of the only vertically
integrated suppliers of decorated party goods. While some of our
competitors in our markets have greater financial resources, we
believe that our significant buying power, which results from
the size of our retail store network and the breadth of our
assortment, is an important competitive advantage. Many of our
retail competitors are also customers of our wholesale business.
Employees
As of September 30, 2011, we had approximately
5,980 full-time employees and 22,015 part-time
employees, none of whom is covered by a collective bargaining
agreement. We consider our relationship with our employees to be
good.
Copyrights
and Trademarks
We hold copyright registrations on the designs we create and use
on our products and trademark registrations on the words and
designs used on or in connection with our products. It is our
practice to register our copyrights with the United States
Copyright Office and trademarks with the United States Patent
and Trademark Office to the extent we deem necessary. In
addition, we rely on unregistered trademarks and copyrights
under U.S. common law rights to distinguish
and/or
protect our products, services and branding. We do not believe
that the loss of copyrights or trademarks with respect to any
particular product or products would have a material adverse
effect on our business. We hold numerous intellectual property
licenses from third parties, allowing us to use various
third-party cartoon and other characters and designs principally
on our metallic balloons. None of these licenses is individually
material to our aggregate business.
We permit our franchisees to use a number of our trademarks and
service marks, including Party
City®,
The Discount Party Super
Store®,
Halloween Costume
Warehouse®,
Party
America®,
The Paper
Factory®,
The Factory Card & Party
Outlet®
and Halloween
City®.
Government
Regulation
As a franchisor, we must comply with regulations adopted by the
Federal Trade Commission, such as the Trade Regulation Rule
on Franchising, which requires us, among other things, to
furnish prospective franchisees with a franchise offering
circular. We also must comply with a number of state laws that
regulate the offer and sale of our franchises and certain
substantive aspects of franchisor-franchisee relationships.
These laws vary in their application and in their regulatory
requirements. State laws that regulate the offer and sale
80
of franchises typically require us to, among other things,
register before the offer and sale of a franchise can be made in
that state and to provide a franchise offering circular to
prospective franchisees.
State laws that regulate the franchisor-franchisee relationship
presently exist in a substantial number of states. Those laws
regulate the franchise relationship, for example, by restricting
a franchisors rights with regard to the termination,
transfer and renewal of a franchise agreement (for example, by
requiring good cause to exist as a basis for the
termination and the franchisors decision to refuse to
permit the franchisee to exercise its transfer or renewal
rights), by requiring the franchisor to give advance notice to
the franchisee of the termination and give the franchisee an
opportunity to cure most defaults. To date, those laws have not
precluded us from seeking franchisees in any given area and have
not had a material adverse effect on our operations.
Our wholesale and retail operations must also comply with
applicable regulations adopted by federal agencies, including
product safety regulations, and with licensing and other
regulations enforced by state and local health, sanitation,
safety, fire and other departments. Difficulties or failures in
obtaining the required licenses or approvals can delay and
sometimes prevent the opening of a new store or the shutting
down of an existing store.
Our operations must comply with applicable federal and state
environmental regulations, although the cost of complying with
these regulations to date has not been material. More stringent
and varied requirements of local governmental bodies with
respect to zoning, land use and environmental factors can delay,
and sometimes prevent, development of new stores in particular
locations.
Our operations must comply with the Fair Labor Standards Act and
various state laws governing various matters such as minimum
wages, overtime and other working conditions. Our operations
must also comply with the provisions of the Americans with
Disabilities Act, which requires that employers provide
reasonable accommodation for employees with disabilities and
that stores must be accessible to customers with disabilities.
Properties
We maintain the following facilities for our corporate and
retail headquarters and to conduct our principal design,
manufacturing and distribution operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or Leased
|
|
|
|
|
Approximate
|
|
(With
|
|
|
Principal
|
|
Square
|
|
Expiration
|
Location
|
|
Activity
|
|
Feet
|
|
Date)
|
|
Elmsford, New York
|
|
Executive and other corporate offices, show rooms, design and
art production for party products
|
|
119,469 square feet
|
|
Leased (expiration date: December 31, 2014)
|
Rockaway, New Jersey
|
|
Party City corporate offices
|
|
106,000 square feet
|
|
Leased (expiration date: July 31, 2017)
|
East Providence, Rhode Island
|
|
Manufacture and distribution of plastic plates, cups and bowls
|
|
229,230(1) square feet
|
|
Leased (expiration date: April 26, 2016)
|
Louisville, Kentucky
|
|
Manufacture and distribution of paper plates
|
|
189,175 square feet
|
|
Leased (expiration date: March 31, 2013)
|
Eden Prairie, Minnesota
|
|
Manufacture of metallic balloons and accessories
|
|
115,600 square feet
|
|
Owned
|
Tijuana, Mexico
|
|
Manufacture and distribution of party products
|
|
100,000 square feet
|
|
Leased(2)
|
Melaka, Malaysia
|
|
Manufacture and distribution of latex balloons
|
|
100,000 square feet
|
|
Leased (expiration date: May 30, 2072)
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or Leased
|
|
|
|
|
Approximate
|
|
(With
|
|
|
Principal
|
|
Square
|
|
Expiration
|
Location
|
|
Activity
|
|
Feet
|
|
Date)
|
|
Harriman, New York
|
|
Manufacture of paper napkins
|
|
74,400 square feet
|
|
Leased (expiration date: March 31, 2016)
|
Newburgh, New York
|
|
Manufacture of paper napkins and cups
|
|
52,400 square feet
|
|
Leased (expiration date: May 31, 2015)
|
Skoczow, Poland
|
|
Manufacture and distribution of party goods
|
|
44,400 square feet
|
|
Leased (expiration date: June 30, 2013)
|
Eden Prairie, Minnesota
|
|
Manufacture of retail, trade show and showroom fixtures
|
|
15,324 square feet
|
|
Leased (expiration date: July 31, 2015)
|
Chester, New York(3)
|
|
Distribution of party and gift products
|
|
896,000 square feet
|
|
Owned
|
Naperville, Illinois
|
|
Distribution of party goods for e-commerce sales
|
|
440,343 square feet
|
|
Leased (expiration date: December 31, 2018)
|
San Bernadino, California
|
|
Distribution of party goods for Halloween City
|
|
100,000 square feet
|
|
Leased (expiration date: March 31, 2012)
|
Kircheim unter Teck, Germany
|
|
Distribution of party goods
|
|
215,000 square feet
|
|
Owned
|
Milton Keynes, Buckinghamshire, England
|
|
Distribution of party products throughout Europe
|
|
130,858 square feet
|
|
Leased (expiration date: June 30, 2017)
|
Edina, Minnesota
|
|
Distribution of metallic balloons and accessories
|
|
122,312 square feet
|
|
Leased (expiration date: December 31, 2015)
|
Blackstown, Australia
|
|
Distribution of party goods
|
|
27,631 square feet
|
|
Leased (expiration date: November 12, 2014)
|
Dorval, Canada
|
|
Distribution of party and gift products
|
|
19,330 square feet
|
|
Leased (expiration date: September 30, 2013)
|
Toronto, Canada
|
|
Office and distribution of party goods for Party Packagers
|
|
64,000 square feet
|
|
Leased (expiration date: July 14, 2014)
|
Livonia, Michigan
|
|
Office and distribution of party goods for Halloween City
|
|
89,780 square feet
|
|
Leased (expiration date: May 31, 2014)
|
Atlanta, Georgia
|
|
Office and storage facilities
|
|
15,012 square feet
|
|
Leased (expiration date: April 30, 2013)
|
Pleasanton, California
|
|
Office for e-commerce sales
|
|
11,278 square feet
|
|
Leased (expiration date: June 18, 2015)
|
|
|
|
(1) |
|
This figure represents an industrial park, which includes a
48,455 square foot office and warehouse. |
|
(2) |
|
Property is comprised of three buildings with lease expiration
dates of May 1, 2012, August 15, 2012 and
September 30, 2012. |
|
(3) |
|
Property is subject to a lien mortgage note in the original
principal amount of $10.0 million with the New York State
Job Development Authority. The lien mortgage note was amended on
December 24, 2009. The amended mortgage note for
$5.6 million was extended for a period of 60 months
and requires fixed monthly payments of principal and interest.
At December 31, 2010, the lien mortgage note has a balance
of $4.5 million. |
82
In addition to the facilities listed above, we maintain smaller
distribution facilities in Canada and Mexico. We also maintain
sales offices in Australia, Canada, Hong Kong and Japan and
showrooms in New York, California, Georgia, Texas, Canada and
Hong Kong.
As of December 31, 2010, company-owned and franchised
retail stores were located in the following states and Puerto
Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
Company-owned
|
|
|
Franchise
|
|
|
Chain-wide
|
|
|
Alabama
|
|
|
2
|
|
|
|
8
|
|
|
|
10
|
|
Arizona
|
|
|
1
|
|
|
|
20
|
|
|
|
21
|
|
Arkansas
|
|
|
1
|
|
|
|
3
|
|
|
|
4
|
|
California
|
|
|
86
|
|
|
|
18
|
|
|
|
104
|
|
Colorado
|
|
|
14
|
|
|
|
1
|
|
|
|
15
|
|
Connecticut
|
|
|
4
|
|
|
|
2
|
|
|
|
6
|
|
Delaware
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Florida
|
|
|
54
|
|
|
|
10
|
|
|
|
64
|
|
Georgia
|
|
|
26
|
|
|
|
1
|
|
|
|
27
|
|
Hawaii
|
|
|
0
|
|
|
|
2
|
|
|
|
2
|
|
Illinois
|
|
|
61
|
|
|
|
0
|
|
|
|
61
|
|
Indiana
|
|
|
27
|
|
|
|
0
|
|
|
|
27
|
|
Iowa
|
|
|
9
|
|
|
|
1
|
|
|
|
10
|
|
Kansas
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
Kentucky
|
|
|
7
|
|
|
|
0
|
|
|
|
7
|
|
Louisiana
|
|
|
3
|
|
|
|
8
|
|
|
|
11
|
|
Maryland
|
|
|
14
|
|
|
|
12
|
|
|
|
26
|
|
Michigan
|
|
|
31
|
|
|
|
0
|
|
|
|
31
|
|
Minnesota
|
|
|
0
|
|
|
|
21
|
|
|
|
21
|
|
Mississippi
|
|
|
1
|
|
|
|
3
|
|
|
|
4
|
|
Missouri
|
|
|
19
|
|
|
|
3
|
|
|
|
22
|
|
Montana
|
|
|
0
|
|
|
|
1
|
|
|
|
1
|
|
Nebraska
|
|
|
5
|
|
|
|
0
|
|
|
|
5
|
|
Nevada
|
|
|
6
|
|
|
|
0
|
|
|
|
6
|
|
New Hampshire
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
New Jersey
|
|
|
26
|
|
|
|
2
|
|
|
|
28
|
|
New Mexico
|
|
|
0
|
|
|
|
3
|
|
|
|
3
|
|
New York
|
|
|
45
|
|
|
|
14
|
|
|
|
59
|
|
North Carolina
|
|
|
2
|
|
|
|
19
|
|
|
|
21
|
|
North Dakota
|
|
|
0
|
|
|
|
3
|
|
|
|
3
|
|
Ohio
|
|
|
31
|
|
|
|
0
|
|
|
|
31
|
|
Oklahoma
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
Oregon
|
|
|
2
|
|
|
|
5
|
|
|
|
7
|
|
Pennsylvania
|
|
|
17
|
|
|
|
14
|
|
|
|
31
|
|
Puerto Rico
|
|
|
0
|
|
|
|
5
|
|
|
|
5
|
|
South Carolina
|
|
|
2
|
|
|
|
6
|
|
|
|
8
|
|
Tennessee
|
|
|
7
|
|
|
|
10
|
|
|
|
17
|
|
Texas
|
|
|
41
|
|
|
|
21
|
|
|
|
62
|
|
Virginia
|
|
|
10
|
|
|
|
9
|
|
|
|
19
|
|
Washington
|
|
|
15
|
|
|
|
2
|
|
|
|
17
|
|
West Virginia
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
Wisconsin
|
|
|
18
|
|
|
|
0
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
596
|
|
|
|
232
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, in conjunction with the acquisition of Party
Packagers in July 2011, the Company acquired 26 retail stores in
Canada.
In 2011, the Company operated 414 temporary Halloween locations,
principally under the Halloween City banner. Under this program,
we operate temporary stores under short-term leases with terms
of approximately four months, to cover the early September
through early November Halloween season.
83
We lease the property for all of our company-owned stores. We do
not believe that any individual store property is material to
our financial condition or results of operations. Of the leases
for the company-owned stores, at December 31, 2010, 98
expired in 2011, 121 expire in 2012, 119 expire in 2013, 84
expire in 2014, 40 expire in 2015 and the balance expire in 2016
or thereafter. We have options to extend many of these leases
for a minimum of five years.
We believe that our properties have been adequately maintained,
are in generally good condition and are suitable for our
business as presently conducted. We believe our existing
manufacturing facilities provide sufficient production capacity
for our present needs and for our anticipated needs in the
foreseeable future. To the extent such capacity is not needed
for the manufacture of our products, we generally use such
capacity for the manufacture of products for others pursuant to
terminable agreements. All manufacturing and distribution
facilities generally are used on a basis of two shifts per day.
We also believe that, upon the expiration of our current leases,
we will be able either to secure renewal terms or to enter into
leases for alternative locations at market terms.
84
MANAGEMENT
Set forth below are the names, ages and positions with the
Company of the persons who are serving as directors and
executive officers of the Company at December 31, 2011.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Gerald C. Rittenberg
|
|
|
59
|
|
|
Chief Executive Officer and Director
|
James M. Harrison
|
|
|
60
|
|
|
President, Chief Operating Officer and Director
|
Michael A. Correale
|
|
|
54
|
|
|
Chief Financial Officer
|
Gregg A. Melnick
|
|
|
42
|
|
|
President, Party City Retail Group
|
Robert J. Small
|
|
|
45
|
|
|
Chairman of the Board of Directors
|
Steven J. Collins
|
|
|
43
|
|
|
Director
|
Michael F. Cronin
|
|
|
58
|
|
|
Director
|
Kevin M. Hayes
|
|
|
43
|
|
|
Director
|
Jordan A. Kahn
|
|
|
69
|
|
|
Director
|
William Kussell
|
|
|
53
|
|
|
Director
|
Richard K. Lubin
|
|
|
65
|
|
|
Director
|
Carol M. Meyrowitz
|
|
|
57
|
|
|
Director
|
David M. Mussafer
|
|
|
48
|
|
|
Director
|
Our directors have been selected pursuant to the terms of a
Stockholders Agreement, described more fully below, and
the terms of our existing certificate of incorporation. That
agreement and the related charter provisions will no longer be
in force following the completion of this offering.
Gerald C. Rittenberg became our Chief Executive Officer
in December 1997. From May 1997 until December 1997,
Mr. Rittenberg served as acting Chairman of the Board.
Prior to that time, Mr. Rittenberg served as our President
from October 1996. Mr. Rittenbergs extensive
experience in the decorated party goods industry, his
20-year
tenure, his role as our Chief Executive Officer and the
requirements of the Stockholders Agreement led to the
conclusion that he should serve as a director of our Company.
James M. Harrison became our President in December 1997
and our Chief Operating Officer in March 2002. From
February 1997 to March 2002, Mr. Harrison also served as
our Chief Financial Officer and Treasurer. From February 1997 to
December 1997, Mr. Harrison served as our Secretary.
Mr. Harrisons extensive experience in the decorated
party goods industry, his
14-year
tenure, his role as our President and Chief Operating Officer
and the requirements of the Stockholders Agreement led to
the conclusion that he should serve as a director of our Company.
Michael A. Correale became our Chief Financial Officer in
March 2002. Prior to that time, Mr. Correale served as our
Vice President Finance, from May 1997 to March 2002.
Gregg A. Melnick became President of Party City Retail
Group in March 2011. From May 2010 to February 2011,
Mr. Melnick was President of Party City Corporation.
Previously, he was Chief Operating Officer from October 2007 to
April 2010 and Chief Financial Officer from September 2004 to
September 2007 of Party City Corporation.
Robert J. Small became one of our directors upon the
consummation of the acquisition of the Company by Berkshire
Partners and Weston Presidio (the 2004
Transactions). Mr. Small, a Managing Director of
Berkshire Partners, which he joined in 1992, currently serves on
the board of directors of TransDigm Group Incorporated.
Mr. Small has also served on the board of directors of
Hexcel Corporation and several privately held companies.
Mr. Smalls experience serving as a director of both
public and private companies and his affiliation with Berkshire
Partners, which has the right to select three directors, led to
the conclusion that he should serve as a director of our Company.
Steven J. Collins has been a member of our Board since
August 2008. Mr. Collins, a Managing Director of Advent
International, which he joined in 1995, is currently a member of
the board of directors of
85
Kirklands, Inc. and previously served on the board of
directors of lululemon athletica inc. and several privately held
businesses. Mr. Collins received a B.S. from the Wharton
School of the University of Pennsylvania and an M.B.A. from the
Harvard Business School. Mr. Collins experience
serving as a director of public and private companies and his
affiliation with Advent International, whose Class B common
stock holdings entitle it to elect up to three directors, led to
the conclusion that he should serve as a director of our Company.
Michael F. Cronin became one of our directors upon the
consummation of the 2004 Transactions. From 1991 to the present,
Mr. Cronin has served as Managing Partner of Weston
Presidio. Mr. Cronin also serves as a director of several
privately held companies. Mr. Cronins experience
serving as a director of public and private companies and his
affiliation with Weston Presidio, which has the right to select
three directors, led to the conclusion that he should serve as a
director of our Company.
Kevin M. Hayes became one of our directors upon the
consummation of the 2004 Transactions. Mr. Hayes is a
Partner of Weston Presidio and has served in that position since
2000. Mr. Hayes also serves as a director of several
privately held companies. Mr. Hayes experience
serving as a director of private companies and his affiliation
with Weston Presidio, which has the right to select three
directors, led to the conclusion that he should serve as a
director of our Company.
Jordan A. Kahn became a director in January
2005. Mr. Kahn was the founder and Chairman of
the board of directors of The Holmes Group and served as
President and Chief Executive Officer of the Holmes organization
from 1982 through 2005. Since 1968, Mr. Kahn has also been
Managing Director of Jordan Kahn Co., Inc., a
manufacturers representative representing small electric
personal appliance manufacturers to retailers across the
Northeast. Mr. Kahns experience as the founder and
chief executive officer of a company that develops, manufactures
and sells consumer products worldwide led to the conclusion that
he should serve as a director of our Company.
William Kussell became a director in October
2010. Mr. Kussell has been an Operating Partner
at Advent International, focusing on the North American Consumer
Retail Segment since January 2010. Prior to joining Advent
International, he was President and Chief Brand Officer for
Dunkin Donuts World Wide from 1995 through 2009.
Mr. Kussells experience as the president of a retail
food company with a well-known brand and his association with
Advent International led to the conclusion that he should serve
as a director of our Company.
Richard K. Lubin became one of our directors upon the
consummation of the 2004 Transactions. Mr. Lubin, a
Managing Director of Berkshire Partners, which he co-founded in
1986, currently serves on the board of directors SSI Pooling GP,
Inc., the parent company of SkillSoft Limited. Mr. Lubin
has also served on the board of directors of Electro-Motive
Diesel, Inc., Holmes Products Corporation, U.S. Can
Corporation and numerous privately held companies.
Mr. Lubins experience serving as a director of both
public and private companies and his affiliation with Berkshire
Partners, which has the right to select three directors, led to
the conclusion that he should serve as a director of our Company.
Carol M. Meyrowitz became a director in August
2006. Ms. Meyrowitz is currently a Director and Chief
Executive Officer of The TJX Companies, Inc., a retailer of home
products and fashions, where she has had extensive management
experience since 1983. Ms. Meyrowitz also serves as a
director of Staples, Inc., is a member of The Boston Clubs
Corporate Advisory Board and is a member of the Board of
Governors for the Chief Executives Club of Boston, which
works in partnership with Boston Colleges Carroll School
of Management. Among her philanthropic activities, Ms. Meyrowitz
is a member of the Board of Overseers for the Joslin Diabetes
Center and is deeply involved with the National Alzheimers
Association. Ms. Meyrowitz also served on the board of
directors of the Yankee Candle Company from 2004 through 2007.
Ms. Meyrowitzs experience as the chief executive
officer of a well-known retailer of fashion and home products
led to the conclusion that she should serve as a director of our
Company.
David M. Mussafer has been a member of our Board since
August 2008. Mr. Mussafer, a Managing Partner of Advent
International, which he joined in 1990, previously served on the
board of directors of Dufry AG, Kirklands, Inc. and
lululemon athletica inc. Mr. Mussafer also serves as a
director of several privately
86
held companies. Mr. Mussafer received a B.S.M. from Tulane
University and an M.B.A. from the Wharton School of the
University of Pennsylvania. Mr. Mussafers experience
serving as a director of public and private companies and his
affiliation with Advent International, whose Class B common
stock holdings entitle it to elect up to three directors, led to
the conclusion that he should serve as a director of our Company.
In addition to the individual attributes of each of our
directors listed above, we highly value the collective
qualifications and experiences of our board members. We believe
the collective viewpoints and perspectives of our directors
results in a board that is dedicated to advancing the interests
of our stockholders.
Composition
of our Board of Directors
Upon the completion of this offering, the terms of office of
members of our board of directors will be divided into three
classes:
|
|
|
|
|
Class I directors, whose terms will expire at the annual
meeting of stockholders to be held in 2013;
|
|
|
|
|
|
Class II directors, whose terms will expire at the annual
meeting of stockholders to be held in 2014; and
|
|
|
|
|
|
Class III directors, whose terms will expire at the annual
meeting of stockholders to be held in 2015.
|
Our Class I directors will
be ,
our Class II directors will
be
and our Class III directors will
be .
At each annual meeting of stockholders, the successors to the
directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third
annual meeting following such election and until their
successors are duly elected and qualified or until his or her
earlier death, resignation or removal. Any vacancies in our
classified board of directors will be filled by the remaining
directors, and the elected person will serve the remainder of
the term of the class to which he or she is appointed. Any
additional directorships resulting from an increase in the
number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors.
Prior to the completion of this offering, our board of directors
will make a determination about the independence of the existing
and new members of the board of directors by reference to the
standards of
the .
Immediately following the completion of this offering, we expect
that a majority of our board of directors will be independent.
Board
Structure and Committee Composition
Our board of directors has established, or will establish prior
to the completion of this offering, an audit committee, a
compensation committee and a nominating and corporate governance
committee. Each committee will operate under a charter that will
be approved by our board of directors. The composition of each
committee will be effective upon the closing of this offering.
Audit
Committee
The Audit Committees primary duties and responsibilities
will be to:
|
|
|
|
|
appoint, compensate, retain and oversee the work of any
registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit,
review or attest services and review and appraise the audit
efforts of our independent accountants;
|
|
|
|
establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or
auditing matters;
|
|
|
|
engage independent counsel and other advisers, as necessary;
|
|
|
|
determine funding of various services provided by accountants or
advisers retained by the committee;
|
87
|
|
|
|
|
serve as an independent and objective party to oversee our
internal controls and procedures system; and
|
|
|
|
provide an open avenue of communication among the independent
accountants, financial and senior management and the board of
directors.
|
Upon completion of this offering, the Audit Committee will
consist
of
and will have at
least
independent members. All members of the Audit Committee will be
familiar with finance and accounting practice and principles and
will be financially literate. Furthermore, at least one member
of the Audit Committee will be an audit committee
financial expert as such a term is defined by the SEC.
Prior to the completion of this offering, our board of directors
will adopt a written charter under which the Audit Committee
will operate. A copy of the charter, which will satisfy the
applicable standards of the SEC and the New York Stock Exchange,
will be available on our website.
Compensation
Committee
Prior to the completion of this offering, our board of
directors will adopt a written charter under which the
Compensation Committee will operate. A copy of the charter,
which will satisfy the applicable standards of the SEC and
the ,
will be available on our website.
Upon completion of this offering, our Compensation Committee
will consist
of and
will have at
least independent
members.
The Compensation Committee will be responsible for:
|
|
|
|
|
reviewing and approving corporate and individual goals and
objectives relevant to executive officer compensation and
evaluating the performance of executive officers in light of the
goals and objectives;
|
|
|
|
reviewing and approving executive officer compensation;
|
|
|
|
reviewing and approving the chief executive officers
compensation based upon the Compensation Committees
evaluation of the chief executive officers performance;
|
|
|
|
making recommendations to the board of directors regarding the
adoption of new incentive compensation and equity-based plans,
and administering our existing incentive compensation and
equity-based plans;
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making recommendations to the board of directors regarding
compensation of the board members and its committee members;
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reviewing and discussing with management the compensation
discussion and analysis to be included in our filings with the
SEC and preparing an annual compensation committee report for
inclusion in our annual proxy statement;
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reviewing and approving generally any significant non-executive
compensation and benefits plans;
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reviewing our significant policies, practices and procedures
concerning human resource-related matters; and
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overseeing any other such matters as the board of directors
shall deem appropriate from time to time.
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Nominating
and Governance Committee
Upon completion of this offering, the Nominating and Governance
Committee of our board of directors will consist
of and
have
independent members.
The Nominating and Governance Committee will be responsible for
and oversee:
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recruiting and retention of qualified persons to serve on our
board of directors;
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proposing such individuals to the board of directors for
nomination for election as directors;
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evaluating the performance, size and composition of our board of
directors; and
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compliance activities.
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Prior to the consummation of this offering, our board of
directors will adopt a written charter under which the
Nominating and Governance Committee will operate. A copy of the
charter will be available on our website.
Code
of Business Conduct and Ethics
We will adopt a code of business conduct, applicable to our
officers, directors and employees, in connection with this
offering, which will be filed as an exhibit to the registration
statement of which this prospectus forms a part.
89
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This compensation discussion and analysis section will provide
context for the information contained in the tables following
this discussion and is intended to provide information about our
compensation objectives and policies for Gerald C. Rittenberg,
our Chief Executive Officer, James M. Harrison, our President
and Chief Operating Officer, Michael A. Correale, our Chief
Financial Officer, and Gregg A. Melnick, our President-Party
City Retail Group (collectively, our named executive
officers).
Compensation
Committee
The Compensation Committee of the board of directors consists of
Richard K. Lubin, Chairman, Kevin M. Hayes, Jordan A. Kahn and
David M. Mussafer. The Compensation Committee is responsible for
setting and administering our executive compensation policies
and programs and determining the compensation of our executive
officers. The Compensation Committee also administers our Equity
Incentive Plan (as defined hereafter). The Compensation
Committee met periodically in 2011, and all members of the
Compensation Committee attended each meeting.
The Compensation Committee has the authority to retain outside
independent executive compensation consultants to assist in the
evaluation of executive officer compensation and in order to
ensure the objectivity and appropriateness of the actions of the
Compensation Committee. The Compensation Committee has the sole
authority to retain, at our expense, and terminate any such
consultant, including sole authority to approve such
consultants fees and other retention terms. However, all
decisions regarding compensation of executive officers are made
solely by the Compensation Committee. No independent executive
compensation consultants were retained by the Compensation
Committee during 2011.
Compensation
Philosophy
Our executive compensation program has been designed to
motivate, reward, attract and retain the management deemed
essential to ensure our success. The program seeks to align
executive compensation with our short- and long-term objectives,
business strategy and financial performance. We seek to create a
sustainable competitive advantage by achieving higher
productivity and lower costs than our competitors. Our
compensation objectives at all compensation levels are designed
to support this goal by:
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linking pay to performance to create incentives to perform;
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ensuring compensation levels and components are actively
managed; and
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using equity compensation to align employees long-term
interests with those of our stockholders.
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Compensation
Our Chief Executive Officer and our President and Chief
Operating Officer jointly evaluate the performance of all
executive and senior officers, other than themselves, against
their established goals and objectives and recommend
compensation packages to the Compensation Committee. The
Compensation Committee evaluates the performance of our Chief
Executive Officer and President and Chief Operating Officer. The
Compensation Committee meets annually, usually in February, to
evaluate the performance of the executive and senior officers,
and to establish their base salaries, annual cash incentive
award for the prior years performance and share-based
incentive compensation to be effective in the first quarter of
the current year. The Compensation Committee may meet at interim
dates during the year to review the compensation package of a
named executive or other officer as the result of unforeseen
organizational or responsibility changes, including new hires,
that occur during the year.
In determining compensation components and levels, the Chief
Executive Officer, President and Chief Operating Officer and the
Compensation Committee consider the scope and responsibility of
the officers position, our overall financial and operating
performance, the officers overall performance and future
90
potential, and the officers income potential resulting
from common stock acquired and stock options received in prior
years. Three of the four members of the Compensation Committee
are representatives of the private equity firms that
collectively own approximately 91% of our outstanding equity.
Thus, unlike the situation at many public companies,
compensation decisions at our company are made by individuals
who have a real and direct economic stake in the outcome of the
decisions. The Compensation Committee members apply their
considerable experiences in serving as directors of private
equity portfolio companies to devise compensation packages that
they believe will attract, retain and provide incentives to the
executive talent necessary to manage an entity in which their
firms have a substantial economic interest. Although the
Compensation Committee looks to other companies to get a sense
of the market for executive compensation in comparable
circumstances, it does not engage in formal benchmarking. The
members take the compensation actions that a prudent owner of a
business would take to make sure that they have the right
executive management to protect their investment.
Our Chief Executive Officer and Chief Operating Officer set
salaries and bonus opportunities for employees below the levels
of executive and senior officers and make recommendations with
respect to equity incentive awards to employees at these levels.
Components
of Compensation
The Companys named executive and other officer
compensation includes both short-term and long-term components.
Short-term compensation consists of an officers annual
base salary and annual incentive cash bonus. Long-term
compensation may include grants of stock options, restricted
stock or other share-based incentives established by the
Company, as determined by the Compensation Committee.
Compensation is comprised of the following components:
Base
Salary
The base salaries for our officers were determined based on the
scope of their responsibilities, basing the determination in
large part on the collective experience that the Sponsor
representatives have with other companies in their respective
portfolios. Generally, we believe that executive base salaries
should be near the middle of the range of salaries that our
Committee members have observed for executives in similar
positions and with similar responsibilities. Base salaries are
reviewed annually and adjusted from time to time to reflect
individual responsibilities, performance and experience, as well
as market compensation levels. In the case of
Mr. Rittenberg and Mr. Harrison, annual salary
adjustments are determined in accordance with their respective
employment agreements. Mr. Correales annual salary
adjustment for 2011 was the result of an evaluation of his
overall performance during the last completed fiscal year by the
Compensation Committee, Chief Executive Officer, and President
and Chief Operating Officer.
Annual
Cash Bonus Plan
We have an annual cash incentive plan that is designed to serve
as an incentive to drive annual financial performance. As a
company with a substantial amount of indebtedness, we believe
that Adjusted EBITDA is an important measure of our financial
performance and ability to service our indebtedness and we use
it as the target metric for our annual cash incentive plan.
Adjusted EBITDA is a non-GAAP measure used internally and is
measured by taking net income (loss) from operations and adding
back interest charges, income taxes, depreciation and
amortization and adjustments for other non-cash or non-recurring
transactions. For a discussion of our use of Adjusted EBITDA and
a reconciliation to net income, please refer to Prospectus
Summary Summary Financial Data. For 2011,
seventy-five percent (75%) of an executives target annual
bonus under the plan depended on our performance against an
Adjusted EBITDA target of $263 million. For the remaining
twenty-five percent (25%) there is a presumption that it will be
paid unless the Compensation Committee, with input from our CEO
and President and Chief Operating Officer, determines, on a
subjective basis, that the full amount should not be paid. In
making its bonus determinations, the Compensation Committee
evaluates the individual executives overall contribution
during the prior year, but there are no specific,
pre-determined, performance goals. Each named executive was
assigned a percentage of base
91
salary ranging from 50%, in the case of
Mr. Correale and Mr. Melnick, to 100%, in the case of
Mr. Rittenberg and Mr. Harrison that could be
earned if the target Adjusted EBITDA was achieved and the
Compensation Committee, with input from senior management, was
satisfied with the contributions made by the executive during
the prior year. Depending on actual Adjusted EBITDA, the portion
of the incentive award that is related to Adjusted EBITDA can be
paid at a maximum of 200% for Mr. Rittenberg and Mr.
Harrison and 150% for Mr. Correale and Mr. Melnick.
For 2011, the Compensation Committee has not yet determined the
incentive award amounts that were earned by the named executive
officers. The target Adjusted EBITDA was $263 million. If
we achieve Adjusted EBITDA of $292 million,
Mr. Rittenberg and Mr. Harrison will earn 200% of the
Adjusted EBITDA portion of the incentive award target and
Mr. Correale and Mr. Melnick will earn 150% of the
Adjusted EBITDA portion of the incentive award target. To the
extent that Adjusted EBITDA exceeds $263 million, but is
less than $292 million, the percentage of the Adjusted
EBITDA portion of the incentive award target that is earned by
the named executive officers is adjusted on a pro-rata basis.
If we achieve Adjusted EBITDA of less than $239 million,
the named executive officers will earn 0% of the Adjusted EBITDA
portion of the incentive award target. To the extent that
Adjusted EBITDA exceeds $239 million, but is less than
$263 million, the percentage of the Adjusted EBITDA portion
of the incentive award target that is earned by the named
executive officers is adjusted downward on a pro-rata basis.
Upon completion of this offering, annual award opportunities for
certain key employees, including our named executive officers,
will be granted under the Party City Holdings Inc. Executive
Annual Incentive Plan, which is described below under the
heading Party City Holdings Inc. Executive Annual
Incentive Plan.
Stock-based
Incentive Program
We maintain the 2004 Equity Incentive Plan (the Equity
Incentive Plan) under which the Committee may grant
incentive awards in the form of options to purchase shares of
common stock and shares of restricted or unrestricted common
stock to directors, officers, employees and consultants of Party
City and its affiliates. The Compensation Committee uses the
Equity Incentive Plan as an important component of our overall
compensation program because it helps retain key employees,
aligns their financial interests with the interests of our
equity owners, and rewards the achievement of the our long-term
strategic goals. Common stock options provide our employees with
the opportunity to purchase and maintain an equity interest in
the Company and to share in the appreciation of the value of our
stock.
We granted a substantial amount of equity at the time of the
2004 Acquisition and have refreshed those awards on several
occasions since 2004. The Committee uses both time-based awards
and performance-based awards to provide what it believes are the
appropriate incentives. Time-based stock options help to retain
executives, who must be employed by us at the time the award
vests. In addition, because we set the exercise price of stock
options at the fair value of the common stock at the time of
grant, our equity value must increase thereby
benefiting all stockholders before the awards have
any value. We issue two types of performance-based options under
the Equity Incentive Plan. One type of performance-based option
is subject to vesting only if there is a liquidity event and our
private equity owners have achieved a specified internal rate of
return on their investment. The other type of performance-based
option is subject to vesting only if there is a liquidity event
in which a certain price per share is realized by our private
equity owners. We believe that these options put our executives
in the shoes of the equity owners and align their interest with
those of our stockholders.
Unless otherwise provided in the related award agreement or, if
applicable, the Stockholders Agreement, immediately prior
to certain change of control transactions described in the
Equity Incentive Plan, all outstanding Company stock options
will, subject to certain limitations, become fully exercisable
and vested, and any restrictions and deferral limitations
applicable to any restricted stock awards will lapse. We believe
that providing for acceleration upon a liquidity event such as a
change of control helps to align the interests of the executive
with those of the stockholders.
In March 2010, the Compensation Committee made a stock option
award to Gregg A. Melnick, upon and in recognition of his
promotion to the President of Party City. The award consisted of
time-based options for
92
30 shares of our common stock that vest in five equal
annual installments commencing on the first anniversary of the
date of grant and performance-based options for 16 shares
that have performance terms that are subject to vesting only if
there is a liquidity event and our private equity owners have
achieved a specified internal rate of return on their
investment. The Compensation Committee wanted Mr. Melnick
to have an equity stake in the Company at a level that is
consistent with individuals who held similar positions, which is
how it determined the size of the award. The allocation between
time-based and performance-based options was consistent with the
allocations for other executives.
In February 2011, the Compensation Committee made a stock option
award to Michael A. Correale. The award consisted of 25
performance-based options for 25 shares of common stock
that have performance terms that are subject to vesting only if
there is a liquidity event and our private equity owners have
achieved a specified internal rate of return on their investment.
On June 13, 2011, the Compensation Committee granted stock
options under the Equity Incentive Plan to Mr. Rittenberg
and Mr. Harrison. Mr. Rittenberg was granted an option
to purchase 100 shares of common stock that is subject to
time-based vesting, an option to purchase 100 shares of
common stock that is subject to vesting only if there is a
liquidity event and our private equity owners have achieved a
specified internal rate of return on their investment and an
option to purchase 100 shares of common stock that is
subject to vesting only if there is a liquidity event in which a
certain price per share is realized by our private equity
owners. Mr. Harrisons options have the same terms as
Mr. Rittenbergs, except that only 75 shares of
common stock are subject to each such option.
The Equity Incentive Plan is further described below under the
heading Equity Incentive Plans
2004 Equity Incentive Plan.
Special
stock option distribution
In December 2010, in connection with the refinancing of our term
loan agreement (see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources),
our board of directors declared a one-time cash dividend of
$9,400 per share of outstanding Common Stock. Because a dividend
of that magnitude would reduce the value of the Common Stock,
the Compensation Committee made dividend equivalent
distributions to the holders of vested options. The named
executive officers to the extent they held vested options,
received the same payment per vested option as if they were
stockholders. These distributions are reflected in the All
Other Compensation column of the Summary Compensation
Table below. In addition, the Compensation Committee intends to
pay a dividend equivalent, without interest, on each other
option that was outstanding at the time the dividend was
declared. The board of directors and Compensation Committee
believe that this treatment of option holders is fair and
consistent with their status as equity participants in our
Company.
Other
Compensation
Each named executive is eligible to participate in our benefit
plans, such as medical, dental, group life, disability and
accidental death and dismemberment insurance. Under our
profit-sharing plans, our named executive officers and generally
all full-time domestic exempt and non-exempt employees who meet
certain
length-of-service
and age requirements, as defined in such plans, may contribute a
portion of their compensation to the plan on a pre-tax basis and
receive an employer matching contribution ranging from
approximately 12% to 100% of the employee contributions, not to
exceed a range of 4% to 6% of the employees annual salary.
In addition, our profit-sharing plans provide for annual
discretionary contributions to be credited to participants
accounts. Named executive officers participate in the benefit
plans on the same basis as our other employees.
The Chief Executive Officer and the President and Chief
Operating Officer drive automobiles owned by the Company. The
Chief Financial Officer and the President-Party City Retail
Group each receive an allowance to cover the cost of his
automobile. The annual value of the automobile usage and the
allowance are reported as taxable income to the executive and
are reflected in the All Other Compensation column
of the Summary
93
Compensation Table below. All employees, including the named
executives are reimbursed for the cost of business-related
travel.
The named executive officers did not receive any other
perquisites, personal benefits or property in 2011, 2010 or 2009.
Tax
Treatment
Because our Common Stock is not currently publicly traded,
executive compensation has not been subject to the provisions of
Section 162(m) of the Internal Revenue Code (the
Code), which limit the deductibility of compensation
paid to certain individuals to $1.0 million, excluding
qualifying performance-based compensation and certain other
compensation. Following this offering, the Compensation
Committee will endeavor to structure compensation arrangements
so that the amounts paid will be deductible for federal income
tax purposes. However, the Compensation Committee believes that
our interests are best served if it retains the flexibility to
design and structure compensation arrangements that may not be
deductible for federal income tax purposes and intends to do so.
Summary
Compensation Table
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Non-Equity
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Option
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Incentive Plan
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All Other
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Name and
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Awards
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Compensation
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Compensation
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Principal Position
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Year
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Salary
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(a)
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(b)
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(c)
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Total
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Gerald C. Rittenberg
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2011
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$
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1,212,750
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$
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715,900
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$
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$
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525,140
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$
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2,453,790
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Chief Executive
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2010
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1,102,500
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1,448,900
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2,613,308
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5,164,708
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Officer
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2009
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1,050,000
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1,017,000
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373,666
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2,440,666
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James M. Harrison
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2011
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$
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1,030,838
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$
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536,925
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$
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$
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417,819
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$
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1,985,582
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President and
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2010
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937,125
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1,231,600
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1,790,159
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3,958,884
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Chief Operating Officer
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2009
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892,500
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864,500
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272,945
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2,029,945
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Michael A. Correale
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2011
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$
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349,745
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$
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$
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$
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39,564
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$
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389,309
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Chief Financial
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2010
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341,226
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226,700
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260,694
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828,620
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Officer
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2009
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330,543
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129,100
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42,290
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501,933
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Gregg A. Melnick
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2011
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$
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531,461
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$
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$
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$
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74,434
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$
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605,895
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President, Party City Retail
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2010
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497,327
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232,530
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344,991
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262,600
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1,337,448
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Group
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(a) |
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The dollar values shown reflect the aggregate grant date fair
value of equity awards granted within the year in accordance
with the Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic 718 for stock-based
compensation. These amounts reflect the total grant date expense
for these awards and do not correspond to the actual value that
will be recognized by each individual when received. The
assumptions used in determining the fair values are disclosed in
Note 15 to our audited consolidated financial statements
that appear elsewhere in this prospectus. |
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(b) |
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The Compensation Committee has not yet determined 2011
non-equity incentive plan compensation under the annual cash
bonus plan. We expect that the amounts will be determined during
the first quarter of 2012. See the Grants of Plan Based
Awards table for the 2011 non-equity incentive plan
targets, and maximum amounts, for each of the named executive
officers. |
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(c) |
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Includes for 2011 a special distribution of $9,400 per vested
time-based option, as described above, to Mr. Melnick
($65,800) and an annual accrual for deferred bonuses for
Mr. Rittenberg and Mr. Harrison of $500,000 and
$400,000, respectively, that are payable under their employment
agreements described below. In addition, each of the named
executive officers received a car allowance in the following
amounts: Mr. Rittenberg ($14,000); Mr. Harrison
($6,600); Mr. Correale ($28,800); and Mr. Melnick
($8,100). Also included are amounts related to matching 401(k)
contributions, contributions to our profit-sharing plan and life
insurance and disability contributions. |
94
Grants of
Plan Based Awards
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All Other
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All Other
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Option
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Stock
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Awards:
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Grant Date
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Estimated Future Payouts
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Awards:
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Number of
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Exercise
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Fair Value
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Under Non-Equity Incentive
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Number
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Securities
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Price of
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of Stock
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Grant
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Plan Awards
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of Shares
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Underlying
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Option
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and Option
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Name
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Date
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Threshold
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Target
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Maximum
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of Stocks
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Options(1)
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Awards
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Awards
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Gerald C. Rittenberg
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6/13/2011
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100
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$
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29,600
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$
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715,900
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6/13/2011
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200
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29,600
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(2)
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1/1/2011
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$
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1,212,750
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$
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2,122,313
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James M. Harrison
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6/13/2011
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75
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|
|
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29,600
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|
|
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536,925
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6/13/2011
|
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150
|
|
|
|
29,600
|
|
|
|
|
(2)
|
|
|
|
1/1/2011
|
|
|
|
|
|
|
|
1,030,838
|
|
|
|
1,803,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Correale
|
|
|
2/23/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
27,700
|
|
|
|
|
(2)
|
|
|
|
1/1/2011
|
|
|
|
|
|
|
|
175,950
|
|
|
|
241,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregg A. Melnick
|
|
|
1/1/2011
|
|
|
|
|
|
|
|
267,750
|
|
|
|
368,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For more information on 2011 grants, please see
Stock-based Incentive Program. |
|
|
|
(2) |
|
There is no value assigned to these performance grants under
applicable accounting guidance. |
Outstanding
Equity Awards
The following table sets forth certain information with respect
to outstanding equity awards at December 31, 2011 with
respect to the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Options (#)
|
|
|
Price ($)
|
|
|
Date(1)
|
|
|
Gerald C. Rittenberg
|
|
|
33.33
|
|
|
|
66.67
|
|
|
|
200.00
|
|
|
$
|
29,600
|
|
|
|
6/13/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
100.00
|
|
|
|
22,340
|
|
|
|
3/6/2018
|
|
|
|
|
42.40
|
|
|
|
|
|
|
|
127.20
|
|
|
|
12,000
|
|
|
|
4/1/2016
|
|
|
|
|
154.51
|
|
|
|
|
|
|
|
162.86
|
|
|
|
10,000
|
|
|
|
4/1/2015
|
|
|
|
|
40.58
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
4/30/2014
|
|
James M. Harrison
|
|
|
25.00
|
|
|
|
50.00
|
|
|
|
150.00
|
|
|
|
29,600
|
|
|
|
6/13/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
75.00
|
|
|
|
22,340
|
|
|
|
3/6/2018
|
|
|
|
|
38.16
|
|
|
|
|
|
|
|
114.48
|
|
|
|
12,000
|
|
|
|
4/1/2016
|
|
|
|
|
103.01
|
|
|
|
|
|
|
|
108.58
|
|
|
|
10,000
|
|
|
|
4/1/2015
|
|
Michael A. Correale
|
|
|
|
|
|
|
|
|
|
|
25.00
|
|
|
|
27,700
|
|
|
|
2/23/2021
|
|
|
|
|
12.72
|
|
|
|
|
|
|
|
25.44
|
|
|
|
12,000
|
|
|
|
4/1/2016
|
|
|
|
|
10.44
|
|
|
|
|
|
|
|
17.40
|
|
|
|
10,000
|
|
|
|
4/1/2015
|
|
Gregg A. Melnick
|
|
|
6.00
|
|
|
|
24.00
|
|
|
|
16.00
|
|
|
|
28,350
|
|
|
|
3/10/2020
|
|
|
|
|
3.00
|
|
|
|
2.00
|
|
|
|
10.00
|
|
|
|
22,340
|
|
|
|
2/25/2018
|
|
|
|
|
25.00
|
|
|
|
|
|
|
|
50.00
|
|
|
|
12,000
|
|
|
|
4/1/2016
|
|
|
|
|
(1) |
|
Option awards that expire on April 30, 2014 were fully
vested at issuance. Option awards that expire on April 1,
2015 were fully vested on April 30, 2009. Option awards
that expire on April 1, 2016 were fully vested on
December 23, 2010. Option awards that expire on
June 13, 2021 vested 33.33% on June 13, |
95
|
|
|
|
|
2011 and 33.33% per year thereafter. All other option awards
shown vest annually 20% per year beginning on the first
anniversary of the grant date. |
Option
Exercises
The following table provides information regarding options to
purchase our common stock that were exercised by our named
executive officers during 2011.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Acquired
|
|
|
Value Realized
|
|
Name
|
|
On Exercise (#)
|
|
|
On Exercise ($)(1)
|
|
|
Gerald C. Rittenberg
|
|
|
|
|
|
|
|
|
James M. Harrison
|
|
|
20.29
|
|
|
$
|
549,859
|
|
Michael A. Correale
|
|
|
|
|
|
|
|
|
Gregg A. Melnick
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts based on the difference between the exercise price of
the options and the most recent fair market value of our common
stock as determined by our board of directors at the time of
exercise. |
Potential
Payments upon Change in Control
The employment contracts of Mr. Rittenberg and
Mr. Harrison and a severance agreement with
Mr. Correale provide for severance benefits upon a
termination or change in control. For a discussion of
Mr. Rittenbergs and Mr. Harrisons
employment contracts, see Employment
Arrangements. The following table presents the potential
post-employment severance, bonus and deferred bonus payments
payable to Mr. Rittenberg, Mr. Harrison and
Mr. Correale, as applicable, and assumes that the
triggering event took place on December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Cause or
|
|
|
Death and
|
|
|
Change-in-
|
|
Name
|
|
Benefit
|
|
for Good Reason
|
|
|
Disability
|
|
|
Control(5)
|
|
|
Gerald C. Rittenberg
|
|
Severance(1)
|
|
$
|
5,138,250
|
|
|
$
|
|
|
|
$
|
5,087,150
|
|
|
|
Bonus(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Bonus(3)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
James M. Harrison
|
|
Severance(1)
|
|
$
|
4,292,513
|
|
|
$
|
|
|
|
$
|
3,824,113
|
|
|
|
Bonus(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Bonus(3)
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
400,000
|
|
Michael A. Correale
|
|
Severance(4)
|
|
$
|
527,850
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
If the employee is terminated other than for cause, or if he
terminates his employment for good reason, the employee is
entitled to receive three times the sum of his base salary and
$500,000 ($400,000 in the case of Mr. Harrison). If the
employee is terminated under those circumstances within six
months following a change in control, the employee receives the
sum of (a) his base salary multiplied by three and
(b) the amount equal to the annual bonus paid to the
employee with respect to the last full calendar year of his
employment prior to the change in control. |
|
|
|
(2) |
|
In accordance with the employment agreements for
Mr. Rittenberg and Mr. Harrison, if their employment
is terminated other than for cause or if they terminate their
employment agreements for good reason, we are obligated to pay
them their earned, but unpaid, annual bonuses for any prior
year. The Compensation Committee has not yet determined 2011
non-equity incentive plan compensation. We expect that the
amounts will be determined during the first quarter of 2012. |
|
|
|
(3) |
|
Represents accrued but unpaid deferred bonus earned by the
executive officer through the date of termination. |
|
|
|
(4) |
|
Represents payment under the severance agreement based on the
officers base salary and 100% bonus for the year of
termination. |
96
|
|
|
(5) |
|
If Mr. Rittenberg and Mr. Harrison are not offered
employment on substantially similar terms by us or one of our
affiliates following a change in control, their employment will
be treated as having been terminated other than for cause. See
(1) above for the calculation of termination benefits. |
Employment
Arrangements
Employment Agreement with Gerald C.
Rittenberg. Gerald C. Rittenberg entered into an
employment agreement with us dated June 1, 2011 and amended
on July 1, 2011 (the Rittenberg Employment
Agreement), pursuant to which Mr. Rittenberg will
serve as our Chief Executive Officer for an employment period of
January 1, 2011 through December 31, 2015. For 2011,
Mr. Rittenbergs annual base salary is $1,212,750. His
base salary is subject to an automatic five percent increase on
January 1 each year during his employment period commencing in
2012. Mr. Rittenberg will be eligible for an annual bonus
with a target of 100% of annual base salary for each calendar
year during the employment period consistent with the
Companys bonus plan for key executives in effect from time
to time, not to exceed 200% of the annual base salary. In
addition to the annual bonus, Mr. Rittenberg is entitled to
receive a deferred bonus accruing at a rate of $500,000 per year
(the Deferred Bonus). The Deferred Bonus for the
period beginning on January 1, 2011 and ending on
December 31, 2012 will be paid to Mr. Rittenberg on
December 31, 2012, subject to his remaining continuously
employed by the Company through such date, or, if earlier, upon
the termination of Mr. Rittenbergs employment by the
Company other than for cause, by Mr. Rittenberg for good
reason, or by reason of Mr. Rittenbergs permanent
disability or death. If Mr. Rittenberg continues his
employment after December 31, 2012, the Deferred Bonus
accruing for the period beginning January 1, 2013 will be
paid upon the earliest of the expiration of the employment
period or the termination of his employment by the Company other
than for cause, by Mr. Rittenberg for good reason, or by
reason of Mr. Rittenbergs permanent disability or
death. Any payment of the Deferred Bonus to Mr. Rittenberg
upon the termination of his employment will be subject to his
signing a release of claims. The Rittenberg Employment Agreement
also provides for other customary benefits including savings and
retirement plans, paid vacation, health care and life insurance
plans and expense reimbursement.
Under the Rittenberg Employment Agreement, if we terminate
Mr. Rittenbergs employment other than for cause, or
if Mr. Rittenberg terminates his employment for good
reason, we would be obligated to pay Mr. Rittenberg the
following lump sum cash payments: (1) accrued unpaid
salary, earned but unpaid annual bonus for any prior year and
accrued but unpaid vacation pay (collectively, the Accrued
Obligations); (2) severance pay (the Severance
Payment) equal to (A)(x) his annual base salary plus
(y) $500,000 multiplied by (B) the number of years in
the Restriction Period (which will last one to three years
following the termination of his employment, as described
below); provided, however, that if such a termination occurs
within six months following a change in control, the Restriction
Period will equal three years and the Severance Payment will
equal the sum of three years base salary and the amount of
annual bonus paid to Mr. Rittenberg with respect to the
last full calendar of his employment prior to the change in
control; (3) the Deferred Bonus (as described above and
calculated under the Rittenberg Employment Agreement) and
(4) a pro rata annual bonus for the year of termination.
Upon termination of Mr. Rittenbergs employment by us
for cause, or upon the termination of his employment without
good reason, Mr. Rittenberg will be entitled to the Accrued
Obligations. Upon his termination due to death or disability, he
will be entitled to the Accrued Obligations, the Deferred Bonus
and a pro rata annual bonus for the year of termination. All
payments of the Deferred Bonus and pro rata bonus are subject to
Mr. Rittenbergs signing of a release of claims.
If a change in control occurs and Mr. Rittenberg is not
offered employment on substantially similar terms by us or by
one of our continuing affiliates immediately thereafter, then
for all purposes of the Rittenberg Employment Agreement,
Mr. Rittenbergs employment will be treated as having
been terminated by us other than for cause effective as of the
date of such change in control. However, if Mr. Rittenberg
is hired or offered employment on substantially similar terms by
the purchaser of our stock or assets, if his employment is
continued by us or one of our continuing affiliates, or if
Mr. Rittenberg does not actually terminate employment, he
will not be entitled to the treatment described in the preceding
sentence.
The Rittenberg Employment Agreement also provides that during
the term of the agreement and the Restriction Period (as
described below), Mr. Rittenberg will be subject to certain
non-competition
and
non-solicitation
provisions, as described in the Rittenberg Employment Agreement.
The Restriction Period will
97
be three years in the event of the termination of
Mr. Rittenbergs employment by us for cause or by
Mr. Rittenberg without good reason. If we terminate
Mr. Rittenbergs employment other than for cause or
due to his death or permanent disability, or Mr. Rittenberg
terminates his employment for good reason, the Restriction
Period will be instead a one, two or three-year period,
determined at our election (except that following a change in
control, the Restriction Period will be three years if
Mr. Rittenbergs employment is terminated by us other
than for cause or by Mr. Rittenberg for good reason).
Employment Agreement with James M.
Harrison. James M. Harrison entered into an
employment agreement with us dated June 1, 2011 and amended
on July 1, 2011 (the Harrison Employment
Agreement), pursuant to which Mr. Harrison agreed to
serve as our President for an employment period of
January 1, 2011 through December 31, 2015. The
Harrison Employment Agreement is substantially identical to the
Rittenberg Employment Agreement. The only material differences
from the Rittenberg Employment Agreement are that (1) for
2011, Mr. Harrisons annual base salary is
$1,030,837.50, (2) Mr. Harrisons deferred bonus
accrues at a rate of $400,000 per year, and (3) the
Severance Payment payable to Mr. Harrison in the case of a
termination of his employment by us other than for cause or by
Mr. Harrison for good reason is based on his annual base
salary plus $400,000.
Equity
Incentive Plans
2004
Equity Incentive Plan
The following is a description of the material terms of the 2004
Equity Incentive Plan, which we refer to in this summary as the
Equity Incentive Plan. Following this offering, we
will no longer make awards under the Equity Incentive Plan and
will instead make awards under the 2012 Omnibus Incentive Plan
described below.
Plan Administration. The Equity Incentive Plan
is administered by the Compensation Committee.
Authorized Shares. Subject to adjustment as
described in the Equity Incentive Plan, the maximum number of
shares of common stock that may be delivered in satisfaction of
awards under the Equity Incentive Plan is 5,439.2668. Shares of
common stock to be issued under the Equity Incentive Plan may be
authorized but unissued shares of common stock or, if determined
by the board in its sole discretion, previously-issued shares
acquired by the Company and held in our treasury. Any shares of
common stock that do not vest and are forfeited or that are,
upon exercise, satisfied other than by the delivery of stock
will again be available for issuance under the Equity Incentive
Plan.
Eligibility. The Compensation Committee
selects participants from among those employees, consultants and
advisers who are in a position to make a significant
contribution to our success, subject to certain limitations in
the case of incentive stock options (ISOs).
Types of Awards; Vesting. The Equity Incentive
Plan provides for grants of stock options, restricted stock and
unrestricted stock. The Compensation Committee has the authority
to determine the vesting schedule applicable to each award, and
to accelerate the vesting or exercisability of any award.
Termination of Employment. Unless otherwise
provided by the Compensation Committee or in an award agreement,
upon a termination of employment or service all unvested options
and other awards requiring exercise will terminate and all other
unvested awards will be forfeited. Vested options may remain
exercisable for specified periods of time post-termination as
determined by the Compensation Committee.
Corporate Transactions. In the event of
certain corporate transactions, the Compensation Committee may
provide for the continuation or assumption of outstanding awards
or for new grants in substitution of outstanding awards for
those participants who will continue to provide services
following the transaction and otherwise all outstanding awards
will cease to be exercisable (following payment in respect of
any vested awards, as determined by the Compensation Committee).
The Compensation Committee may accelerate the vesting, in whole
or in part, of any outstanding award prior to such corporate
transaction.
98
Amendment and Termination. The Compensation
Committee may amend the Equity Incentive Plan or outstanding
awards, or terminate the Equity Incentive Plan, except that the
consent of a participant will be required for any amendment to
an award that adversely affects a participants rights
under such award.
2012
Omnibus Incentive Plan
Prior to the completion of this offering, our board of directors
intends to adopt an incentive plan to be named the Party City
Holdings Inc. 2012 Omnibus Incentive Plan (the Omnibus
Plan). The Omnibus Plan will replace the Equity Incentive
Plan, and following this offering, all equity-based awards will
be granted under the Omnibus Plan. The following summary
describes what we anticipate to be the material terms of the
Omnibus Plan.
Plan Administration. The Omnibus Plan will be
administered by the Compensation Committee.
Authorized Shares. Subject to adjustment, the
maximum number of shares of common stock that may be delivered
in satisfaction of awards under the Omnibus Plan will
be shares.
Shares of common stock to be issued under the Omnibus Plan may
be authorized but unissued shares of common stock or
previously-issued shares acquired by the Company or its
subsidiaries. Any shares of common stock underlying awards that
are settled in cash or otherwise expire or become unexercisable
without having been exercised or are forfeited to or repurchased
by the Company as a result of not having vested, or that are
withheld by the Company in payment of the exercise price of an
award or in satisfaction of tax withholding obligations, will
again be available for issuance under the Omnibus Plan.
Individual Limits. The maximum number of
shares of common stock for which stock options may be granted
and the maximum number of shares of common stock subject to
stock appreciation rights to any person in any calendar year
will each
be shares.
The maximum number of shares subject to other awards granted to
any person in any calendar year will
be shares.
Eligibility. The Compensation Committee will
select participants from among the key employees, directors,
consultants and advisors of the Company or its affiliates who,
in the opinion of the Compensation Committee, are in a position
to make a significant contribution to our success, subject to
certain limitations in the case of ISOs.
Types of Awards; Vesting. The Omnibus Plan
will provide for grants of stock options, restricted and
unrestricted stock and stock units, performance awards, stock
appreciation rights, and other awards that are convertible into
or otherwise based on our common stock. Dividend equivalents may
also be provided in connection with an award under the Omnibus
Plan. The Compensation Committee will have the authority to
determine the vesting schedule applicable to each award, and to
accelerate the vesting or exercisability of any award.
Termination of Employment. Unless otherwise
provided by the Compensation Committee or in an award agreement,
upon a termination of employment or service all unvested options
and other awards requiring exercise will terminate and all other
unvested awards will be forfeited. Vested options may remain
exercisable for specified periods of time post-termination as
determined by the Compensation Committee.
Performance Criteria. The Omnibus Plan will
provide that grants of performance awards will be made subject
to the achievement of performance criteria over a
performance period, which may be one or more periods as
established by the Compensation Committee. Performance criteria
with respect to those awards that are intended to qualify as
performance-based compensation for purposes of
Section 162(m) of the Code will be limited to objectively
determinable measures of performance relating to any or any
combination of the following (measured either absolutely or by
reference to an index or indices and determined either on a
consolidated basis or, as the context permits, on a divisional,
subsidiary, line of business, project or geographical basis or
in combinations thereof): net sales; system-wide sales;
comparable store sales; revenue; revenue growth or product
revenue growth; operating income (before or after taxes);
adjusted operating income; adjusted net income; adjusted
earnings per share; channel revenue; channel revenue growth;
franchising commitments; manufacturing profit; manufacturing
profit margin; store closures; pre- or after-tax income or loss
(before or after allocation of corporate overhead and bonus);
earnings or loss per share; net
99
income or loss (before or after taxes); return on equity; total
stockholder return; return on assets or net assets; appreciation
in and/or
maintenance of the price of the shares or any other
publicly-traded securities of the Company; market share; gross
profits; earnings or losses (including earnings or losses before
taxes, before interest and taxes, or before interest, taxes,
depreciation
and/or
amortization); adjusted earnings or losses (including adjusted
earnings or losses before taxes, before interest and taxes, or
before interest, taxes, depreciation and/or amortization);
economic value-added models or equivalent metrics; comparisons
with various stock market indices; reductions in costs; cash
flow or cash flow per share (before or after dividends); return
on capital (including return on total capital or return on
invested capital); cash flow return on investment; improvement
in or attainment of expense levels or working capital levels,
including cash, inventory and accounts receivable; operating
margin; gross margin; year-end cash; cash margin; debt
reduction; stockholders equity; operating efficiencies; market
share; customer satisfaction; customer growth; employee
satisfaction; supply chain achievements (including establishing
relationships with manufacturers or suppliers of component
materials and manufacturers of the Companys products);
points of distribution; gross or net store openings;
co-development, co-marketing, profit sharing, joint venture or
other similar arrangements; financial ratios, including those
measuring liquidity, activity, profitability or leverage; cost
of capital or assets under management; financing and other
capital raising transactions (including sales of the
Companys equity or debt securities; factoring
transactions; sales or licenses of the Companys assets,
including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering
transactions); implementation, completion or attainment of
measurable objectives with respect to research, development,
manufacturing, commercialization, products or projects,
production volume levels, acquisitions and divestitures;
factoring transactions; and recruiting and maintaining personnel.
To the extent consistent with the requirements of
Section 162(m), the Compensation Committee may establish
that, in the case of any award intended to qualify as exempt
performance-based compensation under Section 162(m), that
one or more of the performance criteria applicable to such award
be adjusted in an objectively determinable manner to reflect
events occurring during the performance period of such award
that affect the applicable performance criteria.
Corporate Transactions. In the event of a
consolidation, merger or similar transaction, a sale or transfer
of all or substantially all of the Companys assets or a
dissolution or liquidation of the Company, the Compensation
Committee may, among other things, provide for continuation or
assumption of outstanding awards, for new grants in substitution
of outstanding awards, or for the accelerated vesting or
delivery of shares under awards, in each case on such terms and
with such restrictions as it deems appropriate. Except as
otherwise provided in an award agreement, awards not assumed
will terminate upon the consummation of such corporate
transaction.
Adjustment. In the event of certain corporate
transactions, the Compensation Committee will make appropriate
adjustments to the maximum number of shares that may be
delivered under the Omnibus Plan and the individual limits
included in the Omnibus Plan, and will also make appropriate
adjustments to the number and kind of shares of stock or
securities subject to awards, the exercise prices of such awards
or any other terms of awards affected by such change. The
Compensation Committee will also make the types of adjustments
described above to take into account events other than those
listed above if it determines that such adjustments are
appropriate to avoid distortion and preserve the value of awards.
Amendment and Termination. The Compensation
Committee will be able to amend the Omnibus Plan or outstanding
awards, or terminate the Omnibus Plan as to future grants of
awards, except that the Compensation Committee will not be able
alter the terms of an award if it would materially and adversely
affect a participants rights under the award without the
participants consent. Shareholder approval will be
required for any amendment that would reduce the exercise price
of any outstanding option or constitute a repricing that
requires shareholder approval under the rules of the New York
Stock Exchange.
Party
City Holdings Inc. Executive Annual Incentive Plan
Prior to the completion of this offering, our board of directors
intends to adopt the Party City Holdings Inc. Executive Annual
Incentive Plan (the Annual Plan). Upon completion of
this offering, annual award
100
opportunities for certain key employees, including our named
executive officers, will be granted under the Annual Plan. The
following summary describes what we anticipate to be the
material terms of the Annual Plan.
Administration. The Annual Plan will be
administered by the Compensation Committee.
Eligibility. Executive officers and other key
employees of the Company and its affiliates will be selected
from time to time by the Compensation Committee to participate
in the Annual Plan.
Awards. Award opportunities under the Annual
Plan will be granted by the Compensation Committee prior to, or
within a specified period of time following the beginning of,
the fiscal year of the Company (or other performance period
selected by the Compensation Committee). The Compensation
Committee will establish the performance criteria applicable to
the award, the amount or amounts payable if the performance
criteria are achieved, and such other terms as the Compensation
Committee deems appropriate. The Annual Plan permits the grant
of awards that are intended to qualify as exempt
performance-based compensation under Section 162(m) of the
Code as well as awards that are not intended to so qualify.
Performance Criteria. Awards under the Annual
Plan will be made based on, and subject to achieving,
performance criteria established by the Compensation
Committee. Performance criteria for awards intended to qualify
as performance-based compensation for purposes of
Section 162(m) of the Code are limited to the objectively
determinable measures of performance relating to any or any
combination of the following (measured either absolutely or by
reference to an index or indices or the performance of one or
more companies and determined either on a consolidated basis or,
as the context permits, on a divisional, subsidiary, line of
business, project or geographical basis or in combinations
thereof): net sales; system-wide sales; comparable store sales;
revenue; revenue growth or product revenue growth; operating
income (before or after taxes); adjusted operating income;
adjusted net income; adjusted earnings per share; channel
revenue; channel revenue growth; franchising commitments;
manufacturing profit; manufacturing profit margin; store
closures; pre- or after-tax income or loss (before or after
allocation of corporate overhead and bonus); earnings or loss
per share; net income or loss (before or after taxes); return on
equity; total stockholder return; return on assets or net
assets; appreciation in
and/or
maintenance of the price of the shares or any other
publicly-traded securities of the Company; market share; gross
profits; earnings or losses (including earnings or losses before
taxes, before interest and taxes, or before interest, taxes,
depreciation
and/or
amortization); adjusted earnings or losses (including adjusted
earnings or losses before taxes, before interest and taxes, or
before interest, taxes, depreciation and/or amortization);
economic value-added models or equivalent metrics; comparisons
with various stock market indices; reductions in costs; cash
flow or cash flow per share (before or after dividends); return
on capital (including return on total capital or return on
invested capital); cash flow return on investment; improvement
in or attainment of expense levels or working capital levels,
including cash, inventory and accounts receivable; operating
margin; gross margin; year-end cash; cash margin; debt
reduction; stockholders equity; operating efficiencies; market
share; customer satisfaction; customer growth; employee
satisfaction; supply chain achievements (including establishing
relationships with manufacturers or suppliers of component
materials and manufacturers of the Companys products);
points of distribution; gross or net store openings;
co-development, co-marketing, profit sharing, joint venture or
other similar arrangements; financial ratios, including those
measuring liquidity, activity, profitability or leverage; cost
of capital or assets under management; financing and other
capital raising transactions (including sales of the
Companys equity or debt securities; factoring
transactions; sales or licenses of the Companys assets,
including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering
transactions); implementation, completion or attainment of
measurable objectives with respect to research, development,
manufacturing, commercialization, products or projects,
production volume levels, acquisitions and divestitures;
factoring transactions; and recruiting and maintaining personnel.
To the extent consistent with the requirements of
Section 162(m), the Compensation Committee may establish
that, in the case of any award intended to qualify as exempt
performance-based compensation under Section 162(m), that
one or more of the performance criteria applicable to such award
be adjusted in an objectively determinable manner to reflect
events occurring during the performance period of such award
that affect the applicable performance criteria.
101
Payment. A participant will be entitled to
payment under an award only if all conditions to payment have
been satisfied under the award. Following the close of the
performance period, the Compensation Committee will determine
(and, to the extent required by Section 162(m), certify) as
to whether and to what extent the applicable performance
criteria have been satisfied. The Compensation Committee will
then determine the actual payment, if any, under each award.
Payment Limits. The maximum payment to any
participant under the Annual Plan for any fiscal year will in no
event exceed $ .
Amendment and Termination. The Compensation
Committee may amend or terminate the Annual Plan at any time,
provided that any amendment will be approved by the
Companys stockholders if required by Section 162(m)
of the Code.
Director
Compensation
Annual
Compensation
We have agreed to pay our independent directors an annual
retainer fee of $20,000 and fees of $1,500 and $2,500 for
regular and special meetings of the Board. We also reimburse our
independent directors for customary expenses for attending board
and committee meetings. In addition, Mr. Kahn and
Ms. Meyrowitz were each granted 2.5 time-based stock
options and 2.5 performance-based stock options during the year
that they joined the board of directors and, Mr. Kussell
was granted 2 time-based stock options during the year that he
joined the board of directors. Directors who are also our
employees or are representatives of our Sponsors receive no
additional compensation for serving as a director.
The following table further summarizes the compensation paid to
the independent directors for the year ended December 31,
2011.
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Fees Earned or
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All Other
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Name
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Paid in Cash
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Compensation(1)
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Total
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Jordan A. Kahn
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$
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26,000
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$
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$
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26,000
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William Kussell
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26,000
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6,267
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32,267
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Carol M. Meyrowitz
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24,500
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4,700
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29,200
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(1) |
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Amounts represent a special distribution of $9,400 per vested
time-based option, as described under the heading
Compensation Discussion and
Analysis Special stock option
distribution. |
Compensation
Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of
directors or Compensation Committee and the board of directors
or Compensation Committee of any other company, nor has any
interlocking relationship existed in the past.
102
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock, assuming the
Common Stock Conversion (but without giving effect to
the -for-one stock split), at
December 31, 2011 for:
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each person whom we know beneficially owns more than five
percent of our common stock;
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each of our directors;
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each of our named executive officers;
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all of our directors and executive officers as a group; and
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each other selling stockholder.
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The number of shares beneficially owned by each stockholder is
determined under rules issued by the SEC and includes voting or
investment power with respect to securities. Under these rules,
beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or
investment power. Each of the stockholders listed has sole
voting and investment power with respect to the shares
beneficially owned by the stockholder unless noted otherwise,
subject to community property laws where applicable.
Shares of common stock that may be acquired within 60 days
following December 31, 2011 pursuant to the exercise of
options are deemed to be outstanding for the purpose of
computing the percentage ownership of such holder but are not
deemed to be outstanding for computing the percentage ownership
of any other person shown in the table. Beneficial ownership
representing less than one percent is denoted with an
*.
Unless otherwise indicated, the address for each of the
stockholders in the table below is
c/o Party
City Holdings Inc., 80 Grasslands Road, Elmsford, New York 10523.
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Number of Shares of
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Number of Shares of
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Common Stock
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Number
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Common Stock
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Beneficially Owned Prior
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of
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Beneficially Owned
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to the Offering
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Shares
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After the Offering
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Name of Beneficial Owner
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Number
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Percentage
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Offered
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Number
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Percentage
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Funds managed by Advent International Corporation(1)
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11,918.71
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37.04
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%
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%
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Berkshire Partners LLC(2)
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11,609.45
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36.08
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%
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%
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Weston Presidio(3)
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5,605.16
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17.42
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%
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%
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Steven J. Collins(4)
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11,918.71
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37.04
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%
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%
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Michael A. Correale(5)
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36.66
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*
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%
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Michael F. Cronin(6)
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5,605.16
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17.42
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%
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%
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James M. Harrison(7)
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262.30
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*
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%
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Kevin M. Hayes(6)
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5,605.16
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17.42
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%
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%
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Jordan A. Kahn(9)
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59.33
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*
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%
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William Kussell(13)
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0.67
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*
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%
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Richard K. Lubin(10)
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11,609.45
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36.08
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%
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%
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Gregg A. Melnick(8)
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75.00
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*
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%
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Carol M. Meyrowitz(11)
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27.95
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*
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%
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David M. Mussafer(4)
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11,918.71
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37.04
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%
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%
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Gerald C. Rittenberg(12)
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432.02
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1.33
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%
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%
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Robert J. Small(10)
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11,609.45
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36.08
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%
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%
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All directors and executive officers as a group (13 persons)
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30,027.25
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91.88
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%
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%
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Selling Stockholders
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%
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%
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103
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(1) |
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The funds managed by Advent International Corporation own 100%
of
Advent-Amscan
Acquisition Limited Partnership, which in turn owns 37.10% of
Party City Holdings Inc., for a 37.10% indirect ownership for
the funds managed by Advent International Corporation. This
37.10% indirect ownership consists of 5,506 shares of
Class B Common Shares purchased by Advent International
Global Private Equity VI Limited Partnership, 3,042 shares
of Class B Common Shares purchased by Advent International
Global Private Equity VI-A Limited Partnership, 279 shares
of Class B Common Shares purchased by Advent International
Global Private Equity VI-B Limited Partnership, 284 shares
of Class B Common Shares purchased by Advent International
Global Private Equity VI-C Limited Partnership, 213 shares
of Class B Common Shares purchased by Advent International
Global Private Equity VI-D Limited Partnership, 685 shares
of Class B Common Shares purchased by Advent International
Global Private Equity VI-E Limited Partnership,
1,036 shares of Class B Common Shares purchased by
Advent International Global Private Equity VI-F Limited
Partnership, 653 shares of Class B Common Shares
purchased by Advent International Global Private Equity VI-G
Limited Partnership, 201 shares of Class B Common
Shares purchased by Advent Partners GPE VI 2008 Limited
Partnership, 19 shares of Class B Common Shares
purchased by Advent Partners GPE VI-A Limited Partnership.
Advent International Corporation is the manager of Advent
International LLC, which in turn is the general partner of GPE
VI GP Limited Partnership and GPE VI GP (Delaware) Limited
Partnership. GPE VI GP Limited Partnership is the general
partner of Advent International GPE VI Limited Partnership,
Advent International GPE VI-A Limited Partnership, Advent
International GPE VI-B Limited Partnership, Advent International
GPE VI-F Limited Partnership and Advent International GPE VI-G
Limited Partnership. GPE VI GP (Delaware) is the general partner
of Advent International GPF VI-C Limited Partnership, Advent
International GPE VI-D Limited Partnership and Advent
International GPE VI-E Limited Partnership. Advent International
Corporation is the manager of Advent International LLC, which in
turn is the general partner of Advent Partners GPE VI 2008
Limited Partnership and Advent Partners GPE VI-A Limited
Partnership. Limited partners of Advent Partners GPE VI 2008
Limited Partnership and Advent Partners GPE VI-A Limited
Partnership are individuals affiliated with Advent. Advent
International Corporation exercises voting and investment power
over the shares held by each of these entities and may be deemed
to have beneficial ownership of these shares. With respect to
the common shares of Party City Holdings Inc. held by the funds
managed by Advent International Corporation, a group of
individuals currently composed of Ernest G. Bachrach, Steven J.
Collins, David M. Mussafer and Steven M. Tadler exercises
voting and investment power over the shares beneficially owned
by Advent International Corporation. Each of Mr. Bachrach,
Mr. Collins, Mr. Mussafer and Mr. Tadler
disclaims beneficial ownership of the shares held by the funds
managed by Advent International Corporation, except to the
extent of their respective pecuniary interest therein. The
address of Advent International Corporation and each of the
funds listed above is
c/o Advent
International Corporation, 75 State Street, Boston, MA 02109. |
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(2) |
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Consists of: (i) 2,553.36 shares of common stock owned
by Berkshire Fund V, Limited Partnership; (Berkshire
Fund V), (ii) 8,290.22 shares of common stock
owned by Berkshire Fund VI, Limited Partnership
(Berkshire Fund VI)
(iii) 347.23 shares of common stock owned by Berkshire
Investors LLC (Berkshire Investors); and
(iv) 19.51 shares of common stock owned by Berkshire
Investors III LLC (Berkshire Investors III). In
addition, Berkshire Fund IV, Limited Partnership and
Berkshire Investors, through GB Holdings I LLC, own
399.134 shares of common stock and share voting and
investment power over those shares. Fifth Berkshire Associates
LLC, a Massachusetts limited liability company
(5BA), is the general partner of Berkshire
Fund V and the managing members of 5BA are Bradley M.
Bloom, Jane Brock-Wilson, Kevin T. Callaghan, Carl
Ferenbach, Ross M. Jones, Richard K. Lubin,
David R. Peeler and Robert J. Small (the
Berkshire V Principals). The Berkshire V Principals
often make acquisitions in, and dispose of, securities of an
issuer on the same terms and conditions and at the same time.
Berkshire Partners is the investment advisor to Berkshire
Fund V. Sixth Berkshire Associates LLC, a Massachusetts
limited liability company (6BA), is the general
partner of Berkshire Fund VI and the managing members of
6BA are Michael C. Ascione, Bradley M. Bloom, Jane Brock-Wilson,
Kevin T. |
104
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Callaghan, Carl Ferenbach, Christopher J. Hadley,
Lawrence S. Hamelsky, Ross M. Jones, Richard K. Lubin,
Joshua A. Lutzker, David R. Peeler and Robert J. Small (the
Berkshire VI Principals). The Berkshire VI
Principals often make acquisitions in, and dispose of,
securities of an issuer on the same terms and conditions and at
the same time. Berkshire Partners is the investment advisor to
Berkshire Fund VI. The managing members of Berkshire
Investors are Michael C. Ascione, Bradley M. Bloom, Jane
Brock-Wilson, Kevin T. Callaghan, Carl Ferenbach, Christopher J.
Hadley, Lawrence S. Hamelsky, Sharlyn C. Heslam, Elizabeth L.
Hoffman, Ross M. Jones, Richard K. Lubin, Joshua A. Lutzker,
David R. Peeler and Robert J. Small (the Investors
Principals). The managing members of Berkshire
Investors III are Michael C. Ascione, Bradley M. Bloom,
Jane Brock-Wilson, Kevin T. Callaghan, Carl Ferenbach,
Christopher J. Hadley, Lawrence S. Hamelsky, Sharlyn C. Heslam,
Elizabeth L. Hoffman, Ross M. Jones, Richard K. Lubin, Joshua A.
Lutzker, David R. Peeler and Robert J. Small (the
Investors III Principals). Mr. Lubin and
Mr. Small are directors of the Company. By virtue of their
positions as managing members of 5BA, 6BA, Berkshire Investors,
Berkshire Investors III, the Berkshire V Principals, the
Berkshire VI Principals, the Investors Principals and the
Investors III Principals, respectively, may be deemed to
possess indirect beneficial ownership of the shares of common
stock beneficially owned by Berkshire Fund V, Berkshire
Fund VI, Berkshire Investors and Berkshire
Investors III, respectively. However, none of the managing
members, acting alone, has voting or investment power with
respect to shares beneficially owned by Berkshire Fund V,
Berkshire Fund VI, Berkshire Investors and Berkshire
Investors III and, as a result, each managing member,
including Mr. Lubin and Mr. Small, disclaims
beneficial ownership of the shares held by Berkshire
Fund V, Berkshire Fund VI, Berkshire Investors and
Berkshire Investors III. The entities and individuals named
in this footnote may be deemed to constitute a group
for purposes of section 13(d) of the Exchange Act, although
they do not admit to being part of a group, nor have they agreed
to act as part of a group. The address of all the entities and
the managing members mentioned above is 200 Clarendon Street,
35th Floor, Boston, Massachusetts
02116-5021. |
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(3) |
|
Consists of: (i) 5,517.82 shares of common stock owned
by Weston Presidio Capital IV, L.P.; and
(ii) 87.34 shares owned by WPC Entrepreneur
Fund II, L.P. |
|
(4) |
|
Mr. Collins and Mr. Mussafer are members of a group of
persons who exercise voting and investment power over the shares
beneficially owned by the funds managed Advent International
Corporation and may be deemed to beneficially own the shares
held by the Advent Funds, except to the extent of their
respective pecuniary interest therein. Mr. Collins and
Mr. Mussafer each disclaim beneficial ownership of the
shares held by the Funds managed by Advent International. Their
addresses are
c/o Advent
International Corporation, 75 State Street, Boston,
Massachusetts 02109. |
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(5) |
|
Includes 23.16 shares which could be acquired by
Mr. Correale within 60 days upon exercise of options. |
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(6) |
|
Consists of: (i) 5,517.82 shares of common stock owned
by Weston Presidio Capital IV, L.P.; and
(ii) 87.34 shares owned by WPC Entrepreneur
Fund II, L.P. Mr. Cronin is a Managing Partner of
Weston Presidio, and Mr. Hayes is a Partner of Weston
Presidio. Mr. Cronin and Mr. Hayes each disclaims
beneficial ownership of the shares held by Weston Presidio,
except to the extent of his pecuniary interest therein. Their
addresses are 200 Clarendon Street, 50th Floor, Boston,
Massachusetts 02116. |
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(7) |
|
Includes 166.17 shares which could be acquired by
Mr. Harrison within 60 days upon exercise of options.
Also includes 96.13 shares held by a limited liability
company and a trust. |
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(8) |
|
Includes 35.00 shares which could be acquired by
Mr. Melnick within 60 days upon exercise of options.
Also includes 20.52 shares held by two trusts. |
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(9) |
|
Includes 2.5 shares which could be acquired by
Mr. Kahn within 60 days upon exercise of options. Also
includes 56.83 shares held indirectly through two trusts. |
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(10) |
|
Mr. Lubin and Mr. Small are managing members of
Berkshire Investors, Berkshire Investors III, 5BA and 6BA.
In their capacity as managing members of the aforementioned
entities, Mr. Lubin and |
105
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Mr. Small may be deemed to have shared investment and
voting power over shares beneficially owned by Berkshire
Investors, Berkshire Investors III, Berkshire Fund V
and Berkshire Fund VI. Mr. Lubin and Mr. Small
each disclaims beneficial ownership of the shares held by these
entities. Their address is 200 Clarendon Street, 35th
Floor, Boston, Massachusetts
02116-5021. |
|
(11) |
|
Includes 2.12 shares which could be acquired by
Ms. Meyrowitz within 60 days upon exercise of options.
Also includes 25.83 shares held indirectly through a trust. |
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(12) |
|
Includes 270.82 shares which could be acquired by
Mr. Rittenberg within 60 days upon exercise of
options. Also includes 161.20 shares held indirectly in a
limited liability company and a trust. |
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(13) |
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Includes 0.67 shares which could be acquired by Mr. Kussell
within 60 days upon exercise of options. |
106
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related
Person Transactions Policy
In accordance with the charter of our Audit Committee, which
will become effective upon the closing of this offering, and our
policy with respect to related person transactions, which our
board of directors (acting through our Audit Committee) will
adopt prior to the closing of this offering, our Audit Committee
will be responsible for reviewing and approving related person
transactions.
The policy with respect to related person transactions will
apply to transactions, arrangements and relationships (or any
series of similar transactions, arrangements or relationships)
where the aggregate amount involved will or may be expected to
exceed $120,000 in any calendar year, and where we (or our
subsidiaries) are a participant and in which a related person
has or will have a direct or indirect material interest. A
related person is: (1) any person who is, or at any time
since the beginning of our fiscal year was, a director or
executive officer of the company, or a nominee for director or
executive officer of the company; (2) any person who is
known to be the beneficial owner of more than 5% of any class of
our voting securities; (3) any immediate family member of
the foregoing persons and (4) any firm, corporation or
other entity in which any of the foregoing persons has a
position or relationship, or in which such person, together with
his or her immediate family members, has a 10% or greater
beneficial ownership.
In the course of its review and approval of related person
transactions, our Audit Committee will consider the relevant
facts and circumstances to decide whether to approve such
transactions. In particular, our policy with respect to related
person transactions will require our Audit Committee to
consider, among other factors it deems appropriate:
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the benefits to the Company;
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the impact on a directors independence in the event the
related person is a director, an immediate family member of a
director or an entity in which a director has a position or
relationship;
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the availability of other sources for comparable products or
services;
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the terms of the transaction; and
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the terms available to unrelated third parties or to employees
generally.
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The Audit Committee may only approve those transactions that are
in, or are not inconsistent with, our best interests and those
of our stockholders, as the Audit Committee determines in good
faith.
Agreements
with Management
We and certain members of senior management have entered into
employment agreements. The terms and conditions of certain of
these employment agreements are more fully described in
Executive Compensation Employment
Arrangements.
Management
Agreement
In connection with the acquisition by Berkshire Partners and
Weston Presidio, Amscan Holdings entered into a management
agreement with Berkshire Partners and Weston Presidio, pursuant
to which they are paid an annual management fee of
$1.25 million. During the nine months ended
September 30, 2011, Berkshire Partners received management
fees of $625,000 and Weston Presidio received management fees of
$312,500. Berkshire Partners received management fees of
$833,233 in each of 2010, 2009 and 2008, respectively, and
Weston Presidio received management fees of $416,768 in each of
2010, 2009 and 2008, respectively. A portion of these amounts
were paid to Advent as discussed below. As long as Berkshire
Partners and Weston Presidio receive annual management fees,
they will advise us in connection with financing, acquisition
and disposition transactions (however structured) involving us
or any of our direct or indirect subsidiaries, and Amscan
Holdings will pay a fee for services rendered in connection with
each such transaction equal to up to one percent (1%) of the
gross transaction, to be allocated between Berkshire Partners
(or its designee) and
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Weston Presidio (or its designee) in the same proportions as
their respective holdings of common stock by their affiliates,
as of the date of such subsequent transaction.
On August 19, 2008, Berkshire Partners and Weston Presidio
entered into a Management Fee Agreement with Advent pursuant to
which Advent would provide consulting and management advisory
services, of the type contemplated by the Management Agreement,
to the Company and Amscan Holdings and would receive, in return,
a portion of the management fees and any transaction fees due to
Berkshire Partners and Weston Presidio under the Management
Agreement. Advent received management fees of $518,495 in each
of 2010 and 2009, respectively, and $233,606 in 2008.
This agreement will be terminated upon completion of this
offering in exchange for a payment of approximately
$3.7 million.
Stockholders
Agreement
We are currently a party to a stockholders agreement with
Berkshire Partners and Weston Presidio (the Principal
Investors), other investors and certain of our employees
listed as parties thereto (the Stockholders
Agreement). The Stockholders Agreement provides, among
other things, for (i) the right of the non-principal
investors to participate in, and the right of the Principal
Investors to require the non-principal investors to participate
in, certain sales of our common stock by the Principal
Investors, (ii) prior to an initial public offering
of our stock (as defined in the Stockholders Agreement), certain
of our rights to purchase, and certain rights of the
non-principal investors to require us to purchase (except in the
case of termination of employment by such non-principal
investors) all, but not less than all, of the shares of our
common stock owned by a non-principal investor upon the
termination of employment or death of such non-principal
investor, at prices determined in accordance with the
Stockholders Agreement and (iii) certain additional
restrictions on the rights of the non-principal investors to
transfer shares of our common stock. The Stockholders Agreement
also contains provisions granting the Principal Investors and
the non-principal investors certain rights in connection with
the private sale or public registration of our common stock and
provides for indemnification and certain other rights,
restrictions and obligations in connection with such
registration. In addition, the funds managed by Advent, as the
holders of all outstanding shares of Class B common stock,
have similar rights under our existing certificate of
incorporation.
The provisions of the Stockholders Agreement pertaining to
restrictions on transfers, call and put rights by us on equity
interests held by certain employees, take along rights, come
along rights, corporate governance, rights of participation,
financial and business information rights, confidentiality and
approval rights shall all terminate upon the completion of this
offering pursuant to the termination provision of the
Stockholders Agreement.
We intend, in connection with the completion of this offering,
to enter into an amended and restated stockholders agreement,
the terms of which have not yet been agreed to by the Company
and the Sponsors.
Registration
and Information Rights Agreement
We are currently a party to a registration and information
rights agreement with the funds managed by Advent (the
Registration and Information Rights Agreement),
which provides similar rights as the Stockholders Agreement
pertaining to the private sale or public registration of our
common stock. Similar to the Stockholders Agreement, the
Registration and Information Rights Agreement provides for
indemnification and certain other rights, restrictions and
obligations in connection with such registration. We expect that
this agreement will be terminated in connection with the
offering, and that Advent will become party to the amended and
restated stockholders agreement that will be entered into and
become effective upon completion of this offering.
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DESCRIPTION
OF CAPITAL STOCK
The following is a description of the material terms of our
third amended and restated certificate of incorporation and our
amended and restated bylaws which we refer to as our bylaws, as
each is anticipated to be in effect upon the closing of this
offering.
General
Upon completion of this offering, we have authority to issue up
to:
(i) shares
of common stock, par value $0.01 per share; and
(ii) shares
of preferred stock, par value $0.01 per share.
Common
Stock
Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. An election of
directors by our stockholders shall be determined by a plurality
of the votes cast by the stockholders entitled to vote on the
election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of
directors, subject to any preferential dividend rights of any
series of preferred stock that is outstanding at the time of the
dividend.
In the event of our liquidation or dissolution, the holders of
common stock are entitled to receive proportionately our net
assets available for distribution to stockholders after payment
of all debts and other liabilities, subject to the prior rights
of any outstanding preferred stock.
The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the
future.
Preferred
Stock
Under our third amended and restated certificate of
incorporation, our board of directors has the authority, without
further action by our stockholders, except as described below,
to issue up
to shares
of preferred stock in one or more series and to fix the voting
powers, designations, preferences and the relative
participating, optional or other special rights and
qualifications, limitations and restrictions of each series,
including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences and the number of
shares constituting any series. Upon completion of the offering,
no shares of our authorized preferred stock will be outstanding.
Because the board of directors has the power to establish the
preferences and rights of the shares of any additional series of
preferred stock, it may afford holders of any preferred stock
preferences, powers and rights, including voting and dividend
rights, senior to the rights of the holders of the common stock,
which could adversely affect the holders of the common stock and
could discourage a takeover of us even if a change of control of
our company would be beneficial to the interests of our
stockholders.
Anti-takeover
Effects of the Delaware General Corporation Law and our Third
Amended and Restated Certificate of Incorporation and
Bylaws
Our third amended and restated certificate of incorporation or
our bylaws contain provisions that may delay, defer or
discourage another party from acquiring control of us. We expect
that these provisions, which are summarized below, will
discourage coercive takeover practices or inadequate takeover
bids. These provisions are also designed to encourage persons
seeking to acquire control of us to first negotiate with the
board of directors, which we believe may result in an
improvement of the terms of any such acquisition in favor of our
stockholders. However, they also give the board of directors the
power to discourage acquisitions that some stockholders may
favor.
Classified
Board of Directors
Our board of directors is divided into three classes,
Class I, Class II and Class III, with members of
each class serving staggered three-year terms. Our third amended
and restated certificate of incorporation provides that the
authorized number of directors may be changed only by resolution
of the board of directors. Any
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additional directorships resulting from an increase in the
number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors. Our third amended and restated
certificate of incorporation and our bylaws also provide that a
director may be removed only for cause by the affirmative vote
of the holders of at least a majority of the voting power of our
outstanding shares of capital stock entitled to vote generally
in the election of directors, voting together as a single class,
and that any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors,
may be filled only by vote of a majority of our directors then
in office. Our classified board of directors could have the
effect of delaying or discouraging an acquisition of us or a
change in our management.
Action
by Written Consent
The Delaware General Corporation Law (DGCL) provides
that, unless otherwise stated in a corporations
certificate of incorporation, the stockholders may act by
written consent without a meeting. Our certificate of
incorporation provides that after the Sponsors collectively own
less than 50% of our outstanding common stock, any action
required or permitted to be taken by our stockholders at an
annual meeting or special meeting of the stockholders may only
be taken at an annual or special meeting before which it is
properly brought, and not by written consent without a meeting.
As a result, Berkshire Partners, Weston Presidio, and the funds
managed by Advent will be able to act by written consent so long
as they collectively own at least 50% of our outstanding common
stock.
Special
Meeting of Stockholders and Advance Notice Requirements for
Stockholder Proposals
Our third amended and restated certificate of incorporation and
bylaws provide that, except as otherwise required by law,
special meetings of the stockholders can only be called by
(a) our chairman or vice chairman of the board of directors
or (b) the board of directors through a special resolution.
In addition, our bylaws require advance notice procedures for
stockholder proposals to be brought before an annual meeting of
the stockholders, including the nomination of directors.
Stockholders at an annual meeting may only consider the
proposals specified in the notice of meeting or brought before
the meeting by or at the direction of the board of directors or
any committee thereof, or by a stockholder of record on the
record date for the meeting, who is entitled to vote at the
meeting and who has delivered a timely written notice in proper
form to our secretary, of the stockholders intention to
bring such business before the meeting.
These provisions could have the effect of delaying until the
next stockholder meeting any stockholder actions, even if they
are favored by the holders of a majority of our outstanding
voting securities.
Amendment
to Third Amended and Restated Certificate of Incorporation and
Bylaws
The DGCL provides generally that the affirmative vote of a
majority of the outstanding stock entitled to vote on amendments
to a corporations certificate of incorporation or bylaws
is required to approve such amendment, unless a
corporations certificate of incorporation or bylaws, as
the case may be, requires a greater percentage. Our bylaws may
be amended or repealed by a majority vote of our board of
directors or, in addition to any other vote otherwise required
by law, the affirmative vote of at least two-thirds of the
voting power of the outstanding shares of capital stock entitled
to vote. Additionally, the affirmative vote of at least
two-thirds of the voting power of the outstanding shares of
capital stock entitled to vote on the adoption, alteration,
amendment or repeal of our third amended and restated
certificate of incorporation, voting as a single class, is
required to amend or repeal or to adopt any provision
inconsistent with the Classified Board of Directors,
Action by Written Consent, Special Meetings of
Stockholders, Amendments to Certificate of
Incorporation and Bylaws and Business
Combinations provisions described in our certificate of
incorporation; provided, however, that so long as the Sponsors
collectively beneficially own (directly or indirectly) more than
fifty percent (50%) of the outstanding shares of our common
stock, such alteration, amendment, repeal or adoption will be
approved by, in addition to any other vote otherwise required by
law, the affirmative vote of the holders of a majority of the
voting power of the outstanding shares of capital stock entitled
to vote. These provisions may have the effect of deferring,
delaying or discouraging the removal of
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any anti-takeover defenses provided for in our third amended and
restated certificate of incorporation and our bylaws.
Renouncement
of Corporate Opportunity
Our third amended and restated certificate of incorporation
provides that we renounce any interest or expectancy in, or in
being offered an opportunity to participate in, any business
opportunity that may from time to time be presented to Exempted
Persons and that may be a business opportunity for such Exempted
Person, even if the opportunity is one that we might reasonably
have pursued or had the ability or desire to pursue if granted
the opportunity to do so. No such Exempted Person will be liable
to us for breach of any fiduciary or other duty, as a director
or officer or otherwise, by reason of the fact that such person,
acting in good faith, pursues or acquires any such business
opportunity, directs any such business opportunity to another
person or fails to present any such business opportunity, or
information regarding any such business opportunity, to us. None
of the Exempted Persons or their representatives has any duty to
refrain from engaging directly or indirectly in the same or
similar business activities or lines of business as us or any of
our subsidiaries. In addition, the affirmative vote of eighty
percent (80%) of the voting power of the outstanding shares of
capital stock entitled to vote on the adoption, alteration,
amendment or repeal of our third amended and restated
certificate of incorporation, voting together as a single class,
shall be required to alter, amend or repeal, or to adopt any
provision inconsistent with provisions related to the
Renouncement of Corporate Opportunity.
Exclusive
Jurisdiction of Certain Actions
Our third amended and restated certificate of incorporation
requires, to the fullest extent permitted by law that derivative
actions brought in the name of the Company, actions against
directors, officers and employees for breach of fiduciary duty
and other similar actions may be brought only in the Court of
Chancery in the State of Delaware. Although we believe this
provision benefits the company by providing increased
consistency in the application of Delaware law in the types of
lawsuits to which it applies, the provision may have the effect
of discouraging lawsuits against our directors and officers.
Business
Combinations
We have opted out of Section 203 of the DGCL. However, our
third amended and restated certificate of incorporation contains
similar provisions providing that we may not engage in certain
business combinations with any interested
stockholder for a three-year period following the time
that the stockholder became an interested stockholder, unless:
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prior to such time, our board of directors approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced, excluding certain
shares; or
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at or subsequent to that time, the business combination is
approved by our board of directors and by the affirmative vote
of holders of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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Generally, a business combination includes a merger,
asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a
person who, together with that persons affiliates and
associates, owns, or within the previous three years owned, 15%
or more of our voting stock.
Under certain circumstances, this provision will make it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three-year period. This provision may
encourage companies interested in acquiring our company to
negotiate in advance with our board of directors because the
stockholder approval requirement would be avoided if our board
of directors
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approves either the business combination or the transaction
which results in the stockholder becoming an interested
stockholder. These provisions also may have the effect of
preventing changes in our board of directors and may make it
more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
Our third amended and restated certificate of incorporation
provides that the Sponsors, their respective affiliates and
associates, and any of their respective direct or indirect
transferees of at least 5% of our outstanding common stock and
any group as to which such persons are party to, do not
constitute interested stockholders for purposes of
this provision.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Trust Company, N.A.
Listing
We intend to apply to list our shares of common stock on the New
York Stock Exchange under the symbol PRTY.
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DESCRIPTION
OF CERTAIN DEBT
New ABL
Facility
General
On August 13, 2010, Amscan Holdings entered into a
$350 million New ABL Facility, as amended, with Wells Fargo
Bank, N.A. (successor by merger to Wells Fargo Retail Finance,
LLC), as administrative and collateral agent, and other lenders.
Proceeds from the New ABL Facility were used to refinance Amscan
Holdings then existing senior secured asset-based
revolving credit facility and the revolving credit facility and
term loan facility of PCFG, which at closing became a borrower
under the New ABL Facility and a guarantor under the terms of
Amscan Holdings senior subordinated notes and then
existing senior secured term loan facility. The New ABL Facility
may be used for working capital, general corporate purposes and
the issuance of letters of credit to support payment obligations
incurred in the ordinary course of business by Amscan Holdings
and its subsidiaries.
The New ABL Facility currently provides for (a) revolving
loans in an aggregate principal amount not to exceed
$350 million, subject to a borrowing base described below,
(b) swing-line loans in an aggregate principal amount at
any time outstanding not to exceed 10% of the aggregate
commitments under the New ABL Facility and (c) letters of
credit in an aggregate face amount at any time outstanding not
to exceed $50 million.
Under the New ABL Facility, the borrowing base at any time
equals (a) 85% of eligible trade receivables plus
(b) 85% of eligible inventory at its net orderly
liquidation value plus (c) 90% of eligible credit card
receivables, less (d) certain reserves.
As of September 30, 2011, the borrowing base was
$350.0 million under the New ABL Facility, of which Amscan
Holdings had $250.6 million of outstanding borrowings,
$15.3 million of outstanding letters of credit and
$84.1 million of excess availability.
The New ABL Facility also provides that Amscan Holdings has the
right from time to time to request additional commitments, of
which $100 million remains available. The lenders under the
New ABL Facility are not under any obligation to provide any
such additional commitments, and any increase in commitments is
subject to several conditions precedent and limitations. If
Amscan Holdings were to request any additional commitments, and
the existing lenders or new lenders were to agree to provide
such commitments, the facility size could be increased to up to
$450 million, but Amscan Holdings ability to borrow
under this facility would still be limited by the amount of the
borrowing base under this facility and limitations on incurring
additional indebtedness under the New Term Loan Credit Agreement
and the indenture governing the senior subordinated notes.
On December 2, 2010, Amscan Holdings entered into an
amendment to the New ABL Facility to, among other things, permit
the transactions related to paying the 2010 Dividend and amend
the maturity date under the New ABL Facility to provide for a
maturity date of August 13, 2015 or, if still outstanding,
the date that is 120 days prior to the scheduled maturity
of the senior subordinated notes or any indebtedness that
refinances the senior subordinated notes.
In September 2011, Amscan Holdings entered into amendments to
the New ABL Facility to, among other things, increase the
commitment by $25 million, amend the defined term
Change of Control to provide for a different
definition following the consummation of an initial public
offering that meets certain conditions and amend the restriction
on the payment of dividends or other amounts by Amscan Holdings
to allow for, among other things, payments of dividends used to
satisfy costs we incur as a public company.
Interest
Rate and Fees
Amounts borrowed under the New ABL Facility bear interest at a
rate per annum equal to an applicable margin plus, at our
option, either (a) an alternate base rate determined by
reference to the highest of (1) the prime rate of Wells
Fargo Bank, N.A., (2) the federal funds rate in effect on
such date plus 1/2 of 1.00% and (3) the LIBOR rate for a
three-month interest period plus 1% or (b) the LIBOR rate
determined by reference
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to the LIBOR cost of funds for U.S. dollar deposits for the
relevant interest period adjusted for certain additional costs.
The applicable margin percentage ranges from 1.25% to 1.75% for
alternate base rate loans and from 2.25% to 2.75% for loans
based on the LIBOR rate, in each case based on average
historical excess availability (as defined in the New ABL
Facility).
In addition to paying interest on outstanding principal under
the New ABL Facility, Amscan Holdings is required to pay a
commitment fee of between 0.375% and 0.50% per annum in respect
of the unutilized commitments thereunder. Amscan Holdings must
also pay customary letter of credit fees and agency fees.
Amounts borrowed under the New ABL Facility may be voluntarily
prepaid from time to time without penalty, other than customary
breakage costs with respect to loans based on the LIBOR rate.
The New ABL Facility is subject to certain mandatory prepayment
provisions. If at any time the aggregate amount of outstanding
loans, unreimbursed letter of credit drawings and undrawn
letters of credit under the New ABL Facility exceeds the lowest
of (a) the aggregate commitments under the New ABL
Facility, (b) the then borrowing base under the New ABL
Facility and (c) the maximum amount of indebtedness
permitted by the indenture governing the senior subordinated
notes to be incurred under the New ABL Facility, Amscan Holdings
will be required to repay outstanding loans and cash
collateralize letters of credit in an aggregate amount equal to
such excess, with no reduction of the commitment amount. Excess
availability under the New ABL Facility is defined as the lesser
of (a) the aggregate commitments under the New ABL Facility
and (b) the then borrowing base under the New ABL Facility,
minus the outstanding credit extensions under the New ABL
Facility. In addition, if an event of default exists or has
occurred and is continuing under the New ABL Facility, or for
any three consecutive days excess availability under the New ABL
Facility is less than 15% of the lesser of the aggregate
commitments and the then borrowing base under the New ABL
Facility, the administrative agent under the New ABL Facility
may apply the cash Amscan Holdings is required to deposit daily
into such agents collection account as described in the
New ABL Facility until excess availability under the New ABL
Facility exceeds 15% of the aggregate commitments under the New
ABL Facility for thirty consecutive business days. Lastly, if
after giving effect to certain reserves the agent may establish
within the
forty-five
day period prior to the then scheduled maturity date of either
Amscan Holdings senior subordinated notes or the New Term
Loan Credit Facility, (a) excess availability under the New
ABL Facility during such
forty-five
day period is less than 20% of the lesser of the aggregate
commitments and the then borrowing base under the New ABL
Facility, or (b) projections provided pursuant to the New
ABL Facility show that excess availability at any time during
such forty-five day period or the twelve-month period after the
then scheduled maturity date of the senior subordinated notes or
the New Term Loan Credit Facility will be less than such amount,
Amscan Holdings will be required to pay all obligations
outstanding under the New ABL Facility other than contingent
obligations for which no claim has been made and to the extent
that letter of credit obligations have been cash collateralized.
There is not expected to be any scheduled amortization under the
New ABL Facility.
Guarantees
and Security
All obligations under the New ABL Facility are guaranteed,
jointly and severally, by us, Amscan Holdings and each of the
existing and future domestic subsidiaries of Amscan Holdings.
Amscan Holdings and each guarantor has secured its obligations
subject to certain exceptions and limitations, including
obligations under its guaranty, as applicable, by a
first-priority lien on its accounts receivable, inventory, cash
and proceeds and assets related thereto and a second-priority
lien on substantially all of its other assets, including a
pledge of all of the capital stock held by Amscan Holdings and
each guarantor (which, in the case of capital stock of any
foreign subsidiary, is limited to 65% of the voting stock of
such foreign subsidiary and 100% of the non-voting stock of such
foreign subsidiary).
Covenants
and Other Matters
The New ABL Facility contains negative covenants that, among
other things and subject to certain exceptions, restrict our
ability, and the ability of Amscan Holdings and its restricted
subsidiaries, to:
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incur additional indebtedness;
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pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of the Company, Amscan
Holdings, or any of its restricted subsidiaries or make payments
on, or redeem, repurchase or retire any indebtedness;
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make certain investments, loans, advances and acquisitions;
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enter into sale and leaseback transactions;
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engage in transactions with affiliates;
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create liens;
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transfer or sell assets;
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guarantee debt;
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create restrictions on liens or the payment of dividends or
other amounts to us from our restricted subsidiaries;
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consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries; and
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engage in unrelated businesses.
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In addition, Amscan Holdings must comply with a fixed charge
coverage ratio if excess availability under the New ABL Facility
on any day is less than (a) 15% of the lesser of the
aggregate commitments and the then borrowing base under the New
ABL Facility or (b) $25 million. The fixed charge
coverage ratio is the ratio of (i) Adjusted EBITDA minus
the unfinanced portion of consolidated capital expenditures (as
defined in our New ABL Facility) to (ii) fixed charges (as
defined in the New ABL Facility). The Company has not been
subject to the fixed charge coverage ratio as its excess
availability has not fallen below the amounts specified above.
The New ABL Facility also contains certain customary affirmative
covenants and events of default, including a change of control
provision and a cross-default provision in the case of a default
according to the terms of any indebtedness with an aggregate
principal amount of $20 million or more.
New Term
Loan Credit Agreement
General
On December 2, 2010, Amscan Holdings entered into a
$675 million New Term Loan Credit Agreement with Credit
Suisse AG, as administrative and collateral agent, and other
lenders.
At September 30, 2011, the outstanding principal amount of
term loans under the New Term Loan Credit Agreement was
$662.3 million, which reflects an original issue discount
of $6.8 million net of $0.8 million of accumulated
amortization.
The New Term Loan Credit Agreement also provides that Amscan
Holdings has the right from time to time to request an amount of
additional term loans up to $175 million and to refinance,
replace or extend the maturity date of all or a portion of the
then existing term loans under the New Term Loan Credit
Agreement. The lenders under the New Term Loan Credit Agreement
are not under any obligation to provide any such additional term
loans, provide such refinancing or replacement term loans, or
agree to extend the maturity date of existing term loans held by
them, and transactions to effect any additional, refinancing,
replacement or extended term loans are subject to several
conditions precedent and limitations.
Amortization
and Maturity
The term loans under the New Term Loan Credit Agreement mature
on December 2, 2017 (or January 30, 2014, if Amscan
Holdings senior subordinated notes are not refinanced with
indebtedness permitted to be incurred under the New Term Loan
Credit Agreement that matures at least 91 days after the
maturity date of the term loans). The term loans amortize each
year in an amount equal to 1% per annum in equal quarterly
installments, with the balance payable on the maturity date
thereof.
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Interest
Rate and Fees
Amounts borrowed under the New Term Loan Credit Agreement bear
interest at a rate per annum equal to an applicable margin plus,
at Amscan Holdings option, either (a) an alternate
base rate determined by reference to the highest of (1) the
prime rate of Credit Suisse AG, (2) the federal funds rate
in effect on such date plus 1/2 of 1.00% and (3) the LIBOR
rate for a one-month interest period plus 1% or (b) a LIBOR
rate determined by reference to the cost of funds for
U.S. dollar deposits for the relevant interest period
adjusted for certain additional costs, but not less than 1.50%.
The applicable margin percentage is 4.25% for alternate base
rate loans and 5.25% for loans based on the LIBOR rate.
In addition to paying interest on outstanding principal under
the New Term Loan Credit Agreement, Amscan Holdings must also
pay customary agency fees.
Prepayments
The New Term Loan Credit Agreement requires Amscan Holdings to
prepay outstanding term loans, subject to certain exceptions,
with (a) 100% of the net cash proceeds of any incurrence of
debt other than debt permitted under the New Term Loan Credit
Agreement, (b) commencing with the fiscal year ended
December 31, 2011, 50% (which percentage will be reduced to
25% and 0% if Amscan Holdings total leverage ratio is less
than a specified ratio set forth in the New Term Loan Credit
Agreement) of annual excess cash flow (as defined in the New
Term Loan Credit Agreement), and (c) 100% of the net cash
proceeds of all non-ordinary course asset sales or other
dispositions of property (including casualty events) by Amscan
Holdings or by its subsidiaries, subject to reinvestment rights
and certain other exceptions. The total leverage ratio is the
ratio of consolidated total debt (as defined in the New Term
Loan Credit Agreement) to Adjusted EBITDA.
The term loans under the New Term Loan Credit Agreement are
subject to a 1.00% prepayment premium if voluntarily repaid
under certain circumstances before December 2, 2011.
Otherwise, Amscan Holdings may voluntarily prepay outstanding
loans under the New Term Loan Credit Agreement at any time,
subject to customary breakage costs with respect to LIBOR loans.
Under the New Term Loan Credit Facility, excess cash flow
payments serve to reduce future scheduled quarterly principal
payments. Amscan Holdings is not required to calculate excess
cash flow or make any related prepayment until the end of fiscal
2011.
Guarantees
and Security
All obligations under the New Term Loan Credit Facility are
guaranteed, jointly and severally, by us and each of the
existing and future domestic subsidiaries of Amscan Holdings.
Amscan Holdings and each guarantor has secured its obligations
subject to certain exceptions and limitations, including
obligations under its guaranty, as applicable, by a
first-priority lien on substantially all of its assets (other
than its accounts receivable, inventory, cash and proceeds and
assets related thereto), including a pledge of all of the
capital stock held by Amscan Holdings and each guarantor (which,
in the case of capital stock of any foreign subsidiary, is
limited to 65% of the voting stock of such foreign subsidiary
and 100% of the non-voting stock of such foreign subsidiary) and
a second-priority lien on its accounts receivable, inventory,
cash and proceeds and assets related thereto.
Covenants
and Other Matters
The New Term Loan Credit Agreement contains negative covenants
that, among other things and subject to certain exceptions,
restrict our ability, and the ability of Amscan Holdings and any
of its restricted subsidiaries, to:
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incur additional indebtedness;
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pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of Amscan Holdings, us, or
any restricted subsidiary or make payments on, or redeem,
repurchase or retire any subordinated indebtedness;
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make certain investments, loans, advances and acquisitions;
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enter into sale and leaseback transactions;
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engage in transactions with affiliates;
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create liens;
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transfer or sell assets;
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guarantee debt;
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create restrictions on liens or the payment of dividends or
other amounts to us from our restricted subsidiaries;
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consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries; and
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engage in unrelated businesses.
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The New Term Loan Credit Agreement also contains certain
customary affirmative covenants and events of default, including
a change of control provision and a cross-default provision in
the case of a default according to the terms of any indebtedness
with an aggregate principal amount of $20 million or more.
Notes
General
On April 30, 2004, Amscan Holdings issued $175 million
in principal amount of 8.75% senior subordinated notes due
May 1, 2014. Interest on the outstanding senior
subordinated notes is payable semi-annually in arrears on each
May 1 and November 1, commencing on November 1, 2004.
The senior subordinated notes are guaranteed, jointly and
severally, on an unsecured subordinated basis by each of the
existing and future domestic subsidiaries of Amscan Holdings.
Covenants
The indenture governing the senior subordinated notes contains
certain covenants limiting, among other things and subject to
certain exceptions, the ability of Amscan Holdings and its
restricted subsidiaries to:
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incur additional indebtedness or issue preferred stock;
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pay dividends or distributions on capital stock or redeem,
repurchase or retire capital stock of Amscan Holdings or any
restricted subsidiary or make payments on, or redeem, repurchase
or retire any indebtedness subordinated to the senior
subordinated notes;
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make certain investments, loans, advances and acquisitions;
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enter into sale and leaseback transactions;
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engage in transactions with affiliates;
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create liens;
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guarantee debt;
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create restrictions on the payment of dividends or other amounts
to Amscan Holdings from its restricted subsidiaries;
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consolidate, merge or transfer all or substantially all of
Amscan Holdings assets and the assets of its
subsidiaries; and
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engage in unrelated businesses.
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The indenture governing the senior subordinated notes also
contains certain customary affirmative covenants and events of
default, including a cross-payment default provision and
cross-acceleration provision in the case of a payment default or
acceleration according to the terms of any indebtedness with an
aggregate principal amount of $15 million or more.
Prepayments
On and after May 1, 2009, Amscan Holdings may redeem its
outstanding senior subordinated notes, in whole or in part, at
the redemption prices (expressed as percentages of principal
amount of senior subordinated notes to be redeemed) set forth
below, plus accrued and unpaid interest thereon, if redeemed
during the twelve-month period beginning on May 1 of each of the
years indicated below:
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Year
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Percentage
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2010
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102.917
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%
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2011
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101.458
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%
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2012 and thereafter
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100.000
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%
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If Amscan Holdings experiences certain kinds of change in
control, Amscan Holdings must offer to purchase its outstanding
senior subordinated notes at 101% of their principal amount,
plus accrued and unpaid interest.
We intend to use net proceeds from this offering to redeem or
repurchase all of the outstanding senior subordinated notes.
Asset
Sales
If Amscan Holdings or its restricted subsidiaries engage in
certain asset sales, Amscan Holdings generally must either
invest the net cash proceeds from such sales in its business
within a period of time, prepay senior debt or make an offer to
purchase a principal amount of its outstanding senior
subordinated notes equal to the excess net cash proceeds,
subject to certain exceptions. The purchase price of the
outstanding senior subordinated notes will be 100% of their
principal amount, plus accrued and unpaid interest.
Other
Indebtedness
In connection with the acquisitions of the Christys Group,
Riethmüller and Party Packagers, during the nine months
ended September 30, 2011, the Company, through its
subsidiaries, entered into several foreign asset-based and
overdraft credit facilities that provide the Company with
borrowing capacity of GBP 19.0 million, CDN 4.0
million, EUR 1.8 million and MYR 5.0 million. At
September 30, 2011, borrowings under the foreign facilities
totaled $12.8 million. Borrowings under the foreign
facilities generally bear interest at prime plus margins ranging
from 1.0% to 1.75%. In connection with one of the facilities, at
September 30, 2011, the Company maintained a compensating
cash balance of $4.3 million to secure outstanding standby
letters of credit.
Long-term borrowings at September 30, 2011 include a
mortgage note issued by Amscan Holdings in favor of the New York
State Job Development Authority of $3.6 million. The
mortgage note was amended on December 18, 2009, extending
the fixed monthly payments of principal and interest for a
period of 60 months up to and including December 31,
2014. The note bears interest at the rate of 2.26%, and is
subject to review and adjustment semi-annually based on the New
York State Job Development Authoritys confidential
internal protocols. The mortgage note is collateralized by a
distribution facility located in Chester, New York.
118
SHARES ELIGIBLE
FOR FUTURE SALE
Before this offering, there has not been a public market for our
common stock. As described below, only a limited number of
shares currently outstanding will be available for sale
immediately after this offering due to contractual and legal
restrictions on resale. Nevertheless, future sales of
substantial amounts of our common stock, including shares issued
upon exercise of outstanding options, in the public market after
the restrictions lapse, or the possibility of such sales, could
cause the prevailing market price of our common stock to fall or
impair our ability to raise equity capital in the future.
Upon completion of this offering, we will have
outstanding shares
of our common stock, assuming no exercise by the underwriters of
their option to purchase additional shares and no exercise of
options outstanding as of December 31, 2011. Of these
shares,
all shares
of our common stock sold in this offering will be freely
tradable in the public market without restriction or further
registration under the Securities Act, except for any of these
shares that are held by our affiliates, as that term is defined
in Rule 144 under the Securities Act. Shares purchased by
our affiliates may not be resold except pursuant to an effective
registration statement or an exemption from registration,
including the safe harbor under Rule 144 described below.
After this
offering, shares
of our common stock held by existing stockholders will be
restricted securities, as that term is defined in
Rule 144. These restricted securities may be sold in the
public market only pursuant to an effective registration
statement or an exemption from registration under the Securities
Act. The exemptions under Rule 144 and Rule 701 are
summarized below. Subject to the Stockholders Agreement and the
lock-up
agreements described below and the provisions of Rule 144
and Rule 701, these restricted securities will be available
for sale in the public market as follows:
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Number of Shares
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Date of Availability for Sale
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On the date of this prospectus
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180 days after the date of this prospectus and various
times thereafter
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Lock-Up
Agreements
In connection with this offering, officers, directors, employees
and holders of substantially all of our common stock, including
the selling stockholders, who together hold an aggregate
of shares
of our common stock after the completion of this offering, have
agreed, subject to limited exceptions, not to directly or
indirectly sell or dispose of any shares of common stock (except
for shares to be sold by the selling stockholders in this
offering) or any securities convertible into or exchangeable or
exercisable for shares of common stock for a period of
180 days after the date of this prospectus without the
prior written consent of Goldman, Sachs & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
For additional information, see Underwriting.
Rule 144
In general, under Rule 144, immediately upon the completion
of this offering, a person who is not our affiliate and has not
been our affiliate at any time during the preceding three months
will be entitled to sell any shares of our common stock that
such person has held for at least six months, including the
holding period of any prior owner other than one of our
affiliates, so long as we are current with our filings with the
SEC. If such person has held the shares for at least one year,
such person may effect sales of our common stock even if current
public information about us is not available.
Our affiliates who have beneficially owned shares of our common
stock for at least six months, including the holding period of
any prior owner other than another of our affiliates, would be
entitled to sell within any three-month period those shares and
any other shares they have acquired that are not restricted
securities, provided that the aggregate number of shares sold
does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; and
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the average weekly trading volume in our common stock
on during the four calendar weeks
preceding the date of filing of a Notice of Proposed Sale of
Securities Pursuant to Rule 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
In general, under Rule 701, any of our employees,
consultants or advisors, other than our affiliates, who
purchased shares from us in connection with a qualified
compensatory stock plan or other written agreement is eligible
to resell these shares 90 days after the date of this
prospectus in reliance on Rule 144, but without compliance
with the various restrictions, including the availability of
public information about us, holding period and volume
limitations, contained in Rule 144.
Stock
Plans
As of December 31, 2011, we had outstanding options to
purchase 3,698.27 shares of our common stock, of which
options to purchase 1,109.30 shares were vested. Following
this offering, we intend to file one or more registration
statements on
Form S-8
under the Securities Act to register all of the shares of our
common stock subject to outstanding options and options and
other awards issuable pursuant to our stock plans. See
Executive Compensation Stock-based Incentive
Program for additional information about these plans.
Accordingly, shares of our common stock registered under the
registration statements will be available for sale in the open
market, subject to Rule 144 volume limitations applicable
to affiliates, and subject to any vesting restrictions and
lock-up
agreements applicable to these shares.
Registration
Rights
Subject to the
lock-up
agreement described above, certain holders of our common stock
may demand that we register their shares under the Securities
Act or, if we file another registration statement under the
Securities Act, may elect to include their shares of common
stock in such registration. If these shares are registered, they
will be freely tradable without restriction under the Securities
Act.
120
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS OF COMMON STOCK
The following is a summary of the material U.S. federal
income and estate tax considerations relating to the purchase,
ownership and disposition of our common stock by
Non-U.S. Holders
(defined below). This summary does not purport to be a complete
analysis of all the potential tax considerations relevant to
Non-U.S. Holders
of our common stock. This summary is based upon the Internal
Revenue Code, the Treasury regulations promulgated or proposed
thereunder and administrative and judicial interpretations
thereof, all as of the date hereof and all of which are subject
to change at any time, possibly on a retroactive basis.
This summary assumes that shares of our common stock are held as
capital assets within the meaning of
Section 1221 of the Internal Revenue Code (generally,
property held for investment). This summary does not purport to
deal with all aspects of U.S. federal income and estate
taxation that might be relevant to particular
Non-U.S. Holders
in light of their particular investment circumstances or status,
nor does it address specific tax considerations that may be
relevant to particular persons (including, for example,
financial institutions, broker-dealers, insurance companies,
partnerships or other pass-through entities, certain
U.S. expatriates, tax-exempt organizations, pension plans,
controlled foreign corporations, passive
foreign investment companies, corporations that accumulate
earnings to avoid U.S. federal income tax, persons in
special situations, such as those who have elected to mark
securities to market or those who hold common stock as part of a
straddle, hedge, conversion transaction, synthetic security or
other integrated investment, persons that have a
functional currency other than the U.S. dollar,
or holders subject to the alternative or the unearned income
Medicare contribution tax). In addition, except as explicitly
addressed herein with respect to estate tax, this summary does
not address estate and gift tax considerations or considerations
under the tax laws of any state, local or
non-U.S. jurisdiction.
For purposes of this summary, a
Non-U.S. Holder
means a beneficial owner of common stock that for
U.S. federal income tax purposes is not classified as a
partnership and is not:
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an individual who is a citizen or resident of the United States;
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a corporation or any other organization taxable as a corporation
for U.S. federal income tax purposes, created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
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an estate, the income of which is included in gross income for
U.S. federal income tax purposes regardless of its
source; or
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a trust if (1) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more U.S. persons have the authority to control all of
the trusts substantial decisions or (2) the trust has
a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
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If an entity that is classified as a partnership for
U.S. federal income tax purposes holds our common stock,
the tax treatment of persons treated as its partners for
U.S. federal income tax purposes will generally depend upon
the status of the partner and the activities of the partnership.
Partnerships and other entities that are classified as
partnerships for U.S. federal income tax purposes and
persons holding our common stock through a partnership or other
entity classified as a partnership for U.S. federal income
tax purposes are urged to consult their own tax advisors.
There can be no assurance that the Internal Revenue Service
(IRS) will not challenge one or more of the tax
consequences described herein, and we have not obtained, nor do
we intend to obtain a ruling from the IRS with respect to the
U.S. federal income or estate tax consequences to a
Non-U.S. Holder
of the purchase, ownership or disposition of our common stock.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT
INTENDED TO BE TAX ADVICE.
NON-U.S. HOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
U.S. FEDERAL INCOME AND ESTATE TAXATION, STATE, LOCAL AND
NON-U.S. TAXATION
AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF OUR COMMON STOCK.
121
Distributions
on Our Common Stock
As discussed under Dividend Policy above, we do not
currently expect to pay dividends. In the event that we do make
a distribution of cash or property with respect to our common
stock, any such distributions generally will constitute
dividends for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. If a
distribution exceeds our current and accumulated earnings and
profits, the excess will constitute a return of capital and will
first reduce the holders adjusted tax basis in our common
stock, but not below zero. Any remaining excess will be treated
as capital gain, subject to the tax treatment described below in
Gain on Sale, Exchange or Other Taxable Disposition of Our
Common Stock. Any such distribution would also be subject
to the discussion below under the section titled
Additional Withholding Requirements.
Dividends paid to a
Non-U.S. Holder
generally will be subject to a 30% U.S. federal withholding
tax unless such
Non-U.S. Holder
provides us or our agent, as the case may be, with the
appropriate IRS
Form W-8,
such as:
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IRS
Form W-8BEN
(or successor form) certifying, under penalties of perjury, a
reduction in withholding under an applicable income tax
treaty, or
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IRS
Form W-8ECI
(or successor form) certifying that a dividend paid on common
stock is not subject to withholding tax because it is
effectively connected with a trade or business in the United
States of the
Non-U.S. Holder
(in which case such dividend generally will be subject to
regular graduated U.S. tax rates as described below).
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The certification requirement described above must be provided
to us or our agent prior to the payment of dividends and must be
updated periodically. The certification also may require a
Non-U.S. Holder
that provides an IRS form or that claims treaty benefits to
provide its U.S. taxpayer identification number. Special
certification and other requirements apply in the case of
certain
Non-U.S. Holders
that are intermediaries or pass-through entities for
U.S. federal income tax purposes.
Each
Non-U.S. Holder
is urged to consult its own tax advisor about the specific
methods for satisfying these requirements. A claim for exemption
will not be valid if the person receiving the applicable form
has actual knowledge or reason to know that the statements on
the form are false.
If dividends are effectively connected with a trade or business
in the United States of a
Non-U.S. Holder
(and, if required by an applicable income tax treaty,
attributable to a U.S. permanent establishment), the
Non-U.S. Holder,
although exempt from the withholding tax described above
(provided that the certifications described above are
satisfied), generally will be subject to U.S. federal
income tax on such dividends on a net income basis in the same
manner as if it were a resident of the United States. In
addition, if a
Non-U.S. Holder
is treated as a corporation for U.S. federal income tax
purposes, the
Non-U.S. Holder
may be subject to an additional branch profits tax
equal to 30% (unless reduced by an applicable income treaty) of
its earnings and profits in respect of such effectively
connected dividend income.
Non-U.S. Holders
that do not timely provide us or our agent with the required
certification but which are eligible for a reduced rate of
U.S. federal withholding tax pursuant to an income tax
treaty, may obtain a refund or credit of any excess amount
withheld by timely filing an appropriate claim for refund with
the IRS.
Gain on
Sale, Exchange or Other Taxable Disposition of Our Common
Stock
Subject to the discussion below under the section titled
Additional Withholding Requirements, in general, a
Non-U.S. Holder
will not be subject to U.S. federal income tax or
withholding tax on gain realized upon such holders sale,
exchange or other taxable disposition of shares of our common
stock unless (i) such
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more in the taxable year of disposition, and
certain other conditions are met, (ii) we are or have been
a United States real property holding corporation,
as defined in the Internal Revenue Code (a USRPHC),
at any time within the shorter of the five-year period preceding
the disposition and the
Non-U.S. Holders
holding period in the shares of our common stock, and certain
other requirements are met, or (iii) such gain is
effectively connected with the conduct by such
122
Non-U.S. Holder
of a trade or business in the United States (and, if required by
an applicable income tax treaty, is attributable to a permanent
establishment maintained by such
Non-U.S. Holder
in the United States).
If the first exception applies, the
Non-U.S. Holder
generally will be subject to U.S. federal income tax at a
rate of 30% (or at a reduced rate under an applicable income tax
treaty) on the amount by which such
Non-U.S. Holders
capital gains allocable to U.S. sources exceed capital
losses allocable to U.S. sources during the taxable year of
the disposition. If the third exception applies, the
Non-U.S. Holder
generally will be subject to U.S. federal income tax with
respect to such gain on a net income basis in the same manner as
if it were a resident of the United States and a
Non-U.S. Holder
that is a corporation for U.S. federal income tax purposes
may also be subject to a branch profits tax with respect to any
earnings and profits attributable to such gain at a rate of 30%
(or at a reduced rate under an applicable income tax treaty).
Generally, a corporation is a USRPHC only if the fair market
value of its U.S. real property interests (as defined in
the Internal Revenue Code) equals or exceeds 50% of the sum of
the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or
business. Although there can be no assurance in this regard, we
believe that we are not, and do not anticipate becoming, a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our U.S. real
property interests relative to the fair market value of other
business assets, there can be no assurance that we will not
become a USRPHC in the future. Even if we became a USRPHC, a
Non-U.S. Holder
would not be subject to U.S. federal income tax on a sale,
exchange or other taxable disposition of our common stock by
reason of our status as USRPHC so long as our common stock is
regularly traded on an established securities market at any time
during the calendar year in which the disposition occurs and
such
Non-U.S. Holder
does not own and is not deemed to own (directly, indirectly or
constructively) more than 5% of our common stock at any time
during the shorter of the five year period ending on the date of
disposition and the holders holding period. However, no
assurance can be provided that our common stock will be
regularly traded on an established securities market for
purposes of the rules described above. Prospective investors are
encouraged to consult their own tax advisors regarding the
possible consequences to them if we are, or were to become, a
USRPHC.
Additional
Withholding and Reporting Requirements
Legislation enacted in March 2010 generally imposes U.S. federal
withholding at a rate of 30% on payments to certain foreign
entities (including financial institutions, which include hedge
funds, private equity funds, mutual funds, securitization
vehicles and other investment vehicles regardless of size) of
dividends on, and the gross proceeds from a sale or other
disposition of, common stock of U.S. issuers (and certain
other types of payments), unless various U.S. information
reporting, due diligence and procedural (including, in the case
of a foreign financial institution, the entering into an
agreement with the IRS) requirements have been timely satisfied.
These requirements are different from, and are in addition to,
the beneficial owner certification requirements described above.
Pursuant to recent guidance from the IRS, this 30% withholding
tax would apply to certain payments, including dividends on our
common stock, if any, paid on or after January 1, 2014, and
to payments of gross proceeds from the sale or other disposition
of our common stock paid on or after January 1, 2015. Under
certain circumstances, a
non-U.S. holder
might be eligible for refunds or credits for such taxes. The
Code requires the IRS to provide for the coordination of this
30% withholding tax with other U.S. federal income
withholding provisions, including providing for the proper
crediting of amounts deducted and withheld under these rules
against amounts required to be deducted and withheld under such
other withholding provisions. To date, no such coordinating
rules have been implemented.
The IRSs guidance with respect to these rules is only
preliminary, and the scope of these rules remains unclear and
potentially subject to material changes. Prospective investors
should consult their own tax advisor regarding the possible
implications of these rules on their investment in our common
stock, including, without limitation, the process and deadlines
for meeting the applicable requirements to prevent the
imposition of this 30% withholding tax.
123
Backup
Withholding and Information Reporting
We must report annually to the IRS and to each
Non-U.S. Holder
the gross amount of the distributions on our common stock paid
to the holder and the tax withheld, if any, with respect to the
distributions.
Non-U.S. Holders
may have to comply with specific certification procedures to
establish that the holder is not a United States person (as
defined in the Internal Revenue Code) in order to avoid backup
withholding at the applicable rate, currently 28% and scheduled
to increase to 31% for taxable years 2013 and thereafter, with
respect to dividends on our common stock. Dividends paid to
Non-U.S. Holders
subject to the U.S. withholding tax, as described above
under the section titled Distributions on Our Common
Stock, generally will be exempt from U.S. backup
withholding.
Information reporting and backup withholding will generally
apply to the proceeds of a disposition of our common stock by a
Non-U.S. Holder
effected by or through the U.S. office of any broker,
U.S. or foreign, unless the holder certifies its status as
a
Non-U.S. Holder
and satisfies certain other requirements, or otherwise
establishes an exemption. Generally, information reporting and
backup withholding will not apply to a payment of disposition
proceeds to a
Non-U.S. Holder
where the transaction is effected outside the United States
through a
non-U.S. office
of a broker. However, for information reporting purposes,
dispositions effected through a
non-U.S. office
of a broker with substantial U.S. ownership or operations
generally will be treated in a manner similar to dispositions
effected through a U.S. office of a broker. Prospective
investors should consult their own tax advisors regarding the
application of the information reporting and backup withholding
rules to them.
Copies of information returns may be made available to the tax
authorities of the country in which the
Non-U.S. Holder
resides or, in which the
Non-U.S. Holder
is incorporated, under the provisions of a specific treaty or
agreement.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S. Holder
can be refunded or credited against the
Non-U.S. Holders
U.S. federal income tax liability, if any, provided that an
appropriate claim is timely filed with the IRS.
Federal
Estate Tax
Common stock owned (or treated as owned) by an individual who is
not a citizen or a resident of the United States (as defined for
U.S. federal estate tax purposes) at the time of death will
be included in the individuals gross estate for
U.S. federal estate tax purposes, unless an applicable
estate or other tax treaty provides otherwise, and therefore,
may be subject to U.S. federal estate tax.
124
UNDERWRITING
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman,
Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are representatives of the
underwriters.
|
|
|
|
|
Underwriters
|
|
Number of Shares
|
|
|
Goldman, Sachs & Co.
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
|
|
|
|
|
Incorporated
|
|
|
|
|
Barclays Capital Inc.
|
|
|
|
|
Deutsche Bank Securities Inc.
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
Morgan Stanley & Co. LLC
|
|
|
|
|
Wells Fargo Securities, LLC
|
|
|
|
|
Robert W. Baird & Co. Incorporated
|
|
|
|
|
William Blair & Company, L.L.C.
|
|
|
|
|
RBC Capital Markets, LLC
|
|
|
|
|
Stifel, Nicolaus & Company, Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional shares
from the Company and the selling stockholders. They may exercise
that option for 30 days. If any shares are purchased
pursuant to this option, the underwriters will severally
purchase shares in approximately the same proportion as set
forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by us
and the selling stockholders. Such amounts are shown assuming
both no exercise and full exercise of the underwriters
option to
purchase
additional shares.
Paid
by the Company
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full Exercise
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
Paid
by the Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full Exercise
|
|
Per Share
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters right to reject
any order in whole or in part.
125
We and our officers, directors, and holders of substantially all
of our common stock, including the selling stockholders, have
agreed with the underwriters, subject to certain exceptions, not
to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing
through the date 180 days after the date of this
prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing
employee benefit plans. See Shares Eligible for Future
Sale for a discussion of certain transfer restrictions.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period the Company issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
180-day
restricted period, the Company announces that it will release
earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release of the
announcement of the material news or material event.
Prior to the offering, there has been no public market for the
shares. The initial public offering price will be negotiated
among the Company and the representatives. Among the factors to
be considered in determining the initial public offering price
of the shares, in addition to prevailing market conditions, will
be the Companys historical performance, estimates of the
business potential and earnings prospects of the Company, an
assessment of the Companys management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
We intend to list the common stock on the New York Stock
Exchange under the symbol PRTY.
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Shorts
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from the Company and the selling stockholders
in the offering. The underwriters may close out any covered
short position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. Naked
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of
the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of the Companys
stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the
common stock. As a result, the price of the common stock may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected on
the New York Stock Exchange, in the
over-the-counter
market or otherwise.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the Companys common stock. In addition, neither we nor any
of the underwriters make any representation that the
representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.
126
In connection with the offering, certain of the underwriters or
securities dealers may distribute prospectuses by electronic
means, such as
e-mail. In
addition, certain of the underwriters or securities dealers may
facilitate Internet distribution for this offering to certain of
its Internet subscription customers. Certain of the underwriters
may allocate a limited number of shares for sale to online
brokerage customers. An electronic prospectus is available on
the Internet websites maintained by certain of the underwriters.
Other than the prospectus in electronic format, the information
on the underwriters websites are not part of this
prospectus.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $ . The selling
stockholders estimate that their share of the total expenses of
the offering will be approximately
$ .
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory, commercial banking
and investment banking services for the issuer or its
affiliates, for which they received or will receive customary
fees and expenses. For instance, affiliates of certain of the
underwriters are lenders, and in some cases agents or managers
for the lenders under our credit facilities.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers, and such investment and
securities activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
Conflicts
of Interest
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
certain of its affiliates act as Joint Bookrunner, Joint Lead
Arranger, Syndication Agent, Issuing Bank, and Lender under the
New ABL Facility; certain affiliates of Wells Fargo Securities,
LLC act as Administrative Agent, Collateral Agent, Joint
Bookrunner, Joint Lead Arranger, Swingline Lender and Lender
under the New ABL Facility; and an affiliate of Credit Suisse
Securities (USA) LLC is a Lender under the New ABL Facility.
Because we may use net proceeds from this offering to pay down
the New ABL Facility, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Wells Fargo Securities, LLC and Credit
Suisse Securities (USA) LLC together with their affiliates may
receive proceeds from this offering in addition to their
underwriting compensation. None of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Wells Fargo Securities,
LLC, or Credit Suisse Securities (USA) LLC will receive 5% or
more of the net proceeds from this offering.
Additionally, Goldman, Sachs & Co. indirectly owns through
certain funds managed by the Sponsors a small ownership interest
in the shares of our common stock. Goldman, Sachs & Co. and
its affiliates will not, however, be receiving more than 5% of
the net offering proceeds from the offering.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
127
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(1) to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
|
|
|
|
(2)
|
to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive), as permitted
under the Prospectus Directive, subject to obtaining the prior
consent of the relevant underwriter or underwriters nominated by
the Issuer for any such offer; or
|
|
|
(3)
|
in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3(2) of
the Prospectus Directive;
|
provided that no such offer of shares shall require the Issuer
or any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a
prospectus pursuant to Article 16 of the Prospectus
Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC (and amendments thereto, including the 2010 PD
Amending Directive, to the extent implemented in the Relevant
Member State), and includes any relevant implementing measure in
the Relevant Member State and the expression 2010 PD Amending
Directive means Directive 2010/73/EU.
United
Kingdom
Each underwriter has represented and agreed that:
(1) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue or sale of the shares in
circumstances in which Section 21(1) of the FSMA does not
apply to the Issuer; and
(2) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
Hong
Kong
The shares may not be offered or sold by means of any document
other than (1) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (2) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
128
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (1) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA),
(2) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (3) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
Japan
The shares have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and each underwriter has agreed
that it will not offer or sell any shares, directly or
indirectly, in Japan or to, or for the benefit of, any resident
of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under
the laws of Japan), or to others for re-offering or resale,
directly or indirectly, in Japan or to a resident of Japan,
except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
Switzerland
The shares may not be publicly offered in Switzerland and will
not be listed on the SIX Swiss Exchange (SIX) or on
any other stock exchange or regulated trading facility in
Switzerland. This prospectus has been prepared without regard to
the disclosure standards for issuance prospectuses under art.
652a or art. 1156 of the Swiss Code of Obligations or the
disclosure standards for listing prospectuses under art. 27 ff.
of the SIX Listing Rules or the listing rules of any other stock
exchange or regulated trading facility in Switzerland. Neither
this prospectus nor any other offering or marketing material
relating to the shares or the offering may be publicly
distributed or otherwise made publicly available in Switzerland.
Neither this prospectus nor any other offering or marketing
material relating to the offering, the Issuer, the shares have
been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with,
and the offer of shares will not be supervised by, the Swiss
Financial Market Supervisory Authority FINMA
(FINMA), and the offer of shares has not been and
will not be authorized under the Swiss Federal Act on Collective
Investment Schemes (CISA). The investor protection
afforded to acquirers of interests in collective investment
schemes under the CISA does not extend to acquirers of shares.
129
Dubai
International Financial Centre
This prospectus relates to an Exempt Offer in accordance with
the Offered Securities Rules of the Dubai Financial Services
Authority (DFSA). This prospectus is intended for
distribution only to persons of a type specified in the Offered
Securities Rules of the DFSA. It must not be delivered to, or
relied on by, any other person. The DFSA has no responsibility
for reviewing or verifying any documents in connection with
Exempt Offers. The DFSA has not approved this prospectus nor
taken steps to verify the information set forth herein and has
no responsibility for the prospectus. The shares to which this
prospectus relates may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
prospectus you should consult an authorized financial advisor.
130
VALIDITY
OF COMMON STOCK
Ropes & Gray LLP, Boston, Massachusetts, will pass for
us on the validity of the shares of common stock offered by this
prospectus. The underwriters are being represented by
Latham & Watkins LLP, New York, New York.
Ropes & Gray LLP and some attorneys of
Ropes & Gray LLP are members of an investment entity
that is an investor in certain investment funds sponsored by
Berkshire Partners and Weston Presidio and a direct investor in
Party City Holdings Inc. This investment entity directly and
indirectly owns less than 1% of the outstanding equity of Party
City Holdings Inc.
EXPERTS
Ernst & Young LLP, independent registered public accounting
firm, has audited our consolidated financial statements and
schedule at December 31, 2010 and 2009, and for each of the
three years in the period ended December 31, 2010, as set
forth in their report. The financial statements and schedule in
the prospectus and elsewhere in the registration statement are
included in reliance on Ernst & Young LLPs
report, given on their authority as experts in accounting and
auditing.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act that registers the shares of our common
stock to be sold in this offering. This prospectus does not
contain all of the information set forth in the registration
statement and the exhibits and schedules filed as part of the
registration statement. For further information with respect to
us and our common stock, we refer you to the registration
statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you
to the copy of the contract or document that has been filed.
Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the
filed exhibit.
You may read and copy the registration statement of which this
prospectus is a part at the SECs Public Reference Room at
100 F Street, N.E., Washington D.C. 20549. You may
obtain information regarding the operation of the public
reference room by calling
1-800-SEC-0330.
The SEC also maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC. Our website addresses are www.amscan.com and
www.PartyCity.com. Our subsidiary, Amscan Holdings, currently is
a voluntary filer and makes available free of charge, through
www.amscan.com, its annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after such material is electronically
filed with or furnished to the SEC. The information contained
on, or accessible through, these websites is not part of this
prospectus, and is therefore not incorporated by reference.
131
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|
|
Condensed Consolidated Financial Statements as of September
30, 2011 and December 31, 2010 and for the Three and Nine Months
Ended September 30, 2011 and September 30, 2010
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Consolidated Financial Statements as of December 31, 2010 and
December 31, 2009 and for the Three Years Ended
December 31, 2010
|
|
|
|
|
|
|
|
F-28
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
F-32
|
|
|
|
|
F-33
|
|
Financial Statement Schedule for the Years Ended
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
F-76
|
|
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission (SEC) are not required under the related
instructions or are inapplicable and therefore have been omitted.
F-1
PARTY
CITY HOLDINGS INC.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Note 3)
|
|
|
|
(Amounts in thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,484
|
|
|
$
|
20,454
|
|
Accounts receivable, net of allowances
|
|
|
143,971
|
|
|
|
107,331
|
|
Inventories, net of allowances
|
|
|
523,135
|
|
|
|
424,317
|
|
Prepaid expenses and other current assets
|
|
|
78,756
|
|
|
|
65,672
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
765,346
|
|
|
|
617,774
|
|
Property, plant and equipment, net
|
|
|
208,148
|
|
|
|
190,729
|
|
Goodwill
|
|
|
685,448
|
|
|
|
630,492
|
|
Trade names
|
|
|
133,370
|
|
|
|
129,954
|
|
Other intangible assets, net
|
|
|
47,931
|
|
|
|
55,362
|
|
Other assets, net
|
|
|
26,528
|
|
|
|
28,840
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,866,771
|
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
$
|
263,398
|
|
|
$
|
150,098
|
|
Accounts payable
|
|
|
187,258
|
|
|
|
108,172
|
|
Accrued expenses
|
|
|
131,694
|
|
|
|
111,054
|
|
Income taxes payable
|
|
|
32,414
|
|
|
|
34,325
|
|
Redeemable warrants
|
|
|
|
|
|
|
15,086
|
|
Current portion of long-term obligations
|
|
|
8,845
|
|
|
|
9,046
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
623,609
|
|
|
|
427,781
|
|
Long-term obligations, excluding current portion
|
|
|
834,910
|
|
|
|
841,112
|
|
Deferred income tax liabilities
|
|
|
93,947
|
|
|
|
94,981
|
|
Deferred rent and other long-term liabilities
|
|
|
20,748
|
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,573,214
|
|
|
|
1,378,640
|
|
Redeemable common securities (including 1,172.56 and 597.52
common shares issued and outstanding at September 30, 2011
and December 31, 2010, respectively)
|
|
|
35,765
|
|
|
|
18,089
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value, 19,051.33 and
18,307.79 shares issued and outstanding at
September 30, 2011 and December 31, 2010, respectively
|
|
|
|
|
|
|
|
|
Class B common stock, $0.01 par value, convertible
into Class A common stock, 11,918.71 shares issued and
outstanding at September 30, 2011 and December 31, 2010
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
286,257
|
|
|
|
287,583
|
|
Retained deficit
|
|
|
(21,512
|
)
|
|
|
(27,558
|
)
|
Accumulated other comprehensive loss
|
|
|
(9,345
|
)
|
|
|
(5,915
|
)
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
255,400
|
|
|
|
254,110
|
|
Noncontrolling interests
|
|
|
2,392
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
257,792
|
|
|
|
256,422
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,866,771
|
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
F-2
PARTY
CITY HOLDINGS INC.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
436,186
|
|
|
$
|
358,772
|
|
Royalties and franchise fees
|
|
|
3,962
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
440,148
|
|
|
|
362,807
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
288,147
|
|
|
|
226,335
|
|
Wholesale selling expenses
|
|
|
14,651
|
|
|
|
10,524
|
|
Retail operating expenses
|
|
|
82,740
|
|
|
|
73,785
|
|
Franchise expenses
|
|
|
3,558
|
|
|
|
2,930
|
|
General and administrative expenses
|
|
|
35,554
|
|
|
|
27,495
|
|
Art and development costs
|
|
|
4,222
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
428,872
|
|
|
|
344,844
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
11,276
|
|
|
|
17,963
|
|
Interest expense, net
|
|
|
19,572
|
|
|
|
9,834
|
|
Other expense, net
|
|
|
703
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(8,999
|
)
|
|
|
7,425
|
|
Income tax (benefit) expense
|
|
|
(3,179
|
)
|
|
|
2,752
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(5,820
|
)
|
|
|
4,673
|
|
Less: net income attributable to noncontrolling interest
|
|
|
102
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
$
|
(5,922
|
)
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share-basic
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share-diluted
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares-basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
F-3
PARTY
CITY HOLDINGS INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited) (Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,200,188
|
|
|
$
|
1,015,856
|
|
Royalties and franchise fees
|
|
|
12,193
|
|
|
|
12,333
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,212,381
|
|
|
|
1,028,189
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
760,947
|
|
|
|
637,100
|
|
Wholesale selling expenses
|
|
|
42,970
|
|
|
|
31,759
|
|
Retail operating expenses
|
|
|
216,956
|
|
|
|
191,161
|
|
Franchise expenses
|
|
|
10,294
|
|
|
|
9,203
|
|
General and administrative expenses
|
|
|
98,055
|
|
|
|
86,302
|
|
Art and development costs
|
|
|
12,254
|
|
|
|
11,044
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,141,476
|
|
|
|
966,569
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
70,905
|
|
|
|
61,620
|
|
Interest expense, net
|
|
|
60,252
|
|
|
|
28,261
|
|
Other expense, net
|
|
|
950
|
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,703
|
|
|
|
32,601
|
|
Income tax expense
|
|
|
3,438
|
|
|
|
11,766
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,265
|
|
|
|
20,835
|
|
Less: net income attributable to noncontrolling interest
|
|
|
219
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,046
|
|
|
$
|
20,651
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
|
|
|
$
|
|
|
Net income per common share diluted
|
|
$
|
|
|
|
$
|
|
|
Weighted-average number of common shares basic
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares diluted
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
F-4
PARTY
CITY HOLDINGS INC.
Nine Months Ended September 30,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Party City
|
|
|
|
|
|
|
|
|
|
Class A and Class B
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Holdings Inc.
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance at December 31, 2010
|
|
|
30,226.50
|
|
|
$
|
|
|
|
$
|
287,583
|
|
|
$
|
(27,558
|
)
|
|
$
|
(5,915
|
)
|
|
$
|
254,110
|
|
|
$
|
2,312
|
|
|
$
|
256,422
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,046
|
|
|
|
|
|
|
|
6,046
|
|
|
|
219
|
|
|
|
6,265
|
|
Net change in cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,662
|
)
|
|
|
(4,662
|
)
|
|
|
(139
|
)
|
|
|
(4,801
|
)
|
Change in fair value of interest rate swap contracts, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,414
|
|
|
|
1,414
|
|
|
|
|
|
|
|
1,414
|
|
Change in fair value of foreign exchange contracts, net of
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,616
|
|
|
|
80
|
|
|
|
2,696
|
|
Exercise of warrants to redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Exercise of stock options to redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
(106
|
)
|
Exercise of non-redeemable warrants
|
|
|
740.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of non-redeemable common stock options
|
|
|
2.80
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Equity based compensation expense
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
|
|
|
|
949
|
|
Revaluation of redeemable shares
|
|
|
|
|
|
|
|
|
|
|
(2,193
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,193
|
)
|
|
|
|
|
|
|
(2,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
|
30,970.04
|
|
|
$
|
|
|
|
$
|
286,257
|
|
|
$
|
(21,512
|
)
|
|
$
|
(9,345
|
)
|
|
$
|
255,400
|
|
|
$
|
2,392
|
|
|
$
|
257,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
F-5
PARTY
CITY HOLDINGS INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,265
|
|
|
$
|
20,835
|
|
Less: net income attributable to noncontrolling interest
|
|
|
219
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
6,046
|
|
|
|
20,651
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
43,084
|
|
|
|
36,676
|
|
Amortization of deferred financing costs
|
|
|
3,606
|
|
|
|
2,142
|
|
Provision for doubtful accounts
|
|
|
599
|
|
|
|
838
|
|
Deferred income tax (benefit) expense
|
|
|
(615
|
)
|
|
|
660
|
|
Deferred rent
|
|
|
5,811
|
|
|
|
1,546
|
|
Undistributed income in unconsolidated joint venture
|
|
|
(589
|
)
|
|
|
(382
|
)
|
Loss on disposal of equipment
|
|
|
196
|
|
|
|
259
|
|
Equity based compensation
|
|
|
1,065
|
|
|
|
513
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(30,446
|
)
|
|
|
(29,588
|
)
|
Increase in inventories
|
|
|
(71,182
|
)
|
|
|
(130,625
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(13,932
|
)
|
|
|
(12,972
|
)
|
Increase in accounts payable, accrued expenses and income taxes
payable
|
|
|
82,946
|
|
|
|
108,782
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
26,589
|
|
|
|
(1,500
|
)
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(95,627
|
)
|
|
|
(35,630
|
)
|
Capital expenditures
|
|
|
(36,269
|
)
|
|
|
(36,100
|
)
|
Proceeds from disposal of property and equipment
|
|
|
52
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(131,844
|
)
|
|
|
(71,583
|
)
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
Repayment of long-term obligations
|
|
|
(7,581
|
)
|
|
|
(49,157
|
)
|
Borrowings under loans and notes payable
|
|
|
113,300
|
|
|
|
128,851
|
|
Proceeds from exercise of stock options
|
|
|
199
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
105,918
|
|
|
|
79,746
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,633
|
)
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(970
|
)
|
|
|
7,323
|
|
Cash and cash equivalents at beginning of period
|
|
|
20,454
|
|
|
|
15,420
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
19,484
|
|
|
$
|
22,743
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
48,471
|
|
|
$
|
22,500
|
|
Income taxes
|
|
$
|
5,128
|
|
|
$
|
36,780
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
F-6
PARTY
CITY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
|
|
Note 1
|
Description
of Business
|
Party City Holdings Inc. (Party City Holdings or the
Company), formerly known as AAH Holdings
Corporation, designs, manufactures, contracts for manufacture
and distributes party goods, including paper and plastic
tableware, metallic and latex balloons, accessories, novelties,
costumes, other garments, gifts and stationery throughout the
world. In addition, the Company operates specialty retail party
supply stores in the United States and Canada, principally under
the names Party City, Halloween City and Party Packagers. The
Company franchises both individual stores and franchise areas
throughout the United States and Puerto Rico principally under
the name Party City and operates its e-commerce website,
PartyCity.com. On a stand alone basis, without the consolidation
of its subsidiaries, Party City Holdings Inc. has no significant
assets or operations.
On July 29, 2011, the Company acquired all of the common
stock of Party Packagers for $31,783 in cash in a transaction
accounted for as a purchase business combination. Party
Packagers is a Canadian retailer of party goods and outdoor
toys. The results of this newly acquired business are included
in the consolidated financial statements since the July 29,
2011 acquisition date and are reported in the operating results
of the Companys Retail segment.
The preliminary estimate of the excess of the purchase price
over the tangible assets acquired is initially being assigned to
goodwill. The following summarizes the estimated fair value of
the assets and liabilities acquired: accounts receivable of
$284, inventory of $11,643, fixed assets of $4,456, other
current and non-current assets of $270, and accounts payable and
other current liabilities of $8,341. The remaining $23,471 has
been initially recorded as goodwill. The allocation of the
purchase price is based on our preliminary estimate of the fair
value of the tangible assets acquired and liabilities assumed.
The Company is still in the process of accumulating information
to complete the determination of the fair value of certain
acquired assets, including identifiable intangible assets
acquired. Goodwill arises because the purchase price reflects
the strategic fit and expected synergies this business will
bring to the Companys operations. The acquisition expands
the Companys vertical business model, giving the Company a
significant retail presence in Canada.
On January 30, 2011, the Company acquired all of the common
stock of Riethmüller GmbH (Riethmüller)
for $47,069 in cash, in a transaction accounted for as a
purchase business combination. Riethmüller is a German
distributor of party goods and carnival items with latex balloon
manufacturing operations in Malaysia and the ability to
manufacture certain party goods in Poland. The results of this
newly acquired business are included in the consolidated
financial statements since the January 30, 2011 acquisition
date and are reported in the operating results of the
Companys Wholesale segment.
The following summarizes the estimated fair value of the assets
and liabilities acquired: accounts receivable of $14,498,
inventory of $14,828, fixed assets of $11,504, amortizable
intangible assets of $1,638 and accounts payable and other
current liabilities of $13,714. The remaining $18,315 has been
initially recorded as goodwill. The allocation of the purchase
price is based on our preliminary estimate of the fair value of
the tangible assets acquired and liabilities assumed. The
Company is still in the process of accumulating information to
complete the determination of the fair value of certain acquired
assets, including identifiable intangible assets acquired.
Goodwill arises because the purchase price reflects the
strategic fit and expected synergies this business will bring to
the Companys operations. The acquisition expands the
Companys vertical business model into the latex balloon
category, allowing the Company to capture the manufacturing and
wholesale margin on such sales, and gives the Company an
additional significant presence in Germany, Poland and Malaysia.
F-7
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On September 30, 2010, the Company acquired Christys
By Design Limited and three affiliated companies (the
Christys Group) from Christy Holdings Limited,
a U.K. based company. The Christys Group designs and
distributes costumes and other garments and accessories through
its operations in Asia and the U.K. The fair value of the total
consideration paid for the Christys Group was $34,342,
including $3,974 paid during the nine months ended
September 30, 2011. The results of this newly acquired
business are included in the consolidated financial statements
since the September 30, 2010 acquisition date and are
reported in the operating results of the Companys
Wholesale segment.
The excess of the purchase price over the tangible assets and
identified intangible assets acquired was assigned to goodwill.
The following summarizes the fair value of the assets and
liabilities acquired: accounts receivable of $17,656, inventory
of $457, trade names of $3,180, fixed assets of $582, and
accounts payable and accrued expenses of $13,636. The remaining
$26,103 has been recorded as goodwill. The allocation of the
purchase price is based on the fair value of the tangible and
identifiable intangible assets acquired and liabilities assumed.
Goodwill arises because the purchase price reflects the
strategic fit and expected synergies this business will bring to
the Companys operations. The Christys Group
acquisition provided the Company the opportunity to manufacture
Halloween costumes for sale to its U.S. retail segment,
allowing the Company to capture the manufacturing and wholesale
margins on such sales. The acquisition also allowed the Company
to leverage its existing U.K. distribution capacity to expand
the Christys Group business in Europe. The Company elected
to treat the U.K. entities acquired as foreign branches for
U.S. tax purposes. As a result, the entire excess of the
purchase price over the fair value of the tangible assets and
liabilities acquired is deductible for U.S. tax purposes
over 15 years.
On December 21, 2009, the Company entered into an Asset
Purchase Agreement with American Greetings Corporation
(American Greetings) under which it acquired certain
assets, equipment and processes used in the manufacture and
distribution of party goods effective on March 1, 2010 (the
Designware Acquisition). In connection with the
Designware Acquisition, the companies also entered into a Supply
and Distribution Agreement and a Licensing Agreement
(collectively, the Agreements). Under the terms of
the Agreements, the Company has exclusive rights to manufacture
and distribute products into various channels including the
party store channel. In addition, American Greetings will
continue to distribute party goods to various channels including
to its mass market, drug, grocery, and specialty retail
customers. American Greetings will purchase substantially all of
its party goods requirements from the Company and the Company
will license from American Greetings the Designware
brand and other character licenses. The results of this business
are included in the consolidated financial statements since the
March 1, 2010 acquisition date and are reported in the
operating results of the Companys Wholesale segment.
The acquisition-date fair value of the total consideration
transferred was $45,881, including cash of $24,881 and a warrant
to purchase approximately 2% of the Common Stock of the Company
valued at $21,000. The fair value of the warrant was determined
based on the agreement between the parties. The warrant was
exercised in February 2011.
During the nine months ended September 30, 2011, the
Company acquired three franchisee stores located in California,
one store located in Iowa and four stores located in Texas for
total consideration of $12,801 in cash. The fair value of the
assets acquired were $3,298 of inventory and $680 of fixed
assets. The remaining $8,823 has been recorded as goodwill.
During 2010, the Company acquired 20 franchisee stores located
throughout several states for total consideration of $24,300.
Total consideration consisted of $21,500 in cash and the
exchange of five corporate stores located in Pennsylvania.
Excluding the assets exchanged of $2,800, the fair value of the
assets and liabilities acquired for cash were $2,500 of
inventory and $1,600 of fixed assets. The remaining $17,400 has
been recorded as goodwill.
F-8
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill arises from the acquisition of franchise and
independent stores because the purchase price reflects the value
of the geographic location of each acquired store, as well as
their maturity and historical profitability. The excess of the
purchase price over the fair value of the tangible assets
acquired is deductible for tax purposes over 15 years.
|
|
Note 3
|
Basis of
Presentation
|
The accompanying unaudited condensed consolidated financial
statements as of September 30, 2011 and for the three and
nine months ended September 30, 2011 and 2010, and the
audited balance sheet as of December 31, 2010, include the
accounts of the Company and its majority-owned and controlled
entities. All material 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.
Our retail operations define a fiscal year (Fiscal
Year) as the 52-week period or 53-week period ended on the
Saturday nearest December 31st of each year, and
define their fiscal quarters (Fiscal Quarter) as the
four interim 13-week periods following the end of the previous
Fiscal Year, except in the case of a 53-week Fiscal Year when
the fourth Fiscal Quarter is extended to 14 weeks. The
consolidated financial statements of the Company combine the
Fiscal Quarters of our retail operations with the calendar
quarters of our wholesale operations as the differences are not
significant.
The Company has determined the difference between the retail
operations Fiscal Year and Fiscal Quarters and the
calendar year and quarters to be insignificant.
Operating results for the three and nine months ended
September 30, 2011 are not necessarily indicative of the
results to be expected for the year ending December 31,
2011. Our business is subject to substantial seasonal
variations, as our retail segment has realized a significant
portion of its net sales, cash flow 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 holiday season
sales at the end of the calendar year. We expect that this
general pattern will continue. Our results of operations may
also be affected by industry factors that may be specific to a
particular period, such as movement in and the general level of
raw material costs. For further information, see the audited
consolidated financial statements and notes included in this
registration statement.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Finished goods
|
|
$
|
512,757
|
|
|
$
|
416,831
|
|
Raw Materials
|
|
|
14,122
|
|
|
|
11,879
|
|
Work in Process
|
|
|
6,639
|
|
|
|
6,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533,518
|
|
|
|
434,822
|
|
Reserve for slow-moving and obsolete inventory
|
|
|
(10,383
|
)
|
|
|
(10,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
523,135
|
|
|
$
|
424,317
|
|
|
|
|
|
|
|
|
|
|
F-9
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories are valued at the lower of cost or market. The
Company determines the cost of inventory at its retail stores
using the weighted average method, which approximates the
first-in,
first-out method. All other inventory cost is determined using
the
first-in,
first-out method.
|
|
Note 5
|
Loans and
Notes Payable
|
On September 12, 2011, the Company entered into an
agreement with Wells Fargo Bank, National Association
(Wells Fargo), under which Wells Fargo agreed to increase
its commitment by $25,000, under the terms of the Companys
asset based revolving credit facility dated August 13,
2010, as amended (the ABL Credit Agreement). The
increase results in an aggregate commitment for extensions of
credit under the ABL Credit Agreement of $350,000.
In connection with the acquisitions of the Christys Group,
Riethmüller and Party Packagers, during the nine months
ended September 30, 2011, the Company entered into several
foreign asset-based and overdraft credit facilities that provide
the Company with GBP19,000, CDN4,000, EUR1,800 and MYR5,000 of
borrowing capacity. At September 30, 2011, borrowings under
the foreign facilities totaled $12,808. Borrowings under the
foreign facilities generally bear interest at prime plus margins
ranging from 1% to 1.75%. The facilities contain customary
affirmative and negative covenants. In connection with one of
the facilities, the Company maintains a compensating cash
balance of $4,266 to secure outstanding standby letters of
credit. The compensating cash balance is included in prepaid
expenses and other current assets.
The income tax (benefit) expense for the three and nine months
ended September 30, 2011 and 2010 were determined based
upon the Companys estimated consolidated effective income
tax rates of 36.2% and 36.4% for the years ending
December 31, 2011 and 2010, respectively. The differences
between the estimated consolidated effective income tax rate and
the U.S. federal statutory rate are primarily attributable
to state income taxes and available domestic manufacturing
deductions.
In addition, the income tax (benefit) expense for the three and
nine months ended September 30, 2011 reflects the
settlement of the audits of the Companys 2008 and 2009
federal tax returns and the settlement of the audits of several
2007 and 2008 state income tax returns. Also, the income
tax expense for the three and nine months ended
September 30, 2010 reflects the settlement of the audit of
the Companys 2007 federal tax return and the expiration of
state statutes of limitations resolving previously unrecognized
tax benefits.
In connection with the November 2007 acquisition of Factory
Card & Party Outlet (FCPO), $9,101 was
accrued related to plans to restructure FCPOs
merchandising assortment and administrative operations and
involuntarily terminate a limited number of FCPO personnel.
Through September 30, 2011, the Company spent $8,087 in
restructuring costs, including $53 and $481 spent in the three
and nine months ended September 30, 2011. The Company
expects to spend an additional $155 on restructuring costs in
2011 and the remaining balance of $859 in 2012.
F-10
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Comprehensive
(Loss) Income
|
Comprehensive (loss) income attributable to Party City Holdings
Inc. consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
$
|
(5,922
|
)
|
|
$
|
4,603
|
|
|
$
|
6,046
|
|
|
$
|
20,651
|
|
Net change in cumulative translation adjustment
|
|
|
(8,212
|
)
|
|
|
2,993
|
|
|
|
(4,662
|
)
|
|
|
886
|
|
Change in fair value of interest rate swap contracts, net of
income tax expense of $-, $804, $830, and $1,040
|
|
|
|
|
|
|
1,370
|
|
|
|
1,414
|
|
|
|
1,771
|
|
Change in fair value of foreign exchange contracts, net of
income tax expense (benefit) of $22, $(206), $(107), and $135
|
|
|
38
|
|
|
|
(351
|
)
|
|
|
(182
|
)
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(14,096
|
)
|
|
$
|
8,615
|
|
|
$
|
2,616
|
|
|
$
|
23,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2011 and December 31, 2010, the
Companys authorized capital stock, including redeemable
common securities, consisted of 10,000.00 shares of
preferred stock, $0.01 par value, of which no shares were
issued or outstanding, 40,000.00 shares of Class A
Common Stock, $0.01 par value, of which 20,223.89 and
18,905.31 shares were issued and outstanding, respectively,
and 15,200.00 shares of Class B Common Stock,
$0.01 par value, of which 11,918.71 shares were issued
and outstanding, respectively. At September 30, 2011 and
December 31, 2010, 15,200 shares of Class A
Common Stock, $0.01 par value were reserved for issuance
upon the conversion of Class B Common Stock, $0.01 par
value.
The holders of common stock are entitled to vote as a single
class on all matters upon which shareholders have a right to
vote, subject to the requirements of applicable laws. Each share
of Class A and Class B Common Stock entitles its
holder to one vote and both classes participate equally in any
dividend or distribution of earnings of the Company. For so long
as at least 50% of the shares of Class B Common Stock
issued at the effective time of the Second Amended and Restated
Certificate of Incorporation remain outstanding, the holders of
a majority of outstanding shares of Class B Common Stock
must affirmatively vote or consent to sell, merge, consolidate,
reorganize, liquidate or otherwise dispose of all or
substantially all of the assets of the Company and, among other
things and in certain instances, to incur indebtedness, to pay
dividends or distributions and to effectuate a public offering
of the Companys Class A Common Stock.
Each share of Class B Common Stock is convertible into a
share of Class A Common Stock on a
one-for-one
basis (i) upon transfer to a person or entity which is not
a Permitted Transferee (as defined in our Second Amended and
Restated Certificate of Incorporation), (ii) upon a
Qualified Initial Public Offering (as defined in our Second
Amended and Restated Certificate of Incorporation) and
(iii) at such time as less than 20% of the
11,918.71 shares of Class B Common Stock are
controlled or owned by Permitted Transferees.
Certain employee stockholders owned 1,172.56 and
597.52 shares of the Companys common stock at
September 30, 2011 and December 31, 2010,
respectively. Under the terms of the Companys
stockholders agreement dated April 30, 2004, as
amended, the Company has an option to purchase all of the shares
of common stock held by former employees and, under certain
circumstances, former employee stockholders can require the
Company to purchase all of the shares held by the former
employee. The purchase price as prescribed in the
stockholders agreement is to be determined through a
market valuation of the minority-held shares or, under certain
circumstances, based on cost, as defined therein. The aggregate
amount that may be payable by the Company to certain employee
stockholders based on the estimated fair market value of fully
F-11
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
paid and vested common securities totaled $34,708 at
September 30, 2011 and $16,547 at December 31, 2010,
and is classified as redeemable common securities on the
consolidated balance sheet, with a corresponding adjustment to
stockholders equity. As there is no active market for the
Companys common stock, the Company estimates the fair
value of its common stock based on a valuation model confirmed
periodically by recent acquisitions or independent appraisals.
In addition, in 2004, the Companys CEO and President
exchanged vested options in a predecessor company for fully
vested options to purchase common stock of the Company. Since
these options vested immediately and can be exercised upon the
death or disability of the officer and put back to the Company,
they are reflected as redeemable common securities of $1,057 and
$1,542 on the Companys balance sheet as of
September 30, 2011 and December 31, 2010, respectively.
During the third quarter of 2011 the President exercised his
20.29 rollover options.
The changes in redeemable securities during the nine months
ended September 30, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Rollover options
|
|
|
Total
|
|
|
Balance December 31, 2010
|
|
$
|
16,547
|
|
|
$
|
1,542
|
|
|
$
|
18,089
|
|
Employee warrant exercise
|
|
|
15,090
|
|
|
|
|
|
|
|
15,090
|
|
Employee option exercise
|
|
|
878
|
|
|
|
(601
|
)
|
|
|
277
|
|
Common stock revaluation
|
|
|
2,193
|
|
|
|
116
|
|
|
|
2,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2011
|
|
$
|
34,708
|
|
|
$
|
1,057
|
|
|
$
|
35,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
|
Segment
Information
|
Industry
Segments
The Company has two identifiable business segments. The
Wholesale segment includes the design, manufacture, contract for
manufacture and wholesale distribution of party goods, including
paper and plastic tableware, metallic and latex balloons,
accessories, novelties, costumes, other garments, gifts and
stationery. The Retail segment includes the operation of
company-owned retail party supply superstores in the
United States and Canada, the sale of franchises on an
individual store and franchise area basis throughout the
United States and Puerto Rico and e-commerce operations
through our PartyCity.com website.
F-12
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys industry segment data for the three months
ended September 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
293,932
|
|
|
$
|
264,548
|
|
|
$
|
558,480
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
3,962
|
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,932
|
|
|
|
268,510
|
|
|
|
562,442
|
|
Eliminations
|
|
|
(122,294
|
)
|
|
|
|
|
|
|
(122,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
171,638
|
|
|
$
|
268,510
|
|
|
$
|
440,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
33,214
|
|
|
$
|
(21,938
|
)
|
|
$
|
11,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
19,572
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(8,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,098
|
|
|
$
|
9,747
|
|
|
$
|
15,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,117,054
|
|
|
$
|
749,717
|
|
|
$
|
1,866,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
219,976
|
|
|
$
|
229,856
|
|
|
$
|
449,832
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
4,035
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
219,976
|
|
|
|
233,891
|
|
|
|
453,867
|
|
Eliminations
|
|
|
(91,060
|
)
|
|
|
|
|
|
|
(91,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
128,916
|
|
|
$
|
233,891
|
|
|
$
|
362,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
28,260
|
|
|
$
|
(10,297
|
)
|
|
$
|
17,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
9,834
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
7,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
5,162
|
|
|
$
|
7,808
|
|
|
$
|
12,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
962,547
|
|
|
$
|
756,960
|
|
|
$
|
1,719,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys industry segment data for the nine months
ended September 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
707,478
|
|
|
$
|
754,292
|
|
|
$
|
1,461,770
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
12,193
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
707,478
|
|
|
|
766,485
|
|
|
|
1,473,963
|
|
Eliminations
|
|
|
(261,582
|
)
|
|
|
|
|
|
|
(261,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
445,896
|
|
|
$
|
766,485
|
|
|
$
|
1,212,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
75,800
|
|
|
$
|
(4,895
|
)
|
|
$
|
70,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
60,252
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
9,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
16,515
|
|
|
$
|
26,569
|
|
|
$
|
43,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,117,054
|
|
|
$
|
749,717
|
|
|
$
|
1,866,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
564,400
|
|
|
$
|
668,250
|
|
|
$
|
1,232,650
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
12,333
|
|
|
|
12,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
564,400
|
|
|
|
680,583
|
|
|
|
1,244,983
|
|
Eliminations
|
|
|
(216,794
|
)
|
|
|
|
|
|
|
(216,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
347,606
|
|
|
$
|
680,583
|
|
|
$
|
1,028,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
66,850
|
|
|
$
|
(5,230
|
)
|
|
$
|
61,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
28,261
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
32,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
14,678
|
|
|
$
|
21,998
|
|
|
$
|
36,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
962,547
|
|
|
$
|
756,960
|
|
|
$
|
1,719,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Segments
The Companys export sales, other than inter-company sales
between geographic areas, are not material. Inter-company sales
between geographic areas primarily consist of sales of finished
goods for distribution in foreign markets, and are made at cost
plus a share of operating profit.
|
|
Note 11
|
Legal
Proceedings
|
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.
F-14
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12
|
Stock
Option Plan
|
The Company recorded $256 and $237 of stock-based compensation
in general and administrative expenses during the three months
ended September 30, 2011 and 2010 and $1,065 and $513
during the nine months ended September 30, 2011 and 2010,
respectively. Stock-based compensation expense for the nine
months ended September 30, 2011 included a charge of $116
arising from the revaluation of redeemable common stock options
held by the CEO and President.
In addition, the Company made a cash distribution to holders of
vested time options granted before December, 2010 of $98 during
the three months ended September 30, 2011, and $507 during
the nine months ended September 30, 2011.
During February 2011, the Company granted 26 time options and
138 performance options to employees under the terms of the
Companys 2004 Equity Incentive Plan. These options vest at
a rate of 20% per year and are exercisable at $27,700 per share.
During June 2011, the Company granted 175 time options and 350
performance options to the Companys CEO and President
under the terms of the 2004 Equity Incentive Plan. These options
vest one third upon grant and one third per year thereafter, and
are exercisable at $29,600 per share. The ability to exercise
vested performance options is contingent upon the occurrence of
an initial public offering or a change in control, as defined,
and the achievement of specific investment returns to the
Companys stockholders.
During the three and nine months ended September 30, 2011,
20.29 and 33.07 options were exercised, respectively. There are
options to purchase 3,777.37 shares of common stock
outstanding at September 30, 2011.
|
|
Note 13
|
Hedging
Transactions, Derivative Financial Instruments and Fair
Value
|
The Company is directly and indirectly affected by changes in
certain market conditions. These changes in market conditions
may adversely impact the Companys financial performance
and are referred to as market risks. The Company, when deemed
appropriate, uses derivatives as a risk management tool to
mitigate the potential impact of certain market risks. The
primary market risks managed through the use of derivative
financial instruments are interest rate risk and foreign
currency exchange rate risk.
Interest
Rate Risk Management
As part of the Companys risk management strategy, the
Company periodically uses interest rate swap agreements to hedge
the variability of cash flows on floating rate debt obligations.
Accordingly, interest rate swap agreements are reflected in the
consolidated balance sheets at fair value and the related gains
and losses on these contracts are deferred in equity and
recognized in interest expense over the same period in which the
related interest payments being hedged are recognized in income.
The fair value of an interest rate swap agreement is the
estimated amount that the counterparty would receive or pay to
terminate the swap agreement at the reporting date, taking into
account current interest rates and the current creditworthiness
of the swap counterparty.
At September 30, 2011 the Company had no interest rate swap
agreements. At December 31, 2010, the Company had an
interest rate swap with the notional amount of $135,374 and a
net liability fair value of $2,244. The swap agreement had an
unrealized net losses of $1,414 at December 31, 2010 which
was included in accumulated other comprehensive income (loss).
No component of the agreement was excluded in the measurement of
hedge effectiveness. As the hedge was 100% effective, there was
no current impact on earnings due to hedge ineffectiveness. The
interest rate swap agreement matured on September 22, 2011.
F-15
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Exchange Risk Management
A portion of the Companys cash flows is derived from
transactions denominated in foreign currencies. The United
States dollar value of transactions denominated in foreign
currencies fluctuates as the United States dollar
strengthens or weakens relative to these foreign currencies. In
order to reduce the uncertainty of foreign exchange rate
movements on transactions denominated in foreign currencies,
including the British Pound Sterling and the Euro, 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 inter-company inventory
purchases and trade receivables. No components of the contracts
are excluded in the measurement of hedge effectiveness. The
critical terms of the foreign exchange contracts are the same as
the underlying forecasted transactions; therefore, changes in
the fair value of foreign exchange contracts should be highly
effective in offsetting changes in the expected cash flows from
the forecasted transactions.
At September 30, 2011 and December 31, 2010 the
Company had foreign currency exchange contracts with notional
amounts of $4,884 and $13,468, respectively, and net liability
and asset fair values of $(92) and $197, respectively. The
foreign currency exchange contracts are reflected in the
consolidated balance sheets at fair value. The fair value of the
foreign currency exchange contracts is the estimated amount that
the counter-parties would receive or pay to terminate the
foreign currency exchange contracts at the reporting date,
taking into account current foreign exchange spot rates. The
fair value adjustment at September 30, 2011 and
December 31, 2010 resulted in an unrealized net loss of
$(58) and an unrealized net gain of $124, respectively, which
are included in accumulated other comprehensive income (loss).
As these hedges are 100% effective, there is no current impact
on earnings due to hedge ineffectiveness. The Company
anticipates that substantially all gains and losses in
accumulated other comprehensive income (loss) related to these
foreign exchange contracts will be reclassified into earnings by
December 2011.
Fair
Value Measurement
ASC Subtopic 820 defines 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 Subtopic 820
establishes 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.
|
F-16
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables show assets and liabilities as of
September 30, 2011 and December 31, 2010, that are
measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Observable
|
|
|
Inputs
|
|
|
Total as of
|
|
|
|
Liabilities (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
|
September 30,, 2011
|
|
|
Derivative assets
|
|
|
|
|
|
$
|
8
|
|
|
|
|
|
|
$
|
8
|
|
Derivative liabilities
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total as of
|
|
|
|
Liabilities (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2010
|
|
|
Derivative assets
|
|
|
|
|
|
$
|
241
|
|
|
|
|
|
|
$
|
241
|
|
Derivative liabilities
|
|
|
|
|
|
|
(2,288
|
)
|
|
|
|
|
|
|
(2,288
|
)
|
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, the Company is required to record
other assets and liabilities at fair value on a nonrecurring
basis, generally as a result of impairment charges.
The carrying amounts for cash and cash equivalents, accounts
receivables, prepaid expenses and other current assets, accounts
payable, accrued expenses and other current liabilities
approximate fair value at September 30, 2011 and
December 31, 2010 because of the short-term maturity of
those instruments or their variable rates of interest.
The carrying amount and fair value (based on market prices) of
the term loans and the senior subordinated notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Term Loans
|
|
$
|
662,337
|
|
|
$
|
655,714
|
|
|
$
|
666,644
|
|
|
$
|
674,060
|
|
Senior Subordinated Notes
|
|
|
175,000
|
|
|
|
176,750
|
|
|
|
175,000
|
|
|
|
176,750
|
|
The carrying amounts for other long-term debt approximate fair
value at September 30, 2011 and December 31, 2010,
based on the discounted future cash flow of each instrument at
rates currently offered for similar debt instruments of
comparable maturity.
The following table summarizes the Companys outstanding
derivative instruments on a gross basis as recorded on its
consolidated balance sheets as of September 30, 2011 and
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
Notional Amounts
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
|
Fair
|
|
Derivative Instrument
|
|
2011
|
|
|
2010
|
|
|
Line
|
|
|
Value
|
|
|
Line
|
|
|
Value
|
|
|
Line
|
|
|
Value
|
|
|
Line
|
|
|
Value
|
|
|
Interest Rate Hedge
|
|
$
|
|
|
|
$
|
135,374
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
(b) AE
|
|
$
|
(2,244
|
)
|
Foreign Exchange Contracts
|
|
|
4,884
|
|
|
|
13,468
|
|
|
|
|
(a) PP
|
|
|
8
|
|
|
|
|
(a) PP
|
|
|
241
|
|
|
|
|
(b) AE
|
|
|
(100
|
)
|
|
|
|
(b) AE
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hedges
|
|
$
|
4,884
|
|
|
$
|
148,842
|
|
|
|
|
|
|
$
|
8
|
|
|
|
|
|
|
$
|
241
|
|
|
|
|
|
|
$
|
(100
|
)
|
|
|
|
|
|
$
|
(2,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) PP = Prepaid expenses and other current assets
(b) AE = Accrued expenses
F-17
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14
|
Recently
Issued Accounting Pronouncements
|
In September 2011, the Financial Accounting Standards Board
issued ASU
2011-05,
Comprehensive Income (Topic 220), Presentation of
Comprehensive Income. The new US GAAP guidance gives two
choices of how to present items of net income, items of other
comprehensive income (OCI) and total comprehensive income: one
continuous statement of comprehensive income or two separate
consecutive statements can be presented. OCI is no longer
allowed to be presented in the statement of stockholders
equity. The guidance also requires the reclassification
adjustments for each component of OCI to be displayed in both
net income and OCI. For public companies, these amendments are
effective for fiscal year and interim periods beginning after
December 15, 2011 and should be applied retrospectively.
Since the update only requires a change in presentation, we do
not expect that the adoption of this will have a material impact
on our results of operations, cash flows or financial condition.
In May 2011, the Financial Accounting Standards Board issued ASU
2011-04,
Fair Value Measurement (Topic 820), Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and International Financial Reporting Standards,
or IFRS. The ASU amends the fair value measurement and
disclosure guidance in ASC 820, Fair Value
Measurement, to converge US GAAP and IFRS requirements for
measuring amounts at fair value as well as disclosures about
these measurements. Many of the amendments clarify existing
concepts and are generally not expected to result in significant
changes to application of fair value principles. In certain
instances, however, the FASB changed a principle to achieve
convergence, and while limited, these amendments have the
potential to significantly change practice. These amendments are
effective during interim and annual periods beginning after
December 15, 2011. Although we continue to review this
update, we do not believe it will have a material impact on our
financial statements or the notes thereto.
In April 2011, the Financial Accounting Standards Board issued
ASU 2011-02,
Receivables (Topic 310), A Creditors Determination of
Whether a Restructuring is a Troubled Debt Restructuring.
The FASB believes there has been diversity in practice related
to identifying and disclosing troubled debt restructurings, and
this diversity has been amplified over the last several years
given the economic conditions. The amendments in this ASU
clarify the accounting guidance for all banks and other
creditors that make concessions to borrowers who are
experiencing financial difficulties. The changes clarify the
guidance on determining whether a concession has been granted
and whether a borrower is considered to be experiencing
financial difficulty.
The amendments are effective for the first interim or annual
period beginning on or after September 15, 2011, and should
be applied retrospectively to the beginning of the annual period
of adoption. For purposes of measuring impairment of those
receivables, an entity should apply the amendments prospectively
for the first interim or annual period beginning on or after
September 15, 2011. We do not anticipate any material
impact from this update.
|
|
Note 15
|
Condensed
Consolidating Financial Information
|
Amscan Holdings is the issuer of the senior subordinated notes
due April 30, 2014. The Company is neither an issuer nor a
guarantor of the senior subordinated notes. The Company directly
owns 100% of Amscan Holdings and Amscan Holdings comprises 100%
of the Companys operations. The senior subordinated notes
are guaranteed jointly and severally, fully and unconditionally,
by the following wholly-owned domestic subsidiaries
(collectively, the Guarantors), which subsidiaries
are 100% owned, directly or indirectly, by Amscan Holdings:
|
|
|
|
|
Amscan Inc.
|
|
|
|
Am-Source, LLC
|
|
|
|
Anagram Eden Prairie Property Holdings LLC
|
F-18
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Anagram International, Inc.
|
|
|
|
Anagram International Holdings, Inc.
|
|
|
|
Anagram International, LLC
|
|
|
|
|
|
Factory Card & Party Outlet Corp.
|
|
|
|
|
|
Gags & Games, Inc.
|
|
|
|
JCS Packaging Inc.
|
|
|
|
M&D Industries, Inc.
|
|
|
|
Party City Corporation
|
|
|
|
PA Acquisition Corporation
|
|
|
|
|
|
Party City Franchise Group Holdings, LLC
|
Non-guarantor subsidiaries (collectively,
Non-guarantors) include the following:
|
|
|
|
|
Amscan (Asia-Pacific) Pty. Ltd.
|
|
|
|
|
|
Amscan de Mexico, S.A. de C.V.
|
|
|
|
|
|
Amscan Distributors (Canada) Ltd.
|
|
|
|
|
|
Amscan Holdings Limited
|
|
|
|
|
|
Anagram International (Japan) Co., Ltd.
|
|
|
|
Amscan Partyartikel GmbH
|
|
|
|
Christys Asia, Ltd.
|
|
|
|
Christys By Design, Ltd.
|
|
|
|
Christys Dress Up, Ltd.
|
|
|
|
Christys Garments & Accessories Ltd.
|
|
|
|
JCS Hong Kong Ltd.
|
The following information presents condensed consolidating
balance sheets at September 30, 2011 and December 31,
2010, the condensed consolidating statements of operations for
the three and nine months ended September 30, 2011 and 2010, and
the related condensed consolidating statements of cash flows for
the nine months ended September 30, 2011 and 2010, for the
combined Guarantors and the combined Non-guarantors, together
with the elimination entries necessary to consolidate the
entities comprising the combined companies.
F-19
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,336
|
|
|
$
|
7,148
|
|
|
$
|
|
|
|
$
|
19,484
|
|
Accounts receivable, net of allowances
|
|
|
93,458
|
|
|
|
50,513
|
|
|
|
|
|
|
|
143,971
|
|
Inventories, net of allowances
|
|
|
466,228
|
|
|
|
58,266
|
|
|
|
(1,359
|
)
|
|
|
523,135
|
|
Prepaid expenses and other current assets
|
|
|
66,807
|
|
|
|
12,458
|
|
|
|
(509
|
)
|
|
|
78,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
638,829
|
|
|
|
128,385
|
|
|
|
(1,868
|
)
|
|
|
765,346
|
|
Property, plant and equipment, net
|
|
|
190,569
|
|
|
|
17,579
|
|
|
|
|
|
|
|
208,148
|
|
Goodwill
|
|
|
609,483
|
|
|
|
75,965
|
|
|
|
|
|
|
|
685,448
|
|
Trade names
|
|
|
129,740
|
|
|
|
3,630
|
|
|
|
|
|
|
|
133,370
|
|
Other intangible assets, net
|
|
|
47,931
|
|
|
|
|
|
|
|
|
|
|
|
47,931
|
|
Investment in and advances to unconsolidated subsidiaries
|
|
|
260,633
|
|
|
|
|
|
|
|
(260,633
|
)
|
|
|
|
|
Due from affiliates
|
|
|
82,005
|
|
|
|
71,027
|
|
|
|
(153,032
|
)
|
|
|
|
|
Other assets, net
|
|
|
25,737
|
|
|
|
791
|
|
|
|
|
|
|
|
26,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,984,927
|
|
|
$
|
297,377
|
|
|
$
|
(415,533
|
)
|
|
$
|
1,866,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
|
250,590
|
|
|
|
12,808
|
|
|
|
|
|
|
|
263,398
|
|
Accounts payable
|
|
|
157,454
|
|
|
|
29,804
|
|
|
|
|
|
|
|
187,258
|
|
Accrued expenses
|
|
|
113,272
|
|
|
|
18,422
|
|
|
|
|
|
|
|
131,694
|
|
Income taxes payable
|
|
|
33,075
|
|
|
|
|
|
|
|
(661
|
)
|
|
|
32,414
|
|
Due to affiliates
|
|
|
68,540
|
|
|
|
84,492
|
|
|
|
(153,032
|
)
|
|
|
|
|
Current portion of long-term obligations
|
|
|
8,806
|
|
|
|
39
|
|
|
|
|
|
|
|
8,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
631,737
|
|
|
|
145,565
|
|
|
|
(153,693
|
)
|
|
|
623,609
|
|
Long-term obligations, excluding current portion
|
|
|
834,854
|
|
|
|
56
|
|
|
|
|
|
|
|
834,910
|
|
Deferred income tax liabilities
|
|
|
93,347
|
|
|
|
600
|
|
|
|
|
|
|
|
93,947
|
|
Other
|
|
|
19,382
|
|
|
|
1,366
|
|
|
|
|
|
|
|
20,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,579,320
|
|
|
|
147,587
|
|
|
|
(153,693
|
)
|
|
|
1,573,214
|
|
Redeemable common securities
|
|
|
35,765
|
|
|
|
|
|
|
|
|
|
|
|
35,765
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B Common Stock
|
|
|
|
|
|
|
336
|
|
|
|
(336
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
399,492
|
|
|
|
113,893
|
|
|
|
(227,128
|
)
|
|
|
286,257
|
|
Retained (deficit) earnings
|
|
|
(20,305
|
)
|
|
|
42,069
|
|
|
|
(43,276
|
)
|
|
|
(21,512
|
)
|
Accumulated other comprehensive loss
|
|
|
(9,345
|
)
|
|
|
(8,900
|
)
|
|
|
8,900
|
|
|
|
(9,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
369,842
|
|
|
|
147,398
|
|
|
|
(261,840
|
)
|
|
|
255,400
|
|
Noncontrolling interests
|
|
|
|
|
|
|
2,392
|
|
|
|
|
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
369,842
|
|
|
|
149,790
|
|
|
|
(261,840
|
)
|
|
|
257,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,984,927
|
|
|
$
|
297,377
|
|
|
$
|
(415,533
|
)
|
|
$
|
1,866,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,198
|
|
|
$
|
6,256
|
|
|
$
|
|
|
|
$
|
20,454
|
|
Accounts receivable , net
|
|
|
76,699
|
|
|
|
30,632
|
|
|
|
|
|
|
|
107,331
|
|
Inventories, net
|
|
|
405,452
|
|
|
|
19,883
|
|
|
|
(1,018
|
)
|
|
|
424,317
|
|
Prepaid expenses and other current assets
|
|
|
61,211
|
|
|
|
5,816
|
|
|
|
(1,355
|
)
|
|
|
65,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
557,560
|
|
|
|
62,587
|
|
|
|
(2,373
|
)
|
|
|
617,774
|
|
Property, plant and equipment, net
|
|
|
187,574
|
|
|
|
3,155
|
|
|
|
|
|
|
|
190,729
|
|
Goodwill
|
|
|
600,014
|
|
|
|
30,478
|
|
|
|
|
|
|
|
630,492
|
|
Trade names
|
|
|
129,954
|
|
|
|
|
|
|
|
|
|
|
|
129,954
|
|
Other intangible assets, net
|
|
|
55,362
|
|
|
|
|
|
|
|
|
|
|
|
55,362
|
|
Investment in and advances to unconsolidated subsidiaries
|
|
|
64,485
|
|
|
|
|
|
|
|
(64,485
|
)
|
|
|
|
|
Due from affiliates
|
|
|
22,148
|
|
|
|
12,998
|
|
|
|
(35,146
|
)
|
|
|
|
|
Other assets, net
|
|
|
28,057
|
|
|
|
783
|
|
|
|
|
|
|
|
28,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,645,154
|
|
|
$
|
110,001
|
|
|
$
|
(102,004
|
)
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
|
150,098
|
|
|
|
|
|
|
|
|
|
|
|
150,098
|
|
Accounts payable
|
|
|
97,510
|
|
|
|
10,662
|
|
|
|
|
|
|
|
108,172
|
|
Accrued expenses
|
|
|
102,749
|
|
|
|
8,305
|
|
|
|
|
|
|
|
111,054
|
|
Income taxes payable
|
|
|
35,706
|
|
|
|
|
|
|
|
(1,381
|
)
|
|
|
34,325
|
|
Due to affiliates
|
|
|
11,593
|
|
|
|
23,553
|
|
|
|
(35,146
|
)
|
|
|
|
|
Redeemable warrants
|
|
|
15,086
|
|
|
|
|
|
|
|
|
|
|
|
15,086
|
|
Current portion of long-term obligations
|
|
|
9,005
|
|
|
|
41
|
|
|
|
|
|
|
|
9,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
421,747
|
|
|
|
42,561
|
|
|
|
(36,527
|
)
|
|
|
427,781
|
|
Long-term obligations, excluding current portion
|
|
|
841,023
|
|
|
|
89
|
|
|
|
|
|
|
|
841,112
|
|
Deferred income tax liabilities
|
|
|
94,427
|
|
|
|
554
|
|
|
|
|
|
|
|
94,981
|
|
Other
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,371,963
|
|
|
|
43,204
|
|
|
|
(36,527
|
)
|
|
|
1,378,640
|
|
Redeemable common securities
|
|
|
18,089
|
|
|
|
|
|
|
|
|
|
|
|
18,089
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B Common Stock
|
|
|
|
|
|
|
336
|
|
|
|
(336
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
287,583
|
|
|
|
31,025
|
|
|
|
(31,025
|
)
|
|
|
287,583
|
|
Retained (deficit)earnings
|
|
|
(26,566
|
)
|
|
|
37,535
|
|
|
|
(38,527
|
)
|
|
|
(27,558
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(5,915
|
)
|
|
|
(4,411
|
)
|
|
|
4,411
|
|
|
|
(5,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
255,102
|
|
|
|
64,485
|
|
|
|
(65,477
|
)
|
|
|
254,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
255,102
|
|
|
|
66,797
|
|
|
|
(65,477
|
)
|
|
|
256,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,645,154
|
|
|
$
|
110,001
|
|
|
$
|
(102,004
|
)
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING INCOME STATEMENT
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
374,233
|
|
|
$
|
73,419
|
|
|
$
|
(11,466
|
)
|
|
$
|
436,186
|
|
Royalties and franchise fees
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
378,195
|
|
|
|
73,419
|
|
|
|
(11,466
|
)
|
|
|
440,148
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
243,750
|
|
|
|
55,730
|
|
|
|
(11,333
|
)
|
|
|
288,147
|
|
Wholesale selling expenses
|
|
|
8,376
|
|
|
|
6,275
|
|
|
|
|
|
|
|
14,651
|
|
Retail operating expenses
|
|
|
79,941
|
|
|
|
2,799
|
|
|
|
|
|
|
|
82,740
|
|
Franchise expenses
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
|
3,558
|
|
General and administrative expenses
|
|
|
30,247
|
|
|
|
4,887
|
|
|
|
420
|
|
|
|
35,554
|
|
Art and development costs
|
|
|
4,159
|
|
|
|
63
|
|
|
|
|
|
|
|
4,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
370,031
|
|
|
|
69,754
|
|
|
|
(10,913
|
)
|
|
|
428,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
8,164
|
|
|
|
3,665
|
|
|
|
(553
|
)
|
|
|
11,276
|
|
Interest expense, net
|
|
|
19,397
|
|
|
|
175
|
|
|
|
|
|
|
|
19,572
|
|
Other (income) expense, net
|
|
|
(1,728
|
)
|
|
|
580
|
|
|
|
1,851
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(9,505
|
)
|
|
|
2,910
|
|
|
|
(2,404
|
)
|
|
|
(8,999
|
)
|
Income tax (benefit) expense
|
|
|
(3,666
|
)
|
|
|
536
|
|
|
|
(49
|
)
|
|
|
(3,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(5,839
|
)
|
|
|
2,374
|
|
|
|
(2,355
|
)
|
|
|
(5,820
|
)
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
$
|
(5,839
|
)
|
|
$
|
2,272
|
|
|
$
|
(2,355
|
)
|
|
$
|
(5,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING INCOME STATEMENT
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,057,969
|
|
|
$
|
171,777
|
|
|
$
|
(29,558
|
)
|
|
$
|
1,200,188
|
|
Royalties and franchise fees
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,070,162
|
|
|
|
171,777
|
|
|
|
(29,558
|
)
|
|
|
1,212,381
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
659,582
|
|
|
|
130,582
|
|
|
|
(29,217
|
)
|
|
|
760,947
|
|
Wholesale selling expenses
|
|
|
24,866
|
|
|
|
18,104
|
|
|
|
|
|
|
|
42,970
|
|
Retail operating expenses
|
|
|
214,156
|
|
|
|
2,800
|
|
|
|
|
|
|
|
216,956
|
|
Franchise expenses
|
|
|
10,294
|
|
|
|
|
|
|
|
|
|
|
|
10,294
|
|
General and administrative expenses
|
|
|
84,080
|
|
|
|
13,975
|
|
|
|
|
|
|
|
98,055
|
|
Art and development costs
|
|
|
12,049
|
|
|
|
205
|
|
|
|
|
|
|
|
12,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,005,027
|
|
|
|
165,666
|
|
|
|
(29,217
|
)
|
|
|
1,141,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
65,135
|
|
|
|
6,111
|
|
|
|
(341
|
)
|
|
|
70,905
|
|
Interest expense, net
|
|
|
59,627
|
|
|
|
625
|
|
|
|
|
|
|
|
60,252
|
|
Other (income) expense, net
|
|
|
(3,168
|
)
|
|
|
(416
|
)
|
|
|
4,534
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
8,676
|
|
|
|
5,902
|
|
|
|
(4,875
|
)
|
|
|
9,703
|
|
Income tax expense
|
|
|
2,416
|
|
|
|
1,148
|
|
|
|
(126
|
)
|
|
|
3,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,260
|
|
|
|
4,754
|
|
|
|
(4,749
|
)
|
|
|
6,265
|
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,260
|
|
|
$
|
4,535
|
|
|
$
|
(4,749
|
)
|
|
$
|
6,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
332,781
|
|
|
$
|
31,854
|
|
|
$
|
(5,863
|
)
|
|
$
|
358,772
|
|
Royalties and franchise fees
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
336,816
|
|
|
|
31,854
|
|
|
|
(5,863
|
)
|
|
|
362,807
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
209,516
|
|
|
|
22,741
|
|
|
|
(5,922
|
)
|
|
|
226,335
|
|
Wholesale selling expenses
|
|
|
7,728
|
|
|
|
2,796
|
|
|
|
|
|
|
|
10,524
|
|
Retail operating expenses
|
|
|
73,785
|
|
|
|
|
|
|
|
|
|
|
|
73,785
|
|
Franchise expenses
|
|
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
2,930
|
|
General and administrative expenses
|
|
|
25,625
|
|
|
|
2,200
|
|
|
|
(330
|
)
|
|
|
27,495
|
|
Art and development costs
|
|
|
3,802
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
323,386
|
|
|
|
27,710
|
|
|
|
(6,252
|
)
|
|
|
344,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
13,430
|
|
|
|
4,144
|
|
|
|
389
|
|
|
|
17,963
|
|
Interest expense, net
|
|
|
9,817
|
|
|
|
17
|
|
|
|
|
|
|
|
9,834
|
|
Other (income) expense, net
|
|
|
(3,753
|
)
|
|
|
148
|
|
|
|
4,309
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7,366
|
|
|
|
3,979
|
|
|
|
(3,920
|
)
|
|
|
7,425
|
|
Income tax expense
|
|
|
3,189
|
|
|
|
1,509
|
|
|
|
(1,946
|
)
|
|
|
2,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4,177
|
|
|
|
2,470
|
|
|
|
(1,974
|
)
|
|
|
4,673
|
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
4,177
|
|
|
$
|
2,400
|
|
|
$
|
(1,974
|
)
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
955,977
|
|
|
$
|
77,309
|
|
|
$
|
(17,430
|
)
|
|
$
|
1,015,856
|
|
Royalties and franchise fees
|
|
|
12,333
|
|
|
|
|
|
|
|
|
|
|
|
12,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
968,310
|
|
|
|
77,309
|
|
|
|
(17,430
|
)
|
|
|
1,028,189
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
599,003
|
|
|
|
55,486
|
|
|
|
(17,389
|
)
|
|
|
637,100
|
|
Wholesale selling expenses
|
|
|
23,900
|
|
|
|
7,859
|
|
|
|
|
|
|
|
31,759
|
|
Retail operating expenses
|
|
|
191,161
|
|
|
|
|
|
|
|
|
|
|
|
191,161
|
|
Franchise expenses
|
|
|
9,203
|
|
|
|
|
|
|
|
|
|
|
|
9,203
|
|
General and administrative expenses
|
|
|
80,717
|
|
|
|
6,575
|
|
|
|
(990
|
)
|
|
|
86,302
|
|
Art and development costs
|
|
|
11,117
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
11,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
915,101
|
|
|
|
69,847
|
|
|
|
(18,379
|
)
|
|
|
966,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
53,209
|
|
|
|
7,462
|
|
|
|
949
|
|
|
|
61,620
|
|
Interest expense, net
|
|
|
28,213
|
|
|
|
48
|
|
|
|
|
|
|
|
28,261
|
|
Other (income) expense, net
|
|
|
(7,646
|
)
|
|
|
487
|
|
|
|
7,917
|
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
32,642
|
|
|
|
6,927
|
|
|
|
(6,968
|
)
|
|
|
32,601
|
|
Income tax expense
|
|
|
11,781
|
|
|
|
2,323
|
|
|
|
(2,328
|
)
|
|
|
11,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
20,861
|
|
|
|
4,604
|
|
|
|
(4,630
|
)
|
|
|
20,835
|
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
20,861
|
|
|
$
|
4,420
|
|
|
$
|
(4,630
|
)
|
|
$
|
20,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,261
|
|
|
|
4,753
|
|
|
|
(4,749
|
)
|
|
|
6,265
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
6,261
|
|
|
$
|
4,534
|
|
|
$
|
(4,749
|
)
|
|
$
|
6,046
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
40,139
|
|
|
|
2,945
|
|
|
|
|
|
|
|
43,084
|
|
Amortization of deferred financing costs
|
|
|
3,606
|
|
|
|
|
|
|
|
|
|
|
|
3,606
|
|
Provision for doubtful accounts
|
|
|
301
|
|
|
|
298
|
|
|
|
|
|
|
|
599
|
|
Deferred income tax benefit
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
(615
|
)
|
Deferred rent
|
|
|
5,839
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
5,811
|
|
Undistributed income in unconsolidated joint venture
|
|
|
(589
|
)
|
|
|
|
|
|
|
|
|
|
|
(589
|
)
|
Loss on disposal of equipment
|
|
|
133
|
|
|
|
63
|
|
|
|
|
|
|
|
196
|
|
Equity based compensation
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
1,065
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(17,196
|
)
|
|
|
(13,250
|
)
|
|
|
|
|
|
|
(30,446
|
)
|
Increase in inventories
|
|
|
(58,143
|
)
|
|
|
(13,380
|
)
|
|
|
341
|
|
|
|
(71,182
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(7,369
|
)
|
|
|
(6,563
|
)
|
|
|
|
|
|
|
(13,932
|
)
|
Increase in accounts payable, accrued expenses and income taxes
payable
|
|
|
62,091
|
|
|
|
16,447
|
|
|
|
4,408
|
|
|
|
82,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used) in operating activities
|
|
|
35,523
|
|
|
|
(8,934
|
)
|
|
|
|
|
|
|
26,589
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(95,627
|
)
|
|
|
|
|
|
|
|
|
|
|
(95,627
|
)
|
Capital expenditures
|
|
|
(34,578
|
)
|
|
|
(1,691
|
)
|
|
|
|
|
|
|
(36,269
|
)
|
Proceeds from disposal of property and equipment
|
|
|
36
|
|
|
|
16
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(130,169
|
)
|
|
|
(1,675
|
)
|
|
|
|
|
|
|
(131,844
|
)
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of loans, notes payable and long-term obligations
|
|
|
(7,549
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
(7,581
|
)
|
Proceeds from loans, notes payable and long-term obligations
|
|
|
100,491
|
|
|
|
12,809
|
|
|
|
|
|
|
|
113,300
|
|
Capital contributions and proceeds from issuance of common stock
and exercise of options, net of retirements
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
93,141
|
|
|
|
12,777
|
|
|
|
|
|
|
|
105,918
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(357
|
)
|
|
|
(1,276
|
)
|
|
|
|
|
|
|
(1,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,862
|
)
|
|
|
892
|
|
|
|
|
|
|
|
(970
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
14,198
|
|
|
|
6,256
|
|
|
|
|
|
|
|
20,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
12,336
|
|
|
$
|
7,148
|
|
|
$
|
|
|
|
$
|
19,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
PARTY
CITY HOLDINGS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
20,861
|
|
|
|
4,604
|
|
|
|
(4,630
|
)
|
|
|
20,835
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
20,861
|
|
|
$
|
4,420
|
|
|
$
|
(4,630
|
)
|
|
$
|
20,651
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
36,006
|
|
|
|
670
|
|
|
|
|
|
|
|
36,676
|
|
Amortization of deferred financing costs
|
|
|
2,142
|
|
|
|
|
|
|
|
|
|
|
|
2,142
|
|
Provision for doubtful accounts
|
|
|
658
|
|
|
|
180
|
|
|
|
|
|
|
|
838
|
|
Deferred income tax expense
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
660
|
|
Deferred rent
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
1,546
|
|
Undistributed income in unconsolidated joint venture
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
(382
|
)
|
Loss (gain) on disposal of equipment
|
|
|
266
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
259
|
|
Equity based compensation
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
513
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(24,966
|
)
|
|
|
(4,622
|
)
|
|
|
|
|
|
|
(29,588
|
)
|
Increase in inventories
|
|
|
(129,152
|
)
|
|
|
(1,565
|
)
|
|
|
92
|
|
|
|
(130,625
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(11,773
|
)
|
|
|
(1,199
|
)
|
|
|
|
|
|
|
(12,972
|
)
|
Increase in accounts payable, accrued expenses and income taxes
payable
|
|
|
100,936
|
|
|
|
3,308
|
|
|
|
4,538
|
|
|
|
108,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(2,685
|
)
|
|
|
1,185
|
|
|
|
|
|
|
|
(1,500
|
)
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(35,632
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(35,630
|
)
|
Capital expenditures
|
|
|
(35,343
|
)
|
|
|
(757
|
)
|
|
|
|
|
|
|
(36,100
|
)
|
Proceeds from disposal of property and equipment
|
|
|
109
|
|
|
|
38
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(70,866
|
)
|
|
|
(717
|
)
|
|
|
|
|
|
|
(71,583
|
)
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of loans, notes payable and long-term obligations
|
|
|
(49,136
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(49,157
|
)
|
Proceeds from loans, notes payable and long-term obligations
|
|
|
128,812
|
|
|
|
39
|
|
|
|
|
|
|
|
128,851
|
|
Capital contributions and proceeds from issuance of common stock
and exercise of options, net of retirements
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
79,728
|
|
|
|
18
|
|
|
|
|
|
|
|
79,746
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(131
|
)
|
|
|
791
|
|
|
|
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
6,046
|
|
|
|
1,277
|
|
|
|
|
|
|
|
7,323
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,599
|
|
|
|
1,821
|
|
|
|
|
|
|
|
15,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
19,645
|
|
|
$
|
3,098
|
|
|
$
|
|
|
|
$
|
22,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Party City Holdings Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Party City Holdings Inc. and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2010. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. We were not
engaged to perform an audit of the Companys internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Party City Holdings Inc. and subsidiaries
at December 31, 2010 and 2009, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
New York, New York
April 21, 2011, except as to Note 2
as to which the date is XXX XX, 2012
The foregoing report is in the form that will be signed at
effectiveness upon the completion of the stock split and
computation of earnings per share described in Note 2 to
the financial statements.
New York, New York
January 30, 2012
F-28
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,454
|
|
|
$
|
15,420
|
|
Accounts receivable, net of allowances
|
|
|
107,331
|
|
|
|
82,781
|
|
Inventories, net of allowances
|
|
|
424,317
|
|
|
|
335,950
|
|
Prepaid expenses and other current assets
|
|
|
65,672
|
|
|
|
58,719
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
617,774
|
|
|
|
492,870
|
|
Property, plant and equipment, net
|
|
|
190,729
|
|
|
|
174,994
|
|
Goodwill
|
|
|
630,492
|
|
|
|
559,261
|
|
Trade names
|
|
|
129,954
|
|
|
|
157,283
|
|
Other intangible assets, net
|
|
|
55,362
|
|
|
|
54,669
|
|
Other assets, net
|
|
|
28,840
|
|
|
|
41,424
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,653,151
|
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
$
|
150,098
|
|
|
$
|
77,635
|
|
Accounts payable
|
|
|
108,172
|
|
|
|
76,901
|
|
Accrued expenses
|
|
|
111,054
|
|
|
|
93,680
|
|
Income taxes payable
|
|
|
34,325
|
|
|
|
32,061
|
|
Redeemable warrants
|
|
|
15,086
|
|
|
|
15,444
|
|
Current portion of long-term obligations
|
|
|
9,046
|
|
|
|
34,906
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
427,781
|
|
|
|
330,627
|
|
Long-term obligations, excluding current portion
|
|
|
841,112
|
|
|
|
538,892
|
|
Deferred income tax liabilities
|
|
|
94,981
|
|
|
|
101,570
|
|
Deferred rent and other long-term liabilities
|
|
|
14,766
|
|
|
|
11,901
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,378,640
|
|
|
|
982,990
|
|
Redeemable common securities (including 597.52 and 592.84 common
shares issued and outstanding at December 31, 2010 and
December 31, 2009 )
|
|
|
18,089
|
|
|
|
18,389
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value,
18,307.79 and 18,308.33 shares issued and outstanding at
December 31, 2010 and December 31, 2009, respectively
|
|
|
|
|
|
|
|
|
Class B common stock, $0.01 par value, convertible
into Class A common stock, 11,918.17 shares issued and
outstanding at December 31, 2010 and December 31, 2009
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
287,583
|
|
|
|
335,823
|
|
Retained (deficit) earnings
|
|
|
(27,558
|
)
|
|
|
149,557
|
|
Accumulated other comprehensive loss
|
|
|
(5,915
|
)
|
|
|
(8,395
|
)
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
254,110
|
|
|
|
476,985
|
|
Noncontrolling interests
|
|
|
2,312
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
256,422
|
|
|
|
479,122
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,653,151
|
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,579,677
|
|
|
$
|
1,467,324
|
|
|
$
|
1,537,641
|
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
19,494
|
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,599,094
|
|
|
|
1,486,818
|
|
|
|
1,559,661
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
943,058
|
|
|
|
899,041
|
|
|
|
966,426
|
|
Wholesale selling expenses
|
|
|
42,725
|
|
|
|
39,786
|
|
|
|
41,894
|
|
Retail operating expenses
|
|
|
296,891
|
|
|
|
261,691
|
|
|
|
273,627
|
|
Franchise expenses
|
|
|
12,269
|
|
|
|
11,991
|
|
|
|
13,686
|
|
General and administrative expenses
|
|
|
134,392
|
|
|
|
119,193
|
|
|
|
120,272
|
|
Art and development costs
|
|
|
14,923
|
|
|
|
13,243
|
|
|
|
12,462
|
|
Impairment of trade name
|
|
|
27,400
|
|
|
|
|
|
|
|
17,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,471,658
|
|
|
|
1,344,945
|
|
|
|
1,445,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
127,436
|
|
|
|
141,873
|
|
|
|
113,918
|
|
Interest expense, net
|
|
|
40,850
|
|
|
|
41,481
|
|
|
|
50,915
|
|
Other expense (income), net
|
|
|
4,208
|
|
|
|
(32
|
)
|
|
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
82,378
|
|
|
|
100,424
|
|
|
|
63,821
|
|
Income tax expense
|
|
|
32,945
|
|
|
|
37,673
|
|
|
|
24,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
49,433
|
|
|
|
62,751
|
|
|
|
39,633
|
|
Less: net income (loss) attributable to noncontrolling interest
|
|
|
114
|
|
|
|
198
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
49,319
|
|
|
$
|
62,553
|
|
|
$
|
40,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Party City
|
|
|
|
|
|
|
|
|
|
Class A and Class B
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
Holdings Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
(Deficit)
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Interests
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at December 31, 2007
|
|
|
29,543.16
|
|
|
$
|
|
|
|
$
|
326,741
|
|
|
$
|
46,494
|
|
|
$
|
2,351
|
|
|
$
|
375,586
|
|
|
$
|
2,488
|
|
|
$
|
378,074
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,510
|
|
|
|
|
|
|
|
40,510
|
|
|
|
(877
|
)
|
|
|
39,633
|
|
Net change in cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,338
|
)
|
|
|
(11,338
|
)
|
|
|
(231
|
)
|
|
|
(11,569
|
)
|
Change in fair value of interest rate swap contracts, net of
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,855
|
)
|
|
|
(4,855
|
)
|
|
|
|
|
|
|
(4,855
|
)
|
Change in fair value of foreign exchange contracts, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,990
|
|
|
|
1,990
|
|
|
|
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,307
|
|
|
|
(1,108
|
)
|
|
|
25,199
|
|
Purchase and revaluation of redeemable common securities
|
|
|
308.64
|
|
|
|
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
2,155
|
|
|
|
|
|
|
|
2,155
|
|
Tax benefit on exercised options
|
|
|
397.30
|
|
|
|
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
1,823
|
|
|
|
|
|
|
|
1,823
|
|
Equity based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,357
|
|
|
|
|
|
|
|
|
|
|
|
4,357
|
|
|
|
|
|
|
|
4,357
|
|
Acquisition of PCFG minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509
|
|
|
|
509
|
|
Other
|
|
|
(22.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
30,226.50
|
|
|
$
|
|
|
|
$
|
335,076
|
|
|
$
|
87,004
|
|
|
$
|
(11,852
|
)
|
|
$
|
410,228
|
|
|
|
1,889
|
|
|
$
|
412,117
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,553
|
|
|
|
|
|
|
|
62,553
|
|
|
|
198
|
|
|
|
62,751
|
|
Net change in cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,007
|
|
|
|
4,007
|
|
|
|
50
|
|
|
|
4,057
|
|
Change in fair value of interest rate swap contracts, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317
|
|
|
|
1,317
|
|
|
|
|
|
|
|
1,317
|
|
Change in fair value of foreign exchange contracts, net of
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,867
|
)
|
|
|
(1,867
|
)
|
|
|
|
|
|
|
(1,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,010
|
|
|
|
248
|
|
|
|
66,258
|
|
Purchase of redeemable common securities
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
(129
|
)
|
Equity based compensation expense
|
|
|
|
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
30,226.50
|
|
|
$
|
|
|
|
$
|
335,823
|
|
|
$
|
149,557
|
|
|
$
|
(8,395
|
)
|
|
$
|
476,985
|
|
|
$
|
2,137
|
|
|
$
|
479,122
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,319
|
|
|
|
|
|
|
|
49,319
|
|
|
|
114
|
|
|
|
49,433
|
|
Net change in cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(376
|
)
|
|
|
(376
|
)
|
|
|
61
|
|
|
|
(315
|
)
|
Change in fair value of interest rate swap contracts, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,563
|
|
|
|
2,563
|
|
|
|
|
|
|
|
2,563
|
|
Change in fair value of foreign exchange contracts, net of
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
293
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,799
|
|
|
|
175
|
|
|
|
51,974
|
|
Revaluation of redeemable common securities
|
|
|
|
|
|
|
|
|
|
|
(5,305
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,305
|
)
|
|
|
|
|
|
|
(5,305
|
)
|
Issuance of non-redeemable warrants
|
|
|
|
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
|
|
21,000
|
|
Dividend distribution
|
|
|
|
|
|
|
|
|
|
|
(64,658
|
)
|
|
|
(226,434
|
)
|
|
|
|
|
|
|
(291,092
|
)
|
|
|
|
|
|
|
(291,092
|
)
|
Equity based compensation expense
|
|
|
|
|
|
|
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
723
|
|
|
|
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
30,226.50
|
|
|
$
|
|
|
|
$
|
287,583
|
|
|
$
|
(27,558
|
)
|
|
$
|
(5,915
|
)
|
|
$
|
254,110
|
|
|
$
|
2,312
|
|
|
$
|
256,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,433
|
|
|
$
|
62,751
|
|
|
$
|
39,633
|
|
Less: net income (loss) attributable to noncontrolling interest
|
|
|
114
|
|
|
|
198
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
49,319
|
|
|
|
62,553
|
|
|
|
40,510
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
49,418
|
|
|
|
44,382
|
|
|
|
47,278
|
|
Amortization of deferred financing costs
|
|
|
2,475
|
|
|
|
2,163
|
|
|
|
2,221
|
|
Provision for doubtful accounts
|
|
|
637
|
|
|
|
3,982
|
|
|
|
1,092
|
|
Deferred income tax (benefit) expense
|
|
|
(8,942
|
)
|
|
|
8,803
|
|
|
|
(7,885
|
)
|
Deferred rent
|
|
|
4,500
|
|
|
|
1,763
|
|
|
|
1,202
|
|
Undistributed income in unconsolidated joint venture
|
|
|
(678
|
)
|
|
|
(632
|
)
|
|
|
(538
|
)
|
Impairment of trade names
|
|
|
27,400
|
|
|
|
|
|
|
|
17,376
|
|
Impairment of fixed assets
|
|
|
597
|
|
|
|
156
|
|
|
|
|
|
Loss (gain) on disposal of equipment
|
|
|
191
|
|
|
|
122
|
|
|
|
(1,195
|
)
|
Equity based compensation
|
|
|
6,018
|
|
|
|
876
|
|
|
|
4,357
|
|
Tax benefit on exercised options
|
|
|
|
|
|
|
|
|
|
|
(1,823
|
)
|
Debt retirement costs
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(6,507
|
)
|
|
|
6,337
|
|
|
|
8,237
|
|
(Increase) decrease in inventories
|
|
|
(85,767
|
)
|
|
|
30,933
|
|
|
|
(52,347
|
)
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(22,993
|
)
|
|
|
(21,173
|
)
|
|
|
31,240
|
|
Increase (decrease) in accounts payable, accrued expenses and
income taxes payable
|
|
|
43,052
|
|
|
|
(16,323
|
)
|
|
|
(9,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
61,168
|
|
|
|
123,942
|
|
|
|
79,929
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions
|
|
|
(53,348
|
)
|
|
|
(3,378
|
)
|
|
|
(1,616
|
)
|
Cash held in escrow in connection with acquisitions
|
|
|
|
|
|
|
(24,881
|
)
|
|
|
|
|
Capital expenditures
|
|
|
(49,623
|
)
|
|
|
(26,195
|
)
|
|
|
(53,001
|
)
|
Proceeds from disposal of property and equipment
|
|
|
205
|
|
|
|
96
|
|
|
|
3,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(102,766
|
)
|
|
|
(54,358
|
)
|
|
|
(51,199
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of loans, notes payable and long-term obligations
|
|
|
(393,289
|
)
|
|
|
(70,247
|
)
|
|
|
(26,842
|
)
|
Proceeds from loans, notes payable and long-term obligations,
net of debt issuance costs
|
|
|
742,153
|
|
|
|
|
|
|
|
|
|
Tax benefit on exercised options
|
|
|
|
|
|
|
|
|
|
|
1,823
|
|
Sale of additional interest to minority shareholder
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Payments related to redeemable common stock and rollover options
|
|
|
(572
|
)
|
|
|
|
|
|
|
(514
|
)
|
Dividend distribution
|
|
|
(301,829
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and exercise of options,
net of retirements
|
|
|
52
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
46,515
|
|
|
|
(70,157
|
)
|
|
|
(23,033
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
117
|
|
|
|
2,935
|
|
|
|
(9,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,034
|
|
|
|
2,362
|
|
|
|
(4,216
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
15,420
|
|
|
|
13,058
|
|
|
|
17,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
20,454
|
|
|
$
|
15,420
|
|
|
$
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
38,363
|
|
|
$
|
40,207
|
|
|
$
|
52,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
$
|
39,743
|
|
|
$
|
22,297
|
|
|
$
|
14,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information on non-cash activities:
Capital lease obligations of $619, $59, and $700 were incurred
during the years ended December 31, 2010, 2009 and 2008,
respectively.
See accompanying notes to consolidated financial statements.
F-32
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
(Dollars
in thousands, except share and per share amounts)
|
|
Note 1
|
Organization
and Description of Business
|
Party City Holdings Inc. (Party City Holdings or the
Company), formerly known as AAH Holdings
Corporation, designs, manufactures, contracts for manufacture
and distributes party goods, including paper and plastic
tableware, metallic balloons, accessories, novelties, costumes,
other garments, gifts and stationery throughout the world. In
addition, the Company operates specialty retail party goods and
social expressions supply stores in the United States,
principally under the names Party City, Halloween City, Factory
Card & Party Outlet and The Paper Factory, franchises
both individual stores and franchise areas throughout the United
States and Puerto Rico principally under the name Party City and
operates an e-commerce website, PartyCity.com. On a stand alone
basis, without the consolidation of its subsidiaries, Party City
Holdings Inc. has no significant assets or operations.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Consolidated
Financial Statements
The consolidated financial statements of the Company include the
accounts of Party City Holdings Inc. and all majority-owned
subsidiaries and controlled entities. All significant
intercompany balances and transactions have been eliminated.
Our retail operations define a fiscal year (Fiscal
Year) as the 52-week period or 53-week period ended on the
Saturday nearest December 31st of each year, and
define their fiscal quarters (Fiscal Quarter) as the
four interim 13-week periods following the end of the previous
Fiscal Year, except in the case of a 53-week Fiscal Year when
the fourth Fiscal Quarter is extended to 14 weeks. The
consolidated financial statements of the Company combined the
Fiscal Year and Fiscal Quarters of our retail operations with
the calendar year and calendar quarters of our wholesale
operations as the differences are not significant.
The Company has determined the difference between the retail
operations Fiscal Year and Fiscal Quarters and the
calendar year and quarters to be insignificant.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.
Management periodically evaluates estimates used in the
preparation of the consolidated financial statements for
continued reasonableness. Appropriate adjustments, if any, to
the estimates used are made prospectively based on such periodic
evaluations.
Reclassification
of prior year amounts
Prior year balance sheet amounts that had been reflected in
prepaid expenses and other current assets have been reclassified
to goodwill to reflect certain adjustments related to purchase
accounting.
Cash
Equivalents
Highly liquid investments with a maturity of three months or
less when purchased are considered to be cash equivalents.
F-33
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories are valued at the lower of cost or market. The
Company determines the cost of inventory at its retail stores
using the weighted average method. All other inventory cost is
determined using the
first-in,
first-out method.
The Company estimates retail inventory shortage for the period
between physical inventory dates on a
store-by-store
basis. Inventory shrinkage estimates are affected by changes in
merchandise mix and changes in actual shortage trends. The
shrinkage rate from the most recent physical inventory, in
combination with historical experience, is the basis for
estimating shrinkage.
Allowance
for Doubtful Accounts
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of the
Companys customers to make required payments. A
considerable amount of judgment is required in assessing the
ultimate realization of these receivables including
consideration of the Companys history of receivable
write-offs, the level of past due accounts and the economic
status of our customers. If the financial condition of the
Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
Long-Lived
and Intangible Assets
Property, plant and equipment are stated at cost. Depreciation
is calculated principally on the straight-line method over the
estimated useful lives of the assets. Equipment under capital
leases are stated at the present value of the minimum lease
payments at the inception of the lease. Equipment under capital
leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the
estimated useful life of the asset. Leasehold improvements are
depreciated over the useful life of the asset, or the term of
the lease, whichever is shorter.
Goodwill represents the excess of the purchase price of acquired
companies over the estimated fair value of the net assets
acquired. Goodwill and other intangibles with indefinite lives
are not amortized but are reviewed for impairment annually or
more frequently if certain indicators arise. The Company
evaluates the goodwill associated with its acquisitions and
other intangibles with indefinite lives as of the first day of
its fourth quarter based on current and projected performance.
The Company estimates fair value of each reporting unit using
expected discounted cash flows (see Note 6).
The Company evaluates finite-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets
(SFAS No. 144). Finite-lived assets are
evaluated for recoverability whenever events or changes in
circumstances indicate that an asset may have been impaired. In
evaluating an asset for recoverability, the Company estimates
the future cash flows expected to result from the use of the
asset and eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss,
equal to the excess of the carrying amount over the fair market
value of the asset, is recognized.
During 2010, the Company tested the effect of converting
approximately 20 of its FCPO stores to the Party City name. The
test was especially important during Halloween, and based on the
results, proved successful. As a result of this outcome the
Company concluded during the fourth quarter that it will begin
to convert the remaining FCPO non-outlet stores, over time, to
the Party City name. The Company performed an impairment test
and determined that the FCPO trade name of $27,400 became fully
impaired during the fourth quarter 2010, and impaired the entire
amount of the trade name. The fair value calculation utilized
Level 3 fair value inputs, as defined in Note 20.
F-34
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred
Financing Costs
Deferred financing costs are amortized to interest expense using
the effective interest method over the lives of the related debt.
Deferred
Rent and Rental Expenses
The Company leases its retail stores under operating leases that
generally have initial terms of ten years, with two five year
renewal options. The Companys leases may have early
cancellation clauses, which permit the lease to be terminated if
certain sales levels are not met in specific periods, and may
provide for the payment of contingent rent based on a percentage
of the stores net sales. The Companys lease
agreements generally have defined escalating rent provisions,
which are reported as a deferred rent liability and expensed on
a straight-line basis over the term of the related lease,
commencing with date of possession. In addition, the Company may
receive cash allowances from its landlords on certain
properties, which are reported as deferred rent and amortized to
rent expense over the term of the lease, also commencing with
date of possession. The deferred rent liability at
December 31, 2010 and 2009 was $10,958 and $6,457,
respectively.
Investments
The Company maintains a 49.9% interest in Convergram Mexico, a
joint venture distributing metallic balloons principally in
Mexico and Latin America. The Company accounts for its
investment in the joint venture using the equity method. The
Companys investment in the joint venture is included in
other assets on the consolidated balance sheet and the results
of the joint ventures operations are included in other
expense (income) on the consolidated statement of income (see
Note 13).
Insurance
Accruals
The Company maintains certain self-insured workers
compensation and general liability insurance plans. The Company
estimates the required liability for claims under such plans
based upon various assumptions, which include, but are not
limited to, our historical loss experience, projected loss
development factors, actual payroll and other data. The required
liability is also subject to adjustment in the future based upon
changes in claims experience, including changes in the number of
incidents (frequency) and changes in the ultimate cost per
incident (severity).
Revenue
Recognition
The Companys terms of sale to retailers and other
distributors for substantially all of its sales is FOB shipping
point and, accordingly, title and the risks and rewards of
ownership are transferred to the customer, and revenue is
recognized, when goods are shipped. The Company estimates
reductions to revenues for volume-based rebate programs at the
time sales are recognized.
Revenue from retail operations is recognized at the point of
sale. The Company estimates future retail sales returns and
records a provision in the period that the related sales are
recorded based on historical information. Retail sales are
reported net of taxes collected.
The Company does not record a provision for wholesale sales
returns. The Company only accepts the return of goods shipped to
retailers in error and such returns are not significant to the
Company.
Franchise fee revenue is recognized upon the completion of our
performance requirements and the opening of the franchise store.
In addition to the initial franchise fee, the Company also
recognizes royalty fees ranging from 4% to 6% and advertising
fund fees ranging from 1% to 2.25% based upon the franchised
stores reported gross retail sales. The terms of our
franchise agreements also provide for payments to franchisees
based on
e-commerce
sales originating from specified areas relating to the
franchisees contractual
F-35
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
territory. The amounts paid by the Company vary based on several
factors, including the profitability of our
e-commerce
sales, and are expensed at the time of sale. During the year
ended December 31, 2010, the amounts paid to franchisees
totaled $280 and represented approximately 12.2% of the related
e-commerce
sales. No amounts were paid during the years ended
December 31, 2009 and 2008.
Cost
of Sales
Cost of sales at wholesale reflects the production costs (i.e.,
raw materials, labor and overhead) of manufactured goods and the
direct cost of purchased goods, inventory shrinkage, inventory
adjustments, inbound freight to our manufacturing and
distribution facilities, distribution costs and outbound freight
to get goods to our wholesale customers. At retail, cost of
sales reflects the direct cost of goods purchased from third
parties and the production or purchase costs of goods acquired
from our wholesale operations. Retail cost of sales also
includes inventory shrinkage, inventory adjustments, inbound
freight, occupancy costs related to store operations, such as
rent and common area maintenance, utilities and depreciation on
assets, and all logistics costs (i.e., procurement, handling and
distribution costs) associated with our
e-commerce
business.
Retail
Operating Expenses
Retail operating expenses include the costs and expenses
associated with the operation of our retail stores, with the
exception of occupancy costs included in cost of sales. Retail
operating expenses principally consist of employee compensation
and benefits, advertising, supplies expense and credit card and
banking fees.
Shipping
and Handling
Outbound shipping costs billed to customers are included in net
sales. The costs of shipping and handling incurred by the
Company are included in cost of sales.
Store
Closure Costs
The Company records estimated store closure costs, estimated
lease commitment costs, net of estimated sublease income, and
other miscellaneous store closing costs when the liability is
incurred.
Product
Royalty Agreements
The Company enters into product royalty agreements that allow
the Company to use licensed designs on certain of its products.
These contracts require the Company to pay royalties, generally
based on the sales of such product, and may require guaranteed
minimum royalties, a portion of which may be paid in advance.
The Company matches royalty expense with revenue by recording
royalties at the time of sale, at the greater of the contractual
rate or an effective rate calculated based on the guaranteed
minimum royalty and the Companys estimate of sales during
the contract period. If a portion of the guaranteed minimum
royalty is determined to be unrecoverable, the unrecoverable
portion is charged to expense at that time. Guaranteed minimum
royalties paid in advance are recorded in the consolidated
balance sheets as other assets.
Catalogue
Costs
The Company expenses costs associated with the production of
catalogues when incurred.
Advertising
Advertising expenses are expensed as incurred. Retail
advertising expenses for 2010, 2009, and 2008 were $53,256,
$43,896, and $50,642, respectively.
F-36
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Art
and Development Costs
Art and development costs are primarily internal costs that are
not easily associated with specific designs, some of which may
not reach commercial production. Accordingly, the Company
expenses these costs as incurred.
Derivative
Financial Instruments
The Company accounts for derivative financial instruments
pursuant to Accounting Standards Codification (ASC)
Subtopic 815, Accounting for Derivative Instruments and
Hedging Activities. ASC Subtopic 815, as amended and
interpreted, requires that all derivative financial instruments
be recognized on the balance sheet at fair value and establishes
criteria for both the designation and effectiveness of hedging
activities. The Company uses derivatives in the management of
interest rate and foreign currency exposure. ASC Subtopic 815,
requires the Company to formally document the assets,
liabilities or other transactions the Company designates as
hedged items, the risk being hedged and the relationship between
the hedged items and the hedging instruments. The Company must
measure the effectiveness of the hedging relationship at the
inception of the hedge and on an on-going basis.
If derivative financial instruments qualify as fair value
hedges, the gain or loss on the instrument and the offsetting
loss or gain on the hedged item attributable to the hedged risk
are recognized in current earnings during the period of the
change in fair values. For derivative financial instruments that
qualify as cash flow hedges (i.e., hedging the exposure
to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the
gain or loss on the derivative instrument is reported as a
component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged
transaction affects earnings. The ineffective portion of a cash
flow hedge, if any, is determined based on the dollar-offset
method (i.e., the gain or loss on the derivative
financial instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item) and is
recognized in current earnings during the period of change. As
long as hedge effectiveness is maintained, interest rate swap
arrangements and foreign currency exchange agreements qualify
for hedge accounting as cash flow hedges (see Note 21.)
Income
Taxes
The Company accounts for income taxes in accordance with the
provisions of ASC Subtopic 740, Accounting for Income
Taxes. Under the asset and liability method of ASC
Subtopic 740, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax
bases of assets and liabilities and operating loss and tax
credit carryforwards applying enacted statutory tax rates in
effect for the year in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation
allowance when, in the judgment of management, it is more likely
than not that some portion or all of the deferred tax assets
will not be realized.
Stock-Based
Compensation
The Company adopted ASC Subtopic 718 Share-Based
Payment, which is a revision of SFAS No. 123
Accounting for Stock-Based Compensation as amended.
ASC Subtopic 718 establishes standards for the accounting for
transactions where an entity exchanges its equity for goods or
services and transactions that are based on the fair value of
the entitys equity instruments or that may be settled by
the issuance of those equity instruments. ASC Subtopic 718
focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment
transactions. Generally, the fair value approach in ASC Subtopic
718 is similar to the fair value approach described in
SFAS No. 123.
The Company adopted ASC Subtopic 718 using the prospective
method. Since the Companys common stock was not publicly
traded, the options granted prior to January 1, 2006 were
expensed under the provisions
F-37
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of SFAS No. 123 using a minimum value method. Options
issued subsequent to January 1, 2006 are expensed under the
provisions of ASC Subtopic 718 (see Note 15).
Earnings
Per Share
Basic earnings per share are computed by dividing net income
available for common stockholders 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 as if they were exercised.
A reconciliation between basic and diluted income per share is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income available for common stockholders
|
|
$
|
49,319
|
|
|
$
|
62,553
|
|
|
$
|
40,510
|
|
Weighted average shares of Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Class B Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All earnings per share amounts and number of shares outstanding
have been retroactively adjusted to give effect to
a -for-1
split of the Companys common stock that was
affected ,
2011.
Accumulated
Other Comprehensive Loss
Accumulated other comprehensive loss at December 31, 2010
and 2009 consisted of the Companys foreign currency
translation adjustment and the fair value of interest rate swap
and foreign exchange contracts, net of income taxes, that
qualify as hedges (see Notes 20 and 21).
Foreign
Currency Transactions and Translation
The functional currencies of the Companys foreign
operations are the local currencies in which they operate.
Realized foreign currency exchange gains or losses resulting
from the settlement of receivables or payables in currencies
other than the functional currencies are credited or charged to
operations. Unrealized gains or losses on foreign currency
transactions are insignificant. The balance sheets of foreign
subsidiaries are translated into U.S. dollars at the
exchange rates in effect on the balance sheet date. The results
of operations of foreign subsidiaries are translated into
U.S. dollars at the average exchange rates effective for
the periods presented. The differences from historical exchange
rates are recorded as comprehensive income (loss) and are
included as a component of accumulated other comprehensive
income (loss).
Recently
Issued Accounting Pronouncements
In July 2010, the FASB issued ASU
2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU
2010-20
requires increased disclosures about the credit quality of
financing receivables and allowances for credit losses,
including disclosure about credit
F-38
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
quality indicators, past due information and modifications of
finance receivables. The guidance is generally effective for
reporting periods ending after December 15, 2010. There was
no material impact from this Update.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations (Topic 805). This Update
requires a public entity to disclose pro forma information for
business combinations that occurred in the current reporting
period and specifically requires the same information for the
comparative prior period. This guidance is generally effective
for annual reporting periods beginning on or after
December 15, 2010. We do not anticipate any material impact
from this Update.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Finished goods
|
|
$
|
416,831
|
|
|
$
|
325,421
|
|
Raw materials
|
|
|
11,879
|
|
|
|
12,650
|
|
Work in process
|
|
|
6,112
|
|
|
|
6,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434,822
|
|
|
|
344,502
|
|
Less: reserve for slow moving and obsolete inventory
|
|
|
(10,505
|
)
|
|
|
(8,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
424,317
|
|
|
$
|
335,950
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Property,
Plant and Equipment, Net
|
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Useful Lives
|
|
|
Machinery and equipment
|
|
$
|
128,655
|
|
|
$
|
117,780
|
|
|
|
3-15 years
|
|
Buildings
|
|
|
47,909
|
|
|
|
47,840
|
|
|
|
40 years
|
|
Data processing
|
|
|
67,631
|
|
|
|
50,691
|
|
|
|
3-5 years
|
|
Leasehold improvements
|
|
|
72,114
|
|
|
|
64,617
|
|
|
|
1-20 years
|
|
Furniture and fixtures
|
|
|
115,043
|
|
|
|
93,870
|
|
|
|
5-10 years
|
|
Land
|
|
|
6,059
|
|
|
|
6,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437,411
|
|
|
|
380,807
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(246,682
|
)
|
|
|
(205,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
190,729
|
|
|
$
|
174,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property, plant
and equipment was $39,073, $37,823, and $38,696 for the years
ended December 31, 2010, 2009 and 2008, respectively.
The Company is obligated under various capital leases for
certain machinery and equipment which expire on various dates
through 2015 (see Note 8). The amount of machinery and
equipment and related accumulated
F-39
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortization recorded under capital leases and included within
property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Machinery and equipment under capital leases
|
|
$
|
10,030
|
|
|
$
|
9,444
|
|
Less: accumulated amortization
|
|
|
(6,269
|
)
|
|
|
(4,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,761
|
|
|
$
|
5,232
|
|
|
|
|
|
|
|
|
|
|
Amortization of assets held under capitalized leases is included
in depreciation and amortization expense.
|
|
Note 5
|
Acquisitions
and Transactions
|
Wholesale
Acquisitions
On September 30, 2010, the Company acquired Christys
By Design Limited and three affiliated companies (the
Christys Group) from Christy Holdings Limited,
a U.K. based company. The Christys Group designs and
distributes costumes and other garments and accessories through
its operations in Asia and the U.K. The fair value of the total
consideration paid at date of acquisition was $30,368. The
results of this newly acquired business are included in the
consolidated financial statements since the September 30,
2010 acquisition date and are reported in the operating results
of the Companys Wholesale segment.
The Christys Group acquisition has been accounted for as a
purchase business combination. The preliminary estimate of the
excess of the purchase price over the tangible assets and
identified intangible assets acquired was assigned to goodwill.
The following summarizes the estimated fair value of the assets
and liabilities acquired: accounts receivable of $17,656,
inventory of $457, fixed assets of $582, and accounts payable
and accrued expenses of $13,636. The remaining $25,309 has been
initially recorded as goodwill. The allocation of the purchase
price is based on our preliminary estimates of the fair value of
the tangible and identifiable intangible assets acquired and
liabilities assumed. The Company is still in the process of
accumulating information to complete the determination of the
fair value of certain acquired assets. Goodwill arises because
the purchase price reflects the strategic fit and expected
synergies this business will bring to the Companys
operations. The Christys Group acquisition provided the
Company the opportunity to manufacture Halloween costumes for
sale to its U.S. retail segment, allowing the Company to capture
the manufacturing and wholesale margins on such sales. The
acquisition also allowed the Company to leverage its existing
U.K. distribution capacity to expand the Christys Group
business in Europe. The Company elected to treat the U.K.
entities acquired as foreign branches for U.S. tax purposes. As
a result, the entire excess of the purchase price over the fair
value of the tangible assets and liabilities acquired is
deductible for U.S. tax purposes over 15 years.
On December 21, 2009, the Company entered into an Asset
Purchase Agreement with American Greetings Corporation
(American Greetings) under which it acquired certain
assets, equipment and processes used in the manufacture and
distribution of party goods effective on March 1, 2010 (the
Designware Acquisition). In connection with the
Designware Acquisition, the companies also entered into a Supply
and Distribution Agreement and a Licensing Agreement
(collectively, the Agreements). Under the terms of
the Agreements, effective March 1, 2010, the Company has
exclusive rights to manufacture and distribute products into
various channels including the party store channel. American
Greetings will continue to distribute party goods to various
channels including to its mass market, drug, grocery, and
specialty retail customers. American Greetings will purchase
substantially all of its party goods requirements from the
Company and the Company will license from American Greetings the
Designware brand and other character licenses. The
results of this business are included in the consolidated
financial statements since the March 1, 2010 acquisition
date and are reported in the operating results of the
Companys Wholesale segment.
F-40
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acquisition-date fair value of the total consideration
transferred was $45,881, including cash of $24,881 which was
held in escrow at December 31, 2009 and reported in other
assets in the consolidated balance sheet at that date, and a
warrant to purchase approximately 2% of the Common Stock of
Party City Holdings valued at $21,000. The fair value of the
warrant was determined based on the agreement between the
parties.
The Designware Acquisition has been accounted for as a purchase
business combination. The excess of the purchase price over the
tangible assets and identified intangible assets acquired was
assigned to goodwill. The following summarizes the estimated
fair value of the assets acquired: inventory of $4,000, fixed
assets of $3,445 and intangible license rights of $10,973, which
are being amortized over the remaining license periods averaging
2.5 years. The remaining $27,463 represents goodwill.
Goodwill arises because the purchase price reflects the
strategic fit and expected synergies this business will bring to
the Companys operations. Specifically, the Designware
Acquisition provided the Company the right to earn both the
manufacturing and wholesale margin on the Designware product it
had been purchasing from American Greetings. The entire excess
of the purchase price over the fair value of the tangible assets
acquired is deductible for tax purposes over 15 years.
Franchise
Store Acquisitions
During 2010 the Company acquired 20 franchisee stores located
throughout several states for total consideration of $24,300.
Total consideration consisted of $21,500 in cash and the
exchange of five corporate stores located in Pennsylvania.
Excluding the assets exchanged of $2,800, the fair value of the
assets and liabilities acquired for cash were $2,500 of
inventory and $1,600 of fixed assets. The remaining $17,400 has
been recorded as goodwill. Goodwill arises because the purchase
price reflects the value of the geographic location of each
acquired store, as well as their maturity and historical
profitability. The entire excess of the purchase price over the
fair value of the tangible assets acquired is deductible for tax
purposes over 15 years.
Goodwill
Changes by Reporting Segment
For the years ended December 31, 2010 and 2009, goodwill
changes by reporting segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Wholesale segment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
283,612
|
|
|
$
|
280,005
|
|
Bakery Sugarcraft acquisition
|
|
|
|
|
|
|
2,652
|
|
American Greetings acquisition
|
|
|
27,463
|
|
|
|
|
|
Christys acquisition
|
|
|
25,309
|
|
|
|
|
|
Foreign currency impact
|
|
|
(340
|
)
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
336,044
|
|
|
|
283,612
|
|
|
|
|
|
|
|
|
|
|
Retail segment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
275,649
|
|
|
|
274,548
|
|
Adjustments to 2007 acquisitions
|
|
|
|
|
|
|
|
|
Halloween City earnout
|
|
|
1,399
|
|
|
|
721
|
|
Franchisee acquisitions
|
|
|
17,400
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
294,448
|
|
|
|
275,649
|
|
|
|
|
|
|
|
|
|
|
Total ending balance both segments
|
|
$
|
630,492
|
|
|
$
|
559,261
|
|
|
|
|
|
|
|
|
|
|
F-41
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Other
Intangible Assets, net
|
The Company had the following balances of other identifiable
intangible assets as a result of various acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Useful Lives
|
|
|
Retail franchise licenses
|
|
$
|
63,630
|
|
|
$
|
24,754
|
|
|
$
|
38,876
|
|
|
|
9-20 years
|
|
Customer lists and relationships
|
|
|
14,500
|
|
|
|
6,444
|
|
|
|
8,056
|
|
|
|
15 years
|
|
Copyrights, designs, and other
|
|
|
13,710
|
|
|
|
13,096
|
|
|
|
614
|
|
|
|
2-3 years
|
|
Leasehold and other intangibles
|
|
|
2,087
|
|
|
|
1,593
|
|
|
|
494
|
|
|
|
1-15 years
|
|
Acquired design licenses
|
|
|
10,973
|
|
|
|
3,651
|
|
|
|
7,322
|
|
|
|
1-7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,900
|
|
|
$
|
49,538
|
|
|
$
|
55,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Useful Lives
|
|
|
Retail franchise licenses
|
|
$
|
63,630
|
|
|
$
|
19,431
|
|
|
$
|
44,199
|
|
|
|
9-20 years
|
|
Customer lists and relationships
|
|
|
14,500
|
|
|
|
5,477
|
|
|
|
9,023
|
|
|
|
15 years
|
|
Copyrights, designs, and other
|
|
|
13,632
|
|
|
|
12,989
|
|
|
|
643
|
|
|
|
2-3 years
|
|
Leasehold and other intangibles
|
|
|
2,087
|
|
|
|
1,283
|
|
|
|
804
|
|
|
|
1-15 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,849
|
|
|
$
|
39,180
|
|
|
$
|
54,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense for finite-lived intangible assets for
the years ended December 31, 2010, 2009, and 2008 was
$10,345, $6,559, and $8,582, respectively. Estimated
amortization expense for each of the next five years will be
approximately $10,184, $9,121, $7,089, $6,621, and $2,691,
respectively.
|
|
Note 7
|
Loans and
Notes Payable
|
On August 13, 2010, Amscan Holdings entered into an amended
and extended ABL revolving credit facility (the New ABL
Facility), for an aggregate principal amount of up to
$325,000 for working capital, general corporate purposes and the
issuance of letters of credit. The New ABL Facility was used to
refinance Amscan Holdings prior ABL revolving credit
facility (the Prior ABL Facility) and its Party City
Franchise Group (PCFG) revolving credit facility and
term loan agreement (the PCFG Credit Facility). At
closing, PCFG, a previously unrestricted subsidiary of the
Company, became a borrower under the New ABL Facility and a
restricted subsidiary under the terms of the Amscan
Holdings New Term Loan Credit Agreement, the senior
subordinated notes and the New ABL Facility.
Below is a discussion of the New ABL Facility, the PCFG Credit
Facility and other credit agreements. See Note 8 for a
discussion of the Companys long-term obligations
New
ABL Facility
The New ABL Facility provides for (a) revolving loans
during the five-year period ending August 12, 2015 (or, if
still outstanding, the date that is 120 days prior to the
scheduled maturity of the senior subordinated notes or any
indebtedness that refinances the senior subordinated notes) in
an aggregate principal amount at any time outstanding not to
exceed $325,000, subject to a borrowing base described below,
(b) swing-line loans in an aggregate principal amount at
any time outstanding not to exceed 10% of the aggregate
commitments under the facility and (c) letters of credit,
in an aggregate face amount at any time outstanding not to
exceed $50,000, to support payment obligations incurred in the
ordinary course of business by the Company and its subsidiaries.
F-42
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the New ABL Facility, the borrowing base at any time
equals (a) 85% of eligible trade receivables plus
(b) 85% of eligible inventory at its net orderly
liquidation value and (c) 90% of eligible credit card
receivables, less (d) certain reserves.
The New ABL Facility provides for two pricing options:
(i) an alternate base interest rate (ABR) equal
to the greater of (a) the prime rate, (b) the federal
funds rate plus
1/2
of 1% or (c) the LIBOR rate plus 1%, in each case, on the
date of such borrowing or (ii) a LIBOR based interest rate
determined by reference to the LIBOR cost of funds for
U.S. dollar deposits for the relevant interest period
adjusted for certain additional costs and, in each case, plus an
applicable margin. The applicable margin ranges from 1.25% to
1.75% with respect to ABR borrowings and from 2.25% to 2.75%
with respect to LIBOR borrowings.
In addition to paying interest on outstanding principal under
the New ABL Facility, the Company is required to pay a
commitment fee of between 0.375% and 0.50% per annum in respect
of the unutilized commitments thereunder. Amscan Holdings must
also pay customary letter of credit fees and agency fees.
In connection with the New ABL Facility, Amscan Holdings
incurred $3,862 in finance costs that have been capitalized and
will be amortized over the life of the loan.
The obligations under the New ABL Facility are jointly and
severally guaranteed by Party City Holdings and each domestic
subsidiary of Amscan Holdings. Amscan Holdings and each
guarantor has secured its obligations, subject to certain
exceptions and limitations, including obligations under its
guaranty, as applicable, by a first-priority lien on its
accounts receivable, inventories, cash and the proceeds and
assets related thereto and a second-priority lien on
substantially all of its other assets, including a pledge of all
of the capital stock held by Amscan Holdings and each guarantor
(which, in the case of capital stock of any foreign subsidiary,
is limited to 65% of the voting stock of such foreign subsidiary
and 100% of the non-voting stock of such foreign subsidiary).
The New ABL Facility also provides that Amscan Holdings has the
right from time to time to request an amount of additional
commitments, subject to limitation by the borrowing base under
the New ABL Facility, up to $125,000 of which the entire amount
remains available. The lenders under the New ABL Facility are
not under any obligation to provide any such additional
commitments, and any increase in commitments is subject to
several conditions precedent and limitations. If Amscan Holdings
were to request any additional commitments, and the existing
lenders or new lenders were to agree to provide such
commitments, the facility size could be increased to up to $450
million, but Amscan Holdings ability to borrow under this
facility would still be limited by the amount of the borrowing
base under this facility and limitations on incurring additional
indebtedness under the New Term Loan Credit Agreement and the
indenture governing Amscan Holdings senior subordinated
notes.
The New ABL Facility contains negative covenants that are
substantially similar to the Term Loan Credit Agreement (see
Note 8). The New ABL Facility also requires Amscan Holdings
to comply with a fixed charge coverage ratio if its excess
availability under the New ABL Facility is (a) less than
15% of the lower of the aggregate commitments and the then
borrowing base under the New ABL Facility or (b) $25,000,000.
The New ABL Facility also contains certain customary affirmative
covenants and events of default, including a change of control
provision and a cross-default provision in case of a default
according to the terms of any indebtedness with an aggregate
principal amount of $20 million or more.
On December 2, 2010, Amscan Holdings entered into an
amendment to the New ABL Facility to, among other things, permit
transactions related to paying the 2010 Dividend and amend the
maturity date under the New ABL Facility to provide for a
maturity date of August 13, 2015 or, if still outstanding,
the date that is 120 days prior to the scheduled maturity
of the senior subordinated notes or any indebtedness that
refinances the senior subordinated notes.
F-43
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Borrowings under the New ABL Facility totaled $150,098 at
interest rates ranging from 2.77% to 4.75% at December 31,
2010. Outstanding standby letters of credit totaled $12,927 and
Amscan Holdings had $161,976 of available borrowing capacity
under the terms of the New ABL Facility at December 31,
2010.
Prior
ABL Facility
On May 25, 2007, Amscan Holdings entered into (i) a
term loan credit agreement (the Prior Term Loan Credit
Agreement) to borrow $375,000 and (ii) the Prior ABL
Facility to borrow up to $250,000, as amended, for working
capital and general corporate purposes and the issuance of
letters of credit.
Under the terms of the Prior ABL Credit Agreement, the borrowing
base at any time equaled (a) 85% of eligible trade
receivables, plus (b) the lesser of (i) 75% of
eligible inventory and eligible in-transit inventory, valued at
the lower of cost or market value, or (ii) 85% of net
orderly liquidation value of eligible inventory and eligible in
transit inventory (subject, in the case of eligible in-transit
inventory, to a cap of $10,000) , plus (c) 85% of eligible
credit card receivables, less (d) certain reserves.
The Prior ABL Credit Agreement provided for two pricing options:
(i) an alternate base rate (ABR) equal to the
greater of (a) Credit Suisses prime rate in effect on
such day and (b) the federal funds effective rate in effect
on such day plus
1/2
of 1% or (ii) a LIBOR rate determined by reference to the
cost of funds for U.S. dollar deposits for the interest
period relevant to such borrowing adjusted for certain
additional costs, in each case plus an applicable margin. The
applicable margin was up to 0.50% with respect to ABR borrowings
and from 1.00% to 1.50% with respect to LIBOR borrowings.
In addition to paying interest on outstanding principal under
the ABL Credit Agreement, the Amscan Holdings was required to
pay a commitment fee of between 0.30% and 0.25% per annum in
respect of the unutilized commitments thereunder. The Amscan
Holdings also paid customary letter of credit fees and agency
fees.
At December 31, 2009, borrowings under the Prior ABL Credit
Agreement were $76,990.
PCFG
Credit Facility
On November 2, 2007, PCFG entered into the PCFG Credit
Facility under which it borrowed $30,000 in term loans (the
PCFG Term Loan) (see Note 8) and obtained
a committed revolving credit facility in an aggregate principal
amount of up to $10,000, for working capital and general
corporate purposes and the issuance of letters of credit (the
PCFG Revolver). PCFG and Party City Franchise Group
Holdings, LLC (PCFG Holdings), the sole member of
PCFG were designated by the Board of Directors of the Company as
Unrestricted Subsidiaries pursuant to the Prior ABL
Credit Agreement and the indenture governing its
8.75% senior subordinated notes and neither PCFG nor PCFG
Holdings guaranteed any of the Companys other credit
facilities or indenture.
At December 31, 2009, borrowings under the PCFG Revolver
were $645. There were no outstanding letters of credit at
December 31, 2009.
Other
Credit Agreements
In addition to the New ABL Facility, at December 31, 2010,
Amscan Holdings has a Canadian dollar denominated revolving
credit facility in the amount of CDN$400 which bears interest at
the Canadian prime rate plus 1.1% and expires in June 2011, and
a £1,400 denominated revolving credit facility which bears
interest at the U.K. base rate plus 1.75% on the first
£1,000 and 4.75% over the U.K. base rate on the remaining
£400. The U.K. credit facility expires on June 30,
2011. We expect to renew these revolving credit facilities upon
expiration.
F-44
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There were no borrowings under the Canadian dollar denominated
revolving credit facility at December 31, 2010 and 2009.
There were no borrowings under the British Pound Sterling
revolving credit facility at December 31, 2010. At
December 31, 2009, there were outstanding borrowings of
£357 under the revolving credit facility.
|
|
Note 8
|
Long-Term
Obligations
|
Long-term obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
First lien term loan due 2017(a)
|
|
$
|
666,644
|
|
|
$
|
|
|
Term loan(b)
|
|
|
|
|
|
|
364,688
|
|
PCFG term loan(c)
|
|
|
|
|
|
|
23,000
|
|
Mortgage obligation(d)
|
|
|
4,539
|
|
|
|
5,600
|
|
Capital lease obligations(e)
|
|
|
3,975
|
|
|
|
5,510
|
|
8.75% senior subordinated notes(f)
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
$
|
850,158
|
|
|
$
|
573,798
|
|
Less: current portion
|
|
|
(9,046
|
)
|
|
|
(34,906
|
)
|
|
|
|
|
|
|
|
|
|
Long-term obligations, excluding current portion
|
|
$
|
841,112
|
|
|
$
|
538,892
|
|
|
|
|
|
|
|
|
|
|
New
Term Loan Credit Agreement
(a) On December 2, 2010, Amscan Holdings entered into
a $675,000 Term Loan Agreement (the New Term Loan Credit
Agreement). Amscan Holdings used the proceeds from the New
Term Loan Credit Agreement to terminate the previously existing
$342,000 term loan guaranty credit agreement and pay a
distribution of $311,199 to its stock, warrant and vested option
holders (see Note 9). The New Term Loan Credit Agreement
was issued at a 1% discount that is being amortized by the
effective interest method over the term of the loan.
The New Term Loan Credit Agreement provides for two pricing
options: (i) an alternate base rate (ABR) for
any day, a rate per annum equal to the greater of
(a) Credit Suisses prime rate in effect on such day,
(b) the federal funds effective rate in effect on such day
plus
1/2
of 1% and (c) the adjusted LIBOR rate plus 1% or
(ii) the LIBOR rate, adjusted for certain additional costs,
with a LIBOR floor of 1.5%, in each case plus an applicable
margin. The applicable margin is 4.25% with respect to ABR
borrowings and 5.25% with respect to LIBOR borrowings.
The New Term Loan Credit Agreement provides that the term loans
may be prepaid any time prior to their maturity, subject to a
1.00% prepayment premium if voluntarily repaid under certain
circumstances before December 2, 2011. The term loans are
subject to mandatory prepayment out of (i) 100% of net
proceeds arising from asset sales and insurance and condemnation
proceeds, subject to reinvestment provisions, (ii) commencing
with the fiscal year ended December 31, 2011, 50% of Excess
Cash Flow, as defined in the New Term Loan Credit Agreement, if
any (which percentage will be reduced to 25% or 0% if Amscan
Holdings total leverage ratio is less than specified
ratios) and (iii) net proceeds arising from any debt issued
by Amscan Holdings or its subsidiaries other than debt permitted
under the New Term Loan Credit Agreement.
Amscan Holdings is required to repay installments on the term
loans in quarterly principal amounts of 0.25% of their funded
total principal amount through September 30, 2017, with the
remaining amount payable on the maturity date of
December 2, 2017 (or January 30, 2014, if the senior
subordinated notes are not
F-45
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
refinanced with indebtedness permitted to be incurred under the
New Term Loan Credit Agreement that matures at least
91 days after the maturity date of the term loans). Amscan
Holdings is required to repay installments on the term loans in
quarterly principal amounts of 0.25%, with the remaining amount
payable on the maturity date.
The obligations of the Company under the New Term Loan Credit
Agreement are jointly and severally guaranteed by Party City
Holdings and each domestic subsidiary of Amscan Holdings. Amscan
Holdings and each guarantor has secured its obligations, subject
to certain exceptions and limitations, including obligations
under the guaranty, as applicable, by a first-priority lien on
substantially all of its assets, including a pledge of all of
the capital stock held by Amscan Holdings and each guarantor
(which, in the case of capital stock of any foreign subsidiary,
is limited to 65% of the voting stock of such foreign subsidiary
and 100% of the non-voting stock of such foreign subsidiary),
with the exception of accounts receivable, inventories, cash and
the proceeds and assets related thereto, which are under a
second-priority lien.
The Company may, by written notice to the Administrative Agent
from time to time, request additional incremental term loans, in
an aggregate amount not to exceed $175,000 and to refinance,
replace or extend the maturity date of all or a portion of the
then existing term loans under the New Term Loan Credit
Agreement.
The lenders under the New Term Loan Credit Agreement are not
under any obligation to provide any such additional term loans,
provide such refinancing or replacement term loans, or agree to
extend the maturity date of existing term loans held by them,
and transactions to effect any additional refinancing,
replacement or extended term loans are subject to several
conditions precedent and limitations.
The New Term Loan Credit Agreement contains a number of
covenants that, among other things, restrict, subject to certain
exceptions, the ability of the Company and its Subsidiaries to
incur additional indebtedness; pay dividends or distributions on
capital stock or redeem, repurchase or retire capital stock of
Amscan Holdings or any of its restricted subsidiaries; make
payments on, or redeem, repurchase or retire any subordinated
indebtedness; create, incur or suffer to exist liens on any of
their property or assets; make investments or enter into joint
venture arrangements; engage in mergers, consolidations and
sales of all or substantially all their assets; sell assets;
make capital expenditures; enter into agreements restricting
dividends and advances by the Companys subsidiaries; and
engage in transactions with affiliates.
The New Term Loan Credit Agreement also contains certain
customary affirmative covenants and events of default, including
a change in control provision and a cross-default provision in
the case of a default according to the terms of any indebtedness
with an aggregate principal amount of $20 million or more.
In connection with the New Term Loan Credit Agreement, the
Company incurred $12,193 in finance costs that have been
capitalized and will be amortized over the life of the loan.
At December 31, 2010, the balance of the Term Loan was
$666,644, which includes an original issue discount of $6,668,
net of $81 of accumulated amortization. At December 31,
2010, the interest rate on term loan borrowings ranged from
6.75% to 7.50%
Prior
Term Loan Credit Agreements
(b) On May 25, 2007, the Company entered into
(i) a $375,000 Term Loan Credit Agreement, and (ii) an
ABL Credit Agreement (see Note 7), and used the proceeds to
refinance certain existing indebtedness and to pay transactions
costs.
The Prior Term Loan Credit Agreement provided for two pricing
options: (i) an ABR equal to the greater of (a) Credit
Suisses prime rate in effect on such day and (b) the
federal funds effective rate in effect on such day plus
1/2
of 1% or (ii) a LIBOR rate determined by reference to the
cost of funds for U.S. dollar deposits for the interest
period relevant to such borrowing adjusted for certain
additional costs, in each case plus an
F-46
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
applicable margin. The applicable margin is 1.25% with respect
to ABR borrowings and 2.25% with respect to LIBOR borrowings.
The Company was required to repay installments on the term loans
in quarterly principal amounts of 0.25% of their funded total
principal amount, beginning September 30, 2007 and ending
March 31, 2013, with the remaining amount payable on the
maturity date of May 25, 2013.
The Prior Term Loan Credit Agreement contained covenants similar
to those in the New Term Loan Credit Agreement
At December 31, 2009, the balance of the Prior Term Loan
was $364,688.
Other
Long Term Debt Agreements
(c) On November 2, 2007, PCFG entered into the PCFG
Credit Facility. Pursuant to the PCFG Credit Agreement, PCFG
borrowed $30,000 in term loans (the PCFG Term Loan)
and obtained a committed revolving credit facility in an
aggregate principal amount of up to $10,000, as amended, for
working capital and general corporate purposes and the issuance
of letters of credit (PCFG Revolver) (See
Note 7).
PCFG and PCFG Holdings, the sole member of PCFG, had been
designated by the Board of Directors of the Company as
Unrestricted Subsidiaries pursuant to the
Companys Prior ABL Credit Agreement and the indenture
governing its 8.75% senior subordinated notes and neither
PCFG nor PCFG Holdings guaranteed any of the Companys
other credit facilities or indenture.
At December 31, 2009, the balance of the PCFG Term Loan was
$23,000. The PCFG Term Loan was repaid in August 2010, in
connection with the New ABL Facility (see Note 7).
(d) In conjunction with the construction of a new
distribution facility, the Company borrowed $10,000 from the New
York State Job Development Authority on December 21, 2001,
pursuant to the terms of a second lien mortgage note. On
December 18, 2009 the mortgage note was amended, extending
the fixed monthly payments of principal and interest for a
period of 60 months up to and including December 31,
2014. The interest rate under the amended mortgage note remains
variable and subject to review and adjustment semi-annually
based on the New York State Job Development Authoritys
confidential internal protocols. At December 31, 2010, the
amended mortgage note bears at an interest rate of 2.22%. At
December 31, 2009, the mortgage note bore interest at a
rate of 2.45%. The principal amounts outstanding under the
mortgage note as of December 31, 2010 and 2009, were $4,539
and $5,600, respectively. At December 31, 2010, the
distribution facility had a carrying value of $39,795.
(e) The Company has entered into various capital leases for
machinery and equipment and automobiles with implicit interest
rates ranging from 5.69% to 17.40% which extend to 2015.
(f) The $175,000 senior subordinated notes due 2014 bear
interest at a rate of 8.75% per annum. Interest is payable
semi-annually on May 1 and November 1 of each year. The senior
subordinated notes are redeemable at the option of the Company,
in whole or in part, at any time on or after May 1, 2009,
at redemption prices ranging from 102.917% to 100%, plus accrued
and unpaid interest to the date of redemption. If a Change of
Control, as defined in the note indenture, were to occur, the
Company would be obligated to make an offer to purchase the
senior subordinated notes, in whole or in part, at a price equal
to 101% of the aggregate principal amount of the senior
subordinated notes, plus accrued and unpaid interest, if any, to
the date of purchase.
If a Change of Control were to occur, the Company may not have
the financial resources to repay all of its obligations under
the New Term Loan Credit Agreement, the note indenture and the
other indebtedness that would become payable upon the occurrence
of such Change of Control.
F-47
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, subject to certain exceptions, Amscan Holdings, a
wholly-owned subsidiary of the Company, may not make restricted
payments, including the payment of dividends to its
shareholders, unless certain conditions are met under the terms
of the indenture governing the 8.75% senior subordinated
notes, the New ABL Facility and the New Term Loan Credit
Agreement. As of December 31, 2010, the most restrictive of
these conditions was the requirement under the New Term Loan
Agreement of a senior leverage ratio (as defined therein) of no
greater than 4 to 1 on a pro forma basis after giving effect to
such restricted payment. Under such condition, unpermitted
restricted payments were equal to $177,222 at December 31,
2010. As a result, $79,200 of the Companys $256,422 of net
assets were unrestricted at December 31, 2010. The parent
company of Amscan Holdings, Party City Holdings Inc., has no
assets or operations other than its investment in its
subsidiaries and income from those subsidiaries. During the
years ended December 31, 2010, 2009 and 2008 dividends in
the amounts of $311,199, $- and $-, respectively, were paid to
Party City Holdings Inc. by its subsidiaries.
At December 31, 2010, maturities of long-term obligations
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
Capital Lease
|
|
|
|
|
|
|
Obligations
|
|
|
Obligations
|
|
|
Totals
|
|
|
2011
|
|
$
|
6,810
|
|
|
$
|
2,236
|
|
|
$
|
9,046
|
|
2012
|
|
|
6,835
|
|
|
|
1,446
|
|
|
|
8,281
|
|
2013
|
|
|
6,860
|
|
|
|
147
|
|
|
|
7,007
|
|
2014
|
|
|
181,982
|
|
|
|
131
|
|
|
|
182,113
|
|
2015
|
|
|
5,737
|
|
|
|
15
|
|
|
|
5,752
|
|
Thereafter
|
|
|
637,959
|
|
|
|
|
|
|
|
637,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations
|
|
$
|
846,183
|
|
|
$
|
3,975
|
|
|
$
|
850,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 and 2009, the Companys
authorized capital stock consisted of 10,000.00 shares of
preferred stock, $0.01 par value, of which no shares were
issued or outstanding, 40,000.00 shares of Class A
Common Stock, $0.01 par value, of which 18,307.79 and
18,308.33 shares were issued and outstanding, respectively,
and 15,200.00 shares of Class B Common Stock,
$0.01 par value, of which 11,918.71 shares were issued
and outstanding. At December 31, 2010 and 2009,
15,200 shares of Class A Common Stock, $0.01 par
value were reserved for issuance upon the conversion of
Class B Common Stock., $0.01 par value.
The holders of common stock are entitled to vote as a single
class on all matters upon which shareholders have a right to
vote, subject to the requirements of applicable laws. Each share
of Class A and Class B Common Stock entitles its
holder to one vote and both classes participate equally in any
dividend or distribution of earnings of the Company. For so long
as at least 50% of the shares of Class B Common Stock
issued at the effective time of the Second Amended and Restated
Certificate of Incorporation remain outstanding, the holders of
a majority of outstanding shares of Class B Common Stock
must affirmatively vote or consent to sell, merge, consolidate,
reorganize, liquidate or otherwise dispose of all or
substantially all of the assets of the Company and, among other
things and in certain instances, to incur indebtedness, to pay
dividends or distributions and to effectuate a public offering
of the Companys Class A Common Stock.
Each share of Class B Common Stock is convertible into a
share of Class A Common Stock on a
one-for-one
basis (i) upon transfer to a person or entity which is not
a Permitted Transferee (as defined in our Second Amended and
Restated Certificate of Incorporation), (ii) upon a
Qualified Initial Public Offering (as defined in our Second
Amended and Restated Certificate of Incorporation) and
(iii) at such time as less than 20% of the
11,918.71 shares of Class B Common Stock are
controlled or owned by Permitted Transferees.
F-48
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of the Class A Common Stock, 597.52 and 592.85 shares
were redeemable at December 31, 2010 and 2009,
respectively, and classified as redeemable common
securities on the balance sheet, as described below.
Under the terms of the Companys stockholders
agreement dated April 30, 2004, as amended, the Company has
an option to purchase all of the shares of common stock held by
these employees and, upon their death or disability, these
employee stockholders can require the Company to purchase all of
their shares. The purchase price as prescribed in the
stockholders agreements is to be determined through a
market valuation of the minority-held shares or, under certain
circumstances, based on cost, as defined therein. The aggregate
amount that may be payable by the Company to all employee
stockholders, based on the estimated fair value of fully paid
and vested common securities, totaled $16,547 and $16,807 at
December 31, 2010 and 2009, respectively, and is classified
as redeemable common securities on the consolidated balance
sheet, with a corresponding adjustment to stockholders
equity. As there is no active market for the Companys
common stock, the Company estimates the fair value of its common
stock based on a valuation model confirmed periodically by its
recent acquisitions or independent appraisals.
As explained in Note 15, in 2004, the CEO and the President
exchanged vested predecessor company stock options for vested
Company stock options (Rollover Options) to purchase
98.182 shares. In 2008, 37 Rollover Options were exercised.
The remaining Rollover Options are valued at $1,542 and $1,582
at December 31, 2010 and 2009, respectively, and are
classified as redeemable common securities on the consolidated
balance sheet. These options are Level 2 in the fair value
hierarchy.
Total redeemable common securities on the balance sheet were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Redeemable common shares
|
|
$
|
16,547
|
|
|
$
|
16,807
|
|
2004 Rollover Options
|
|
|
1,542
|
|
|
|
1,582
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,089
|
|
|
$
|
18,389
|
|
|
|
|
|
|
|
|
|
|
A summary of the changes in redeemable common securities for the
years ended December 31, 2008, 2009 and 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Total
|
|
|
|
Rollover
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
Stock
|
|
|
Common
|
|
|
PCFG
|
|
|
Common
|
|
|
|
Options
|
|
|
shares
|
|
|
minority
|
|
|
Securities
|
|
|
Balance as of December 31, 2007
|
|
|
98.18
|
|
|
|
893.79
|
|
|
|
13,443.52
|
|
|
$
|
33,782
|
|
Additional minority investment
|
|
|
|
|
|
|
|
|
|
|
2,500.00
|
|
|
|
2,500
|
|
Minority interest purchased
|
|
|
|
|
|
|
|
|
|
|
(500.00
|
)
|
|
|
(500
|
)
|
Minority interest exchanged for redeemable warrants
|
|
|
|
|
|
|
|
|
|
|
(15,444.52
|
)
|
|
|
(15,444
|
)
|
Shares sold in Advent transaction
|
|
|
(37.00
|
)
|
|
|
(308.64
|
)
|
|
|
|
|
|
|
(7,079
|
)
|
Revaluation of remaining options/shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
61.18
|
|
|
|
585.15
|
|
|
|
|
|
|
|
18,171
|
|
Shares issued upon option exercise
|
|
|
|
|
|
|
7.69
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
61.18
|
|
|
|
592.84
|
|
|
|
|
|
|
|
18,389
|
|
Shares issued upon option exercise
|
|
|
|
|
|
|
4.68
|
|
|
|
|
|
|
|
133
|
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,192
|
)
|
Revaluation of remaining options/shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
61.18
|
|
|
|
597.52
|
|
|
|
|
|
|
$
|
18,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On December 30, 2008, the Company exchanged 544.75 warrants
to purchase Company common stock at $.01 per share, valued at
$28,350 per share, plus $500 in cash, to acquire the minority
interest in PCFG common stock. As a result of this transaction,
the Company charged $558 to goodwill. The warrants, which have a
term of 10 years, were exercisable into Company common
stock under certain conditions, with the right to require the
Company to purchase the shares upon the death or disability of
the employees and were classified on the balance sheet as a
current liability under the provisions of
ASC 480-10
Distinguishing Liabilities from Equity Under those rules,
any change in value of the warrants must be marked to
market to reflect the change in liability, with an
offsetting charge to compensation. These warrants are
Level 2 in the fair value hierarchy. As the result of an
independent appraisal performed in December 2010, these warrants
were marked to market resulting in a charge to
compensation expense of $4,763. For tax purposes, the warrants
are not considered compensation and therefore this charge is
never deductible for tax purposes. In February 2011, the
warrants were exercised with the corresponding share issuance
recorded as redeemable common stock.
In December 2010, in connection with the refinancing of the
Companys term loan agreement (see Note 8), the
Companys Board of Directors declared a one-time cash
dividend of $9,400 per shares of outstanding Common Stock
totaling $289,746 and similar distributions to the holders of
vested common stock warrants of $12,083 and vested time options
of $9,370. The distribution to vested time option holders
resulted in a charge to stock compensation expense in 2010. In
addition, holders of unvested time and performance options at
the declaration date may also receive a distribution of $9,400
per share, if and when the time and performance options vest. At
December 31, 2010, the aggregate potential distribution
associated with unvested time and performance options is $18,492.
|
|
Note 10
|
Provision
for Doubtful Accounts
|
The provision for doubtful accounts is included in general and
administrative expenses. For the years ended December 31,
2010, 2009 and 2008, the provision for doubtful accounts was
$637, $3,982, and $1,092, respectively.
|
|
Note 11
|
Non-recurring
Expenses and Write-off of Deferred Financing Costs
|
In connection with the refinancing of the Companys debt
obligations in 2010, the Company wrote off $2,448 of deferred
financing costs associated with the repayment of debt.
Additionally, the Company expensed acquisition related costs of
$1,607 primarily associated with the Designware and
Christys Group acquisitions.
|
|
Note 12
|
Restructuring
Charges
|
In connection with the Party America Acquisition in 2006, $4,100
was accrued related to plans to restructure Party Americas
administrative operations and involuntarily terminate a limited
number of Party America personnel. All related costs have been
incurred, with the last $2,100 incurred during 2008.
In connection with the FCPO Acquisition in 2007, $9,101 was
accrued related to plans to restructure FCPOs
merchandising assortment and administrative operations and
involuntarily terminate a limited number of FCPO personnel.
Through December 31, 2010, the Company incurred $7,605 in
restructuring costs including $902 incurred in 2010. The Company
expects to incur $1,496 in 2011.
During October of 2009, the Company communicated its plan to
close the FCPO corporate office in Naperville, Illinois and to
consolidate its retail corporate office operations with those of
Party City, in Rockaway, New Jersey. In connection with the
closing, the Company recorded additional planned severances
costs of $1,800 during 2009 all of which have been paid by
December 2010. The Company will continue to utilize the
Naperville facility as a distribution center for greeting cards
and other products.
Restructuring costs associated with the 2007 acquisition of PCFG
of $1,000 were accrued related to plans to restructure
PCFGs merchandising assortment and administrative
operations and involuntarily terminate a
F-50
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited number of PCFG personnel. PCFG incurred $100 and $900 in
restructuring costs in 2009 and 2008, respectively.
|
|
Note 13
|
Other
Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Other expense (income) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed income in unconsolidated joint venture
|
|
$
|
(678
|
)
|
|
$
|
(632
|
)
|
|
$
|
(538
|
)
|
Change in fair market value of the interest rate cap
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
Foreign currency loss (gain)
|
|
|
354
|
|
|
|
670
|
|
|
|
(476
|
)
|
Write-off of deferred finance charges in connection with the
extinguishment of debt
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
Other acquisition costs
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
Royalty amendment fee
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Other, net
|
|
|
477
|
|
|
|
(70
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
$
|
4,208
|
|
|
$
|
(32
|
)
|
|
$
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14
|
Employee
Benefit Plans
|
Certain subsidiaries of the Company maintain profit sharing
plans for eligible employees providing for annual discretionary
contributions to a trust. Eligible employees are full time
domestic employees who have completed a certain length of
service, as defined, and attained a certain age, as defined. In
addition, the plans require the subsidiaries to match from 25%
to 100% of voluntary employee contributions to the plans, not to
exceed a maximum amount of the employees annual salary,
ranging from 4% to 6%. Profit sharing expense for the years
ended December 31, 2010, 2009, and 2008 totaled $4,470,
$4,201, and $3,518, respectively.
|
|
Note 15
|
Equity
Incentive Plan
|
On May 1, 2004, the Company adopted the 2004 Equity
Incentive Plan (the Plan) under which the Company
may grant incentive awards in the form of restricted and
unrestricted common stock options to purchase shares of the
Companys common stock (Company Stock Options)
to certain directors, officers, employees and consultants of the
Company and its affiliates. A committee of the Companys
board of directors (the Committee), or the board
itself in the absence of a Committee, is authorized to make
grants and various other decisions under the Plan. Unless
otherwise determined by the Committee, any participant granted
an award under the Plan must become a party to, and agree to be
bound by, the Companys stockholders agreement.
Company Stock Options reserved under the Plan total 3,260.93 and
may include incentive and nonqualified stock options. Company
Stock Options are nontransferable (except under certain limited
circumstances) and, unless otherwise determined by the
Committee, vest over five years and have a term of ten years
from the date of grant.
The Company has three types of options rollover
options, time-based options, and performance-based options, each
of which is described below.
Rollover
Options
In 2004, the Companys CEO and its President exchanged
vested options in the predecessor company for 98.18 vested
options to purchase common shares at $2,500 per share (the
Rollover Options). These options had an intrinsic
value of $737 and a fair value of $880. Under
ASC 805-30-30-11
Goodwill or Gain from Bargain Purchase, Including
Consideration Transferred, vested options granted by the
acquiring company in
F-51
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exchange for outstanding options of the target company should be
considered part of the purchase transaction. The fair value is
accounted for as part of the purchase price of the target
company.
Since these options were vested immediately and can be exercised
upon death or disability of the executives and put back to the
Company, they are reflected as redeemable common securities on
the Companys consolidated balance sheet.
However, these options have an additional condition, whereby
they may be put back to the Company at fair market value upon
retirement. Because the terms of the Rollover Options could
extend beyond the retirement dates of these two executives, it
is possible that they could exercise these options within six
months of the specified retirement date and then put the
immature shares back to the Company at retirement less than six
months later. GAAP requires variable accounting for awards with
puts that can be exercised within six months of the issuance of
the shares.
Therefore, regardless of the probability of this occurrence,
changes in market value of the shares are expensed as additional
stock compensation because the put, even if not probable, is
within the control of the employee.
During 2008, a reduction in redeemable common stock caused by
the exercise of 37 of these options, net of the increase in
valuation of the remaining 61.18 options, resulted in a net
credit to pre-tax income of $210. During 2010, an increase in
the valuation of the 61.18 options resulted in a charge to
pre-tax income of $572. There was no charge to earnings for
these options in 2009 because the valuation did not change from
2008.
Time-based
options
In April 2005, the Company granted 722 time-based options
(TBOs) to key employees and its outside directors,
exercisable at a strike price of $10,000. The Company used a
minimum value method under SFAS No. 123, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, to
determine the fair value of the Company Stock Options granted in
April 2005, together with the following assumptions: dividend
yield of 0%, risk-free interest rate of 3.1%, forfeitures,
expected cancellation of 3%, and an expected life of four years.
The estimated fair value of the options granted in 2005 is
amortized on a straight line basis to compensation expense, net
of taxes, over the vesting period of four years. The Company
recorded compensation expense of approximately $140 and $201 in
general and administrative expenses during the years ended
December 31, 2009 and 2008, respectively. There is no
remaining stock compensation in future years related to these
options.
On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS)
No. 123(R) Share-Based Payment, which is a
revision of SFAS No. 123 Accounting for
Stock-Based Compensation as amended.
SFAS No. 123(R) establishes standards for the
accounting for transactions where an entity exchanges its equity
for goods or services and transactions that are based on the
fair value of the entitys equity instruments or that may
be settled by the issuance of those equity instruments.
SFAS No. 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in
share-based payment transactions. Generally, the fair value
approach in SFAS No. 123(R) is similar to the fair
value approach described in SFAS No. 123.
The Company adopted SFAS No. 123(R) using the
prospective method. Since the Companys common stock is not
publicly traded, the options granted in 2005 under
SFAS No. 123 continue to be expensed under the
provisions of SFAS No. 123 using a minimum value
method. Options issued subsequent to January 1, 2006 are
expensed under the provisions of SFAS No. 123(R).
F-52
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Since April 2004, the Company granted the following TBOs to key
eligible employees and outside directors:
|
|
|
|
|
Options Granted
|
|
Exercise Price per Share
|
|
|
722.00
|
|
$
|
10,000
|
|
489.50
|
|
|
12,000
|
|
187.00
|
|
|
14,250
|
|
20.00
|
|
|
17,500
|
|
122.00
|
|
|
20,750
|
|
5.00
|
|
|
22,340
|
|
95.00
|
|
|
28,350
|
|
57.00
|
|
|
27,700
|
|
In addition, in connection with the acquisition of Party
America, certain Party America employees elected to roll their
options to purchase Party America common stock into fully vested
TBOs. As a result, the Company issued 19.02 fully vested TBOs
exercisable at strike prices of $6,267 and $10,321 per share and
with a fair market value of $170. The fair value of these
options was recorded as part of the Party America purchase price.
The Company recorded compensation expense of $723, $736, and
$677 during the years ended December 31, 2010, 2009, and
2008 related to the options granted since 2006 under
SFAS No. 123(R), in general and administrative
expenses. The fair value of each grant is estimated on the grant
date using a Black-Scholes option valuation model based on the
assumptions in the following table.
|
|
|
|
|
Expected dividend rate
|
|
|
|
|
Risk free interest rate
|
|
|
1.76% to 5.08%
|
|
Price volatility
|
|
|
15.00
|
|
Weighted average expected life
|
|
|
7.5
|
|
Forfeiture rate
|
|
|
7.75
|
|
The weighted average expected life (estimated period of time
outstanding) was estimated using the Companys best
estimate for determining the expected term. Expected volatility
was based on implied historical volatility of an applicable Dow
Jones Industrial Average sector index for a period equal to the
stock options expected life. The remaining stock
compensation expense to be recorded in future years for these
options is $1,339 which is expected to be recognized over
3.4 years.
In addition, as noted in an earlier footnote, the Company made a
distribution to holders of all vested time options granted
before December, 2010, of $9,370, which was charged to
compensation expense. The remaining stock compensation expense
that would be recorded in future years if and when these time
options vest is $1,601.
Performance-based
options
In April 2005, the Company granted 760 performance based options
(PBOs) to key employees and its outside directors,
exercisable at a strike price of $10,000. Under the PBO feature,
the ability to exercise vested option awards is contingent upon
the occurrence of an initial public offering of the
Companys common stock or a change in control of the
Company and the achievement of specified investment returns to
the Companys shareholders. Since a change in control
condition cannot be assessed as probable before it occurs, in
accordance with
EITF 96-5,
Recognition of Liabilities for Contractual Termination
Benefits or Changing Benefit Plan Assumptions in Anticipation of
a Business Combination no compensation expense is recorded
in connection with the issuance of PBOs until an initial public
offering of the Companys common stock is
F-53
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completed or a change in control occurs and the achievement of
specified investment returns to the Companys shareholders.
At that time, holders of performance-based options granted
before December 2010 would receive a distribution of $9,400 per
vested option, which would be included in the recognition of
compensation expense if and when that occurs.
Since April 2005, the Company granted the following PBOs to key
eligible employees and outside directors:
|
|
|
|
|
Options Granted
|
|
Exercise Price per Share
|
|
|
760.00
|
|
$
|
10,000
|
|
893.50
|
|
|
12,000
|
|
314.00
|
|
|
14,250
|
|
30.00
|
|
|
17,500
|
|
147.00
|
|
|
20,750
|
|
185.00
|
|
|
22,340
|
|
116.00
|
|
|
28,350
|
|
99.00
|
|
|
27,700
|
|
During the third quarter of 2008, a new investor acquired 38% of
the outstanding stock held by existing shareholders as well as
37 rollover options, 258 time-based options, and 333
performance-based options held by option holders, at a price of
$28,350 per share.
Although this transaction did not result in a change in control,
the Companys majority shareholders decided to waive the
requirements of change in control, and permitted the time-vested
portion of the performance-based options to be exercisable.
Additionally, for both performance-based and time-based options,
employees were permitted to have their net shares exercised
settled for cash.
This waiver did not change the terms of the option plans for any
remaining options still outstanding, or obligate the Company to
permit any future waiver of the change in control requirement.
For the performance-based options that were exercised as a
result of the transaction noted above, the waiver of the change
in control requirement resulted in a vesting of these options.
Therefore, the performance condition for those exercised options
was met immediately upon exercise. Therefore, the effect of the
vesting and settlement was accounted for as stock compensation.
The fair value of the performance-based options at exercise
required to be charged to income is $5,639, of which $2,002 was
charged to income in prior years.
F-54
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes in outstanding
options under the Equity Incentive Plan for the years ended
December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average Fair
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Market
|
|
|
Aggregate
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
|
Value of Options at
|
|
|
Intrinsic
|
|
|
Term
|
|
|
|
Options
|
|
|
Price
|
|
|
Grant Date
|
|
|
Value
|
|
|
(Years)
|
|
|
Outstanding at December 31, 2007
|
|
|
3,399.14
|
|
|
$
|
11,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
305.90
|
|
|
|
24,617
|
|
|
$
|
5,736
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(627.90
|
)
|
|
|
14,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(144.54
|
)
|
|
|
10,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2,932.60
|
|
|
|
13,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
40.00
|
|
|
|
28,350
|
|
|
|
5,712
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7.70
|
)
|
|
|
11,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(31.87
|
)
|
|
|
12,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,933.03
|
|
|
|
13,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
327.00
|
|
|
|
28,035
|
|
|
|
7,399
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4.68
|
)
|
|
|
11,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(133.10
|
)
|
|
|
21,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
3,122.25
|
|
|
|
14,350
|
|
|
|
|
|
|
|
41,743
|
|
|
|
5.7
|
|
Exercisable at December 31, 2010
|
|
|
996.79
|
|
|
|
11,139
|
|
|
|
|
|
|
|
16,504
|
|
|
|
4.8
|
|
Expected to vest (excludes performance options)
|
|
|
233.41
|
|
|
|
22,929
|
|
|
|
|
|
|
|
1,166
|
|
|
|
8.1
|
|
The intrinsic value of options exercised was $81, $129 and
$11,056 for the years ended December 31, 2010, 2009 and
2008, respectively.
A summary of domestic and foreign income before income taxes and
minority interest follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Domestic
|
|
$
|
77,537
|
|
|
$
|
92,364
|
|
|
$
|
54,701
|
|
Foreign
|
|
|
4,841
|
|
|
|
8,060
|
|
|
|
9,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,378
|
|
|
$
|
100,424
|
|
|
$
|
63,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
34,752
|
|
|
$
|
22,643
|
|
|
$
|
24,515
|
|
State
|
|
|
5,281
|
|
|
|
3,930
|
|
|
|
4,817
|
|
Foreign
|
|
|
1,854
|
|
|
|
2,297
|
|
|
|
2,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
41,887
|
|
|
|
28,870
|
|
|
|
32,073
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(7,187
|
)
|
|
|
7,705
|
|
|
|
(6,627
|
)
|
State
|
|
|
(1,739
|
)
|
|
|
1,150
|
|
|
|
(1,139
|
)
|
Foreign
|
|
|
(16
|
)
|
|
|
(52
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred (benefit) provision
|
|
|
(8,942
|
)
|
|
|
8,803
|
|
|
|
(7,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
32,945
|
|
|
$
|
37,673
|
|
|
$
|
24,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
Deferred income tax assets and liabilities from domestic
jurisdictions consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred income tax assets:
|
|
|
|
|
|
|
|
|
Inventory valuation
|
|
$
|
17,246
|
|
|
$
|
16,186
|
|
Allowance for doubtful accounts
|
|
|
1,129
|
|
|
|
941
|
|
Accrued liabilities
|
|
|
11,637
|
|
|
|
10,733
|
|
Contribution carryforward
|
|
|
107
|
|
|
|
56
|
|
Tax loss carryforward
|
|
|
405
|
|
|
|
1,761
|
|
Tax credit carryforward
|
|
|
576
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
Current deferred income tax assets (included in prepaid expenses
and other current assets)
|
|
$
|
31,100
|
|
|
$
|
30,253
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax liabilities, net:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
12,194
|
|
|
$
|
11,631
|
|
Intangible assets
|
|
|
59,031
|
|
|
|
69,774
|
|
Amortization of goodwill and other assets
|
|
|
22,599
|
|
|
|
19,457
|
|
Other
|
|
|
1,157
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax liabilities, net
|
|
$
|
94,981
|
|
|
$
|
101,570
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the Company had a net operating loss
carryforward remaining from FCPO of approximately $1,217,
expiring in 2026. In addition, the Company had alternative
minimum tax credit carryforwards of $576, which do not expire.
F-56
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The difference between the Companys effective income tax
rate and the federal statutory income tax rate is reconciled
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Provision at federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax, net of federal income tax benefit
|
|
|
2.8
|
|
|
|
3.1
|
|
|
|
4.2
|
|
Warrant compensation charge not deductible
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Domestic manufacturing deductions
|
|
|
(3.0
|
)
|
|
|
(0.8
|
)
|
|
|
(1.3
|
)
|
Adjustments related to previous acquisitions
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.3
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
40.0
|
%
|
|
|
37.5
|
%
|
|
|
37.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010, the Company recorded certain adjustments related to
deferred tax accounts recorded during the current year related
to activities associated with previous acquisitions which
resulted in domestic tax expense of $2,905.
Other differences between the effective income tax rate and the
federal statutory income tax rate are composed of favorable
permanent differences related to inventory contributions and
favorable foreign rate differences, offset by the non-deductible
portion of meals and entertainment expenses.
The Company treats the Christys Group U.K. subsidiaries
for U.S. tax purposes as if they were foreign branches of
the U.S. entities so their earnings are not considered
permanently reinvested. The Company has determined that the
earnings of its subsidiary, Amscan Distributors (Canada) Ltd.
should not be considered permanently reinvested, and accordingly
has provided U.S. and additional foreign taxes on those
undistributed earnings. Since Canadian and U.S. tax rates
are similar, the effect of this decision was to decrease the
Companys 2010 tax provision by only $10.
At December 31, 2010 and 2009, the Companys share of
the cumulative undistributed earnings of its other foreign
subsidiaries was approximately $26,185 and $25,138,
respectively. No provision has been made for U.S. or
additional foreign taxes on the undistributed earnings of these
foreign subsidiaries, because such earnings are expected to be
reinvested indefinitely in the subsidiaries operations. It
is not practical to estimate the amount of additional tax that
might be payable on these foreign earnings in the event of
distribution or sale; however, under existing law, foreign tax
credits would be available to substantially reduce incremental
U.S. taxes payable on amounts repatriated.
The Company and its subsidiaries file a U.S. federal income
tax return, and over 100 state, city, and foreign tax
returns.
The following table summarizes the activity related to our gross
unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance as of January 1,
|
|
$
|
992
|
|
|
$
|
2,024
|
|
|
$
|
2,485
|
|
Increases related to current year tax positions
|
|
|
73
|
|
|
|
81
|
|
|
|
172
|
|
Increases related to prior year tax positions
|
|
|
505
|
|
|
|
|
|
|
|
|
|
Decrease related to settlements
|
|
|
(334
|
)
|
|
|
(822
|
)
|
|
|
|
|
Decreases related to lapsing of statutes of limitations
|
|
|
(405
|
)
|
|
|
(291
|
)
|
|
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
$
|
831
|
|
|
$
|
992
|
|
|
$
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our total net unrecognized tax benefits that, if recognized,
would impact our effective tax rate were $654, $1,032 and $1,787
as of December 31, 2010, 2009 and 2008, respectively.
Liabilities for unrecognized tax benefits are reflected in other
long-term liabilities in the consolidated balance sheet.
Included in the balance of unrecognized tax benefits at
December 31, 2009, is $341 related to tax positions for
which it is possible that the total amounts could significantly
change during the next twelve months.
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. The Company has
accrued $90 and $146 for the potential payment of interest and
penalties at December 31, 2010 and 2009, respectively. The
Company credited $56 in interest to income tax expense in 2010
and $119 in 2009.
For federal income tax purposes, the years 2008 through 2010 are
open to examination at December 31, 2010. For
non-U.S. income
tax purposes, tax years from 2006 through 2010 remain open.
Lastly, the Company is open to state and local income tax
examinations for the tax years 2006 through 2010.
|
|
Note 17
|
Commitments,
Contingencies and Related Party Transactions
|
Lease
Agreements
The Company has non-cancelable operating leases for its numerous
retail store sites as well as for its corporate offices, certain
distribution and manufacturing facilities, showrooms, and
warehouse equipment that expire on various dates through 2017.
These leases generally contain renewal options and require the
Company to pay real estate taxes, utilities and related
insurance.
At December 31, 2010, future minimum lease payments under
all operating leases consisted of the following:
|
|
|
|
|
|
|
Future Minimum
|
|
|
|
Operating Lease
|
|
|
|
Payments
|
|
|
2011
|
|
$
|
112,172
|
|
2012
|
|
|
95,026
|
|
2013
|
|
|
67,314
|
|
2014
|
|
|
45,510
|
|
2015
|
|
|
33,369
|
|
Thereafter
|
|
|
71,773
|
|
|
|
|
|
|
|
|
$
|
425,164
|
|
|
|
|
|
|
We are also an assignor with contingent lease liability for
seven stores sold to franchisees. The potential contingent lease
obligations continue until the applicable leases expire in 2014.
The maximum amount of the contingent lease obligations may vary,
but is limited to the sum of the total amount due under the
leases. At December 31, 2010, the maximum amount of the
contingent lease obligations was approximately $7,356 and is not
included in the table above as such amount is contingent upon
certain events occurring, which management has not assessed as
probable or estimable at this time.
The operating leases included in the above table also do not
include contingent rent based upon sales volume or other
variable costs such as maintenance, insurance and taxes.
Rent expense for the years ended December 31, 2010, 2009
and 2008, was $144,006, $136,785, and $142,471, respectively,
and include immaterial amounts of rent expense related to
contingent rent.
F-58
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Product
Royalty Agreements
The Company has entered into product royalty agreements with
various licensors of copyrighted and trademarked characters and
designs that are used on the Companys products which
require royalty payments based on sales of the Companys
products, and, in some cases, include annual minimum royalties.
At December 31, 2010, the Companys commitment to pay
future minimum product royalties was as follows:
|
|
|
|
|
|
|
Future Minimum
|
|
|
|
Royalty Payments
|
|
|
2011
|
|
$
|
8,271
|
|
2012
|
|
|
7,320
|
|
2013
|
|
|
1,724
|
|
2014
|
|
|
800
|
|
2015
|
|
|
550
|
|
Thereafter
|
|
|
1,100
|
|
|
|
|
|
|
|
|
$
|
19,765
|
|
|
|
|
|
|
Product royalty expense for the years ended December 31,
2010, 2009 and 2008, was $14,693, $8,615, and $8,455,
respectively.
The Company has entered into a product purchase agreement with a
vendor which requires the Company to purchase $9,000 of products
annually through 2015.
Legal
Proceedings
The Company is a party to certain claims and litigation in the
ordinary course of business. The Company does not believe any of
these proceedings will result, individually or in the aggregate,
in a material adverse effect upon its financial condition or
future results of operations.
Related
Party Transactions
Pursuant to the terms of a management agreement, Berkshire
Partners LLC and Weston Presidio were paid annual management
fees of $833 and $417, respectively, for each of the years ended
December 31, 2010, 2009 and 2008. Management fees payable
to Berkshire Partners LLC and Weston Presidio totaled $139 and
$69, respectively, at December 31, 2010, and 2009 and are
included in accrued expenses on the consolidated balance sheet.
Although the indenture governing the 8.75% senior
subordinated notes will permit the annual payments under the
management agreement, such payments will be restricted during an
event of default under the notes and will be subordinated in
right of payment to all obligations due with respect to the
notes in the event of a bankruptcy or similar proceeding of
Amscan.
|
|
Note 18
|
Segment
Information
|
Industry
Segments
The Company has two identifiable business segments. The
Wholesale segment includes the design, manufacture, contract for
manufacture and distribution of party goods, including paper and
plastic tableware, metallic balloons, accessories, novelties,
gifts and stationery, at wholesale. The Retail segment includes
the operation of company-owned specialty retail party goods and
social expressions supply stores in the United States, the sale
of franchises on an individual store and franchise area basis
throughout the United States and Puerto Rico and our e-commerce
operations through our PartyCity.com website.
F-59
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys industry segment data for the years ended
December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
769,247
|
|
|
$
|
1,108,785
|
|
|
$
|
1,878,032
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
19,417
|
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
769,247
|
|
|
|
1,128,202
|
|
|
|
1,897,449
|
|
Eliminations
|
|
|
(298,355
|
)
|
|
|
|
|
|
|
(298,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
470,892
|
|
|
$
|
1,128,202
|
|
|
$
|
1,599,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
85,636
|
|
|
$
|
41,800
|
|
|
$
|
127,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
40,850
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
82,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
18,979
|
|
|
$
|
30,439
|
|
|
$
|
49,418
|
|
Total assets
|
|
$
|
948,850
|
|
|
$
|
704,301
|
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
633,006
|
|
|
$
|
1,055,965
|
|
|
$
|
1,688,971
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
19,494
|
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
633,006
|
|
|
|
1,075,459
|
|
|
|
1,708,465
|
|
Eliminations
|
|
|
(221,647
|
)
|
|
|
|
|
|
|
(221,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
411,359
|
|
|
$
|
1,075,459
|
|
|
$
|
1,486,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
65,007
|
|
|
$
|
76,866
|
|
|
$
|
141,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
41,481
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
100,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
14,652
|
|
|
$
|
29,730
|
|
|
$
|
44,382
|
|
Total assets
|
|
$
|
747,262
|
|
|
$
|
733,239
|
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
653,403
|
|
|
$
|
1,099,136
|
|
|
$
|
1,752,539
|
|
Royalties and franchise fees
|
|
|
|
|
|
|
22,020
|
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
653,403
|
|
|
|
1,121,156
|
|
|
|
1,774,559
|
|
Eliminations
|
|
|
(214,898
|
)
|
|
|
|
|
|
|
(214,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
438,505
|
|
|
$
|
1,121,156
|
|
|
$
|
1,559,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
58,290
|
|
|
$
|
55,628
|
|
|
$
|
113,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
50,915
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
63,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
14,926
|
|
|
$
|
32,352
|
|
|
$
|
47,278
|
|
Total assets
|
|
$
|
702,938
|
|
|
$
|
805,039
|
|
|
$
|
1,507,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Segments
The Companys export sales, other than those intercompany
sales reported below as sales between geographic areas, are not
material. Intercompany sales between geographic areas consist of
sales of finished goods for distribution in foreign markets. No
single foreign operation is significant to the Companys
consolidated operations. Intercompany sales between geographic
areas are made at cost plus a share of operating profit.
The Companys geographic area data are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers
|
|
$
|
1,469,533
|
|
|
$
|
110,144
|
|
|
$
|
|
|
|
$
|
1,579,677
|
|
Net sales between geographic areas
|
|
|
23,570
|
|
|
|
|
|
|
|
(23,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,493,103
|
|
|
|
110,144
|
|
|
|
(23,570
|
)
|
|
|
1,579,677
|
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,512,520
|
|
|
$
|
110,144
|
|
|
$
|
(23,570
|
)
|
|
$
|
1,599,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
120,058
|
|
|
$
|
6,129
|
|
|
$
|
1,249
|
|
|
$
|
127,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,850
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
48,427
|
|
|
$
|
991
|
|
|
|
|
|
|
$
|
49,418
|
|
Total assets
|
|
$
|
1,645,154
|
|
|
$
|
108,646
|
|
|
$
|
(100,649
|
)
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers
|
|
$
|
1,371,611
|
|
|
$
|
95,713
|
|
|
$
|
|
|
|
$
|
1,467,324
|
|
Net sales between geographic areas
|
|
|
24,247
|
|
|
|
|
|
|
|
(24,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,395,858
|
|
|
|
95,713
|
|
|
|
(24,247
|
)
|
|
|
1,467,324
|
|
Royalties and franchise fees
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,415,352
|
|
|
$
|
95,713
|
|
|
$
|
(24,247
|
)
|
|
$
|
1,486,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
132,115
|
|
|
$
|
8,686
|
|
|
$
|
1,072
|
|
|
$
|
141,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,481
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
43,496
|
|
|
$
|
886
|
|
|
|
|
|
|
$
|
44,382
|
|
Total assets
|
|
$
|
1,478,493
|
|
|
$
|
82,890
|
|
|
$
|
(80,882
|
)
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to unaffiliated customers
|
|
$
|
1,454,145
|
|
|
$
|
83,496
|
|
|
$
|
|
|
|
$
|
1,537,641
|
|
Net sales between geographic areas
|
|
|
23,194
|
|
|
|
|
|
|
|
(23,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,477,339
|
|
|
|
83,496
|
|
|
|
(23,194
|
)
|
|
|
1,537,641
|
|
Royalties and franchise fees
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,499,359
|
|
|
$
|
83,496
|
|
|
$
|
(23,194
|
)
|
|
$
|
1,559,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
104,217
|
|
|
$
|
8,536
|
|
|
$
|
1,165
|
|
|
$
|
113,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,915
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
46,328
|
|
|
$
|
950
|
|
|
|
|
|
|
$
|
47,278
|
|
Total assets
|
|
$
|
1,508,310
|
|
|
$
|
49,319
|
|
|
$
|
(49,652
|
)
|
|
$
|
1,507,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19
|
Quarterly
Results (Unaudited)
|
Despite a concentration of holidays in the fourth quarter of the
year, as a result of our expansive product lines, wholesale
customer base and increased promotional activities, the impact
of seasonality on the quarterly results of our wholesale
operations in recent years has been limited. Promotional
activities, including special dating terms, particularly with
respect to Halloween and Christmas products sold at wholesale
during the third quarter, and the introduction of our new
everyday products and designs during the fourth quarter
generally result in higher accounts receivables and inventory
balances. Our retail operations are subject to substantial
seasonal variations. Historically, our retail operations have
realized a significant portion of their net sales, net
F-62
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income and cash flow in the fourth quarter of the year,
principally due to the sales in October for the Halloween season
and, to a lesser extent, due to sales for end of year holidays.
The following table sets forth our historical revenues, gross
profit, income from operations and net income, by quarter, for
the years ended December 31, 2010, 2009, and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
304,379
|
|
|
$
|
352,705
|
|
|
$
|
358,772
|
|
|
$
|
563,821
|
|
Royalties and franchise fees
|
|
|
3,844
|
|
|
|
4,453
|
|
|
|
4,035
|
|
|
|
7,085
|
|
Gross profit
|
|
|
104,479
|
|
|
|
141,840
|
|
|
|
132,437
|
|
|
|
257,863
|
|
Income from operations
|
|
|
8,288
|
|
|
|
35,367
|
|
|
|
17,963
|
|
|
|
65,818
|
(a)
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
|
(412
|
)
|
|
|
16,460
|
|
|
|
4,603
|
|
|
|
28,668
|
(a)
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
309,046
|
|
|
$
|
337,536
|
|
|
$
|
336,944
|
|
|
$
|
483,798
|
|
Royalties and franchise fees
|
|
|
3,694
|
|
|
|
4,536
|
|
|
|
4,164
|
|
|
|
7,100
|
|
Gross profit
|
|
|
103,629
|
|
|
|
128,425
|
|
|
|
121,453
|
|
|
|
214,776
|
|
Income from operations
|
|
|
12,201
|
|
|
|
27,818
|
|
|
|
14,937
|
|
|
|
86,917
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
2,403
|
|
|
|
10,952
|
|
|
|
3,079
|
|
|
|
46,119
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
325,032
|
|
|
$
|
365,174
|
|
|
$
|
356,231
|
|
|
$
|
491,204
|
|
Royalties and franchise fees
|
|
|
5,342
|
|
|
|
6,350
|
|
|
|
5,863
|
|
|
|
4,465
|
|
Gross profit
|
|
|
110,347
|
|
|
|
139,414
|
|
|
|
125,311
|
|
|
|
196,143
|
|
Income from operations
|
|
|
8,778
|
|
|
|
35,511
|
|
|
|
18,573
|
|
|
|
51,056
|
(a)
|
Net (loss) income attributable to Party City Holdings Inc.
|
|
|
(2,537
|
)
|
|
|
14,669
|
|
|
|
4,563
|
|
|
|
23,815
|
(a)
|
|
|
|
(a) |
|
During 2010 and 2008, the Company instituted programs to convert
its FCPO stores and its company-owned and franchised Party
America stores to Party City stores and recorded fourth quarter
charges of $27,400, and $17,376, respectively, for the
impairment of the Factory Card & Party Outlet and
Party America trade names. |
|
|
Note 20
|
Fair
Value Measurements
|
The provisions of Accounting Standards Codification or ASC,
Subtopic 820 defines 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 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.
F-63
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The following table shows assets and liabilities as of
December 31, 2010 that are measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total as of
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Inputs
|
|
|
Inputs
|
|
|
December 31,
|
|
|
|
|
|
|
Liabilities (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
$
|
241
|
|
|
|
|
|
|
$
|
241
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
(2,288
|
)
|
|
|
|
|
|
|
(2,288
|
)
|
|
|
|
|
The following table shows assets and liabilities as of
December 31, 2009 that are measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total as of
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Inputs
|
|
|
Inputs
|
|
|
December 31,
|
|
|
|
|
|
|
Liabilities (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
$
|
(6,582
|
)
|
|
|
|
|
|
$
|
(6,582
|
)
|
|
|
|
|
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, the Company is required to record
other assets and liabilities at fair value on a nonrecurring
basis, generally as a result of impairment charges.
The carrying amounts for cash and cash equivalents, accounts
receivables, prepaid expenses and other current assets, accounts
payable, accrued expenses and other current liabilities
approximate fair value at December 31, 2010 and
December 31, 2009 because of the short-term maturity of
those instruments or their variable rates of interest.
The carrying amount and fair value (based on market prices) of
the term loans and the senior subordinated notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Term Loans
|
|
$
|
666,644
|
|
|
$
|
674,060
|
|
|
$
|
364,688
|
|
|
$
|
331,866
|
|
Senior Subordinated Notes
|
|
|
175,000
|
|
|
|
176,750
|
|
|
|
175,000
|
|
|
|
166,250
|
|
The carrying amounts for other long-term debt approximate fair
value at December 31, 2010 and 2009, based on the
discounted future cash flow of each instrument at rates
currently offered for similar debt instruments of comparable
maturity.
|
|
Note 21
|
Derivative
Financial Instruments
|
Interest
Rate Risk Management
As part of the Companys risk management strategy, the
Company periodically uses interest rate swap agreements to hedge
the variability of cash flows on floating rate debt obligations
(see Notes 7 and 8).
F-64
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accordingly, interest rate swap agreements are reflected in the
consolidated balance sheets at fair value and the related gains
and losses on these contracts are deferred in stockholders
equity and recognized in interest expense over the same period
in which the related interest payments being hedged are
recognized in income. The fair value of an interest rate swap
agreement is the estimated amount that the counterparty would
receive or pay to terminate the swap agreement at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparty.
To effectively fix the interest rate on a portion of its term
loans (see Note 8), the Company entered into an interest
rate swap agreement with a financial institution in 2006, for an
aggregate notional amount of $57,000, which expired in February
2009.
In 2008, the Company entered into a second interest rate swap
agreement with a financial institution for an initial aggregate
notional amount of $118,505, which increased to a maximum of
$163,441 during its term and expired in March 2011.
The swap agreements had unrealized net losses of $1,414 and
$3,977 at December 31, 2010 and 2009, respectively, which
were included in accumulated other comprehensive loss (see
Note 22). No components of these agreements are excluded in
the measurement of hedge effectiveness. As these hedges are 100%
effective, there is no current impact on earnings due to hedge
ineffectiveness. The Company anticipates that substantially all
gains and losses in accumulated other comprehensive loss related
to these swap agreements will be reclassified into earnings by
December 2011. The fair value of interest rate contracts at
December 31, 2010 and 2009 of $(2,244) and $(6,313) are
reported in current liabilities in the consolidated balance
sheet.
Foreign
Exchange Risk Management
A portion of the Companys cash flows is derived from
transactions denominated in foreign currencies. The United
States dollar value of transactions denominated in foreign
currencies fluctuates as the United States dollar strengthens or
weakens relative to these foreign currencies. In order to reduce
the uncertainty of foreign exchange rate movements on
transactions denominated in foreign currencies, including the
British Pound Sterling and the Euro, 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 inter-company inventory
purchases and trade receivables. No components of the contracts
are excluded in the measurement of hedge effectiveness. The
critical terms of the foreign exchange contracts are the same as
the underlying forecasted transactions; therefore, changes in
the fair value of foreign exchange contracts should be highly
effective in offsetting changes in the expected cash flows from
the forecasted transactions.
At December 31, 2010 and 2009, the Company had foreign
currency exchange contracts with notional amounts of $13,468,
and $19,200, respectively. The foreign currency exchange
contracts are reflected in the consolidated balance sheets at
fair value. The fair value of the foreign currency exchange
contracts is the estimated amount that the counterparties would
receive or pay to terminate the foreign currency exchange
contracts at the reporting date, taking into account current
foreign exchange spot rates. The fair value adjustment at
December 31, 2010 and 2009 resulted in an unrealized net
gain (loss) of $124, and $(169), respectively, which are
included in accumulated other comprehensive loss (see
Note 22). No components of these agreements are excluded in
the measurement of hedge effectiveness. As these hedges are 100%
effective, there is no current impact on earnings due to hedge
ineffectiveness. The Company anticipates that substantially all
gains and losses in accumulated other comprehensive loss related
to these foreign exchange contracts will be reclassified into
earnings by December 2011. The fair value of foreign exchange
contracts for the years ended December 31, 2010 and 2009 of
$197 and $(269) are reported in accrued expenses and other
current assets in the consolidated balance sheets, respectively.
F-65
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
|
|
|
|
|
|
|
|
Line
|
|
Value
|
|
|
Line
|
|
|
Value
|
|
|
Line
|
|
Value
|
|
|
Line
|
|
Value
|
|
Derivative
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Instrument
|
|
2010
|
|
|
2009
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest Rate Hedge
|
|
$
|
135,374
|
|
|
$
|
163,441
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
(b) AE
|
|
$
|
(2,244
|
)
|
|
(b) AE
|
|
$
|
(6,313
|
)
|
Foreign Exchange Contracts
|
|
|
13,468
|
|
|
|
19,200
|
|
|
(a) PP
|
|
|
241
|
|
|
|
|
|
|
$
|
|
|
|
(a) AE
|
|
|
(44
|
)
|
|
(a) AE
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hedges
|
|
$
|
148,842
|
|
|
$
|
182,641
|
|
|
|
|
$
|
241
|
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
(2,288
|
)
|
|
|
|
$
|
(6,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
PP = Prepaid expenses and other current assets |
|
(b) |
|
AE = Accrued expenses |
|
|
Note 22
|
Comprehensive
Income
|
Comprehensive income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
49,319
|
|
|
$
|
62,553
|
|
|
$
|
40,510
|
|
Net change in cumulative translation adjustment
|
|
|
(376
|
)
|
|
|
4,007
|
|
|
|
(11,338
|
)
|
Change in fair value of interest rate swap contracts, net of
income taxes of $1,505, $773, and $(2,851)
|
|
|
2,563
|
|
|
|
1,317
|
|
|
|
(4,855
|
)
|
Change in fair value of foreign exchange contracts, net of
income tax (benefit) expense of $172, $(1,097), and $1,169
|
|
|
293
|
|
|
|
(1,867
|
)
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Party City Holdings
Inc.
|
|
$
|
51,799
|
|
|
$
|
66,010
|
|
|
$
|
26,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cumulative translation adjustment
|
|
$
|
(4,625
|
)
|
|
$
|
(4,249
|
)
|
Interest rate swap contracts, net of income tax benefit of
$(830) and $(2,336)
|
|
|
(1,414
|
)
|
|
|
(3,977
|
)
|
Foreign exchange contracts, net of income tax expense (benefit)
of $73 and $(100)
|
|
|
124
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
(5,915
|
)
|
|
$
|
(8,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 23
|
Subsequent
Events
|
On January 30, 2011, the Company acquired the common stock
of Riethmüller GmbH (Riethmüller) for
$47,069, in a transaction accounted for as a purchase business
combination. Riethmüller is a German distributor of party
goods and carnival items with latex balloon manufacturing
operations in Malaysia and the ability to manufacture certain
party goods in Poland. The acquisition expands the
Companys vertical business model into the latex balloon
category and gives the Company an additional significant
presence in Germany, Poland and Malaysia. The Company is still
in the process of accumulating information to complete the
determination of the fair value of certain acquired assets.
|
|
Note 24
|
Condensed
Consolidating Financial Information
|
Amscan Holdings is the issuer of the senior subordinated notes.
The Company is neither an issuer nor a guarantor of the senior
subordinated notes. The Company directly owns 100% of Amscan
Holdings and Amscan Holdings comprises 100% of the
Companys operations. The senior subordinated notes are
guaranteed
F-66
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
jointly and severally, fully and unconditionally, by the
following domestic subsidiaries (collectively, the
Guarantors) of which subsidiaries are 100% owned,
directly or indirectly, by Amscan Holdings:
|
|
|
|
|
Amscan Inc.
|
|
|
|
Am-Source, LLC
|
|
|
|
Anagram Eden Prairie Property Holdings LLC
|
|
|
|
Anagram International, Inc.
|
|
|
|
Anagram International Holdings, Inc.
|
|
|
|
Anagram International, LLC
|
|
|
|
Gags & Games, Inc.
|
|
|
|
JCS Packaging Inc.
|
|
|
|
M&D Industries, Inc.
|
|
|
|
Party City Corporation
|
|
|
|
PA Acquisition Corporation
|
|
|
|
SSY Realty Corp.
|
|
|
|
Party City Franchise Group Holdings, LLC (PCFG)
|
|
|
|
Trisar, Inc.
|
Non-guarantor subsidiaries (collectively, the
Non-guarantors) include the following:
|
|
|
|
|
Amscan Distributors (Canada) Ltd.
|
|
|
|
Amscan Holdings Limited
|
|
|
|
Amscan (Asia-Pacific) Pty. Ltd.
|
|
|
|
Amscan de Mexico, S.A. de C.V.
|
|
|
|
Anagram International (Japan) Co., Ltd.
|
|
|
|
Christys Asia, Ltd.
|
|
|
|
Christys By Design, Ltd.
|
|
|
|
Christys Dress Up, Ltd.
|
|
|
|
Christys Garments & Accessories Ltd.
|
|
|
|
JCS Hong Kong Ltd.
|
The following unaudited information presents condensed
consolidating balance sheets at December 31, 2010 and
December 31, 2009, Condensed Consolidating Statements of
Operations for the years ended December 31, 2010, 2009 and
2008, and the related Condensed Consolidating Statements of cash
flows for the years ended December 31, 2010, 2009 and 2008,
for the Combined Guarantors and the Combined Non-Guarantors,
together with the elimination entries necessary to consolidate
the entities comprising the combined companies.
Certain amounts in the condensed consolidating balance sheet at
December 31, 2009 have been reclassified between the
combined Non-Guarantors and the Eliminations. These
reclassifications have no effect on the balance sheet amounts
for the Combined Guarantors or the consolidated amounts.
As a result of the repayment of PCFGs debt during the
third quarter of 2010, PCFG became a Guarantor and is included
under AHI and Combined Guarantors in the Consolidating Financial
Statements for the year ended December 31, 2010. For the
prior periods presented PCFG was reflected under Combined
Non-Guarantors.
F-67
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
BALANCE SHEET
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,198
|
|
|
$
|
6,256
|
|
|
$
|
|
|
|
$
|
20,454
|
|
Accounts receivable , net
|
|
|
76,699
|
|
|
|
30,632
|
|
|
|
|
|
|
|
107,331
|
|
Inventories, net
|
|
|
405,452
|
|
|
|
19,883
|
|
|
|
(1,018
|
)
|
|
|
424,317
|
|
Prepaid expenses and other current assets
|
|
|
61,211
|
|
|
|
4,461
|
|
|
|
|
|
|
|
65,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
557,560
|
|
|
|
61,232
|
|
|
|
(1,018
|
)
|
|
|
617,774
|
|
Property, plant and equipment, net
|
|
|
187,574
|
|
|
|
3,155
|
|
|
|
|
|
|
|
190,729
|
|
Goodwill
|
|
|
600,014
|
|
|
|
30,478
|
|
|
|
|
|
|
|
630,492
|
|
Trade names
|
|
|
129,954
|
|
|
|
|
|
|
|
|
|
|
|
129,954
|
|
Other intangible assets, net
|
|
|
55,362
|
|
|
|
|
|
|
|
|
|
|
|
55,362
|
|
Investment in and advances to unconsolidated subsidiaries
|
|
|
64,485
|
|
|
|
|
|
|
|
(64,485
|
)
|
|
|
|
|
Due from affiliates
|
|
|
22,148
|
|
|
|
12,998
|
|
|
|
(35,146
|
)
|
|
|
|
|
Other assets, net
|
|
|
28,057
|
|
|
|
783
|
|
|
|
|
|
|
|
28,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,645,154
|
|
|
$
|
108,646
|
|
|
$
|
(100,649
|
)
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
|
150,098
|
|
|
|
|
|
|
|
|
|
|
|
150,098
|
|
Accounts payable
|
|
|
97,510
|
|
|
|
10,662
|
|
|
|
|
|
|
|
108,172
|
|
Accrued expenses
|
|
|
102,749
|
|
|
|
8,305
|
|
|
|
|
|
|
|
111,054
|
|
Income taxes payable
|
|
|
35,706
|
|
|
|
(1,355
|
)
|
|
|
(26
|
)
|
|
|
34,325
|
|
Due to affiliates
|
|
|
11,593
|
|
|
|
23,553
|
|
|
|
(35,146
|
)
|
|
|
|
|
Redeemable warrants
|
|
|
15,086
|
|
|
|
|
|
|
|
|
|
|
|
15,086
|
|
Current portion of long-term obligations
|
|
|
9,005
|
|
|
|
41
|
|
|
|
|
|
|
|
9,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
421,747
|
|
|
|
41,206
|
|
|
|
(35,172
|
)
|
|
|
427,781
|
|
Long-term obligations, excluding current portion
|
|
|
841,023
|
|
|
|
89
|
|
|
|
|
|
|
|
841,112
|
|
Deferred income tax liabilities
|
|
|
94,427
|
|
|
|
554
|
|
|
|
|
|
|
|
94,981
|
|
Other
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,371,963
|
|
|
|
41,849
|
|
|
|
(35,172
|
)
|
|
|
1,378,640
|
|
Redeemable common securities
|
|
|
18,089
|
|
|
|
|
|
|
|
|
|
|
|
18,089
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B Common Stock
|
|
|
|
|
|
|
336
|
|
|
|
(336
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
287,583
|
|
|
|
31,025
|
|
|
|
(31,025
|
)
|
|
|
287,583
|
|
Retained (deficit)earnings
|
|
|
(26,566
|
)
|
|
|
37,535
|
|
|
|
(38,527
|
)
|
|
|
(27,558
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(5,915
|
)
|
|
|
(4,411
|
)
|
|
|
4,411
|
|
|
|
(5,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Party City Holdings Inc. stockholders equity
|
|
|
255,102
|
|
|
|
64,485
|
|
|
|
(65,477
|
)
|
|
|
254,110
|
|
Noncontrolling interests
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
255,102
|
|
|
|
66,797
|
|
|
|
(65,477
|
)
|
|
|
256,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,645,154
|
|
|
$
|
108,646
|
|
|
$
|
(100,649
|
)
|
|
$
|
1,653,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
BALANCE SHEET
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,240
|
|
|
|
7,180
|
|
|
|
|
|
|
|
15,420
|
|
Accounts receivable, net of allowances
|
|
|
60,655
|
|
|
|
22,126
|
|
|
|
|
|
|
|
82,781
|
|
Inventories, net of allowances
|
|
|
295,004
|
|
|
|
41,893
|
|
|
|
(947
|
)
|
|
|
335,950
|
|
Prepaid expenses and other current assets
|
|
|
52,706
|
|
|
|
6,013
|
|
|
|
|
|
|
|
58,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
416,605
|
|
|
|
77,212
|
|
|
|
(947
|
)
|
|
|
492,870
|
|
Property, plant and equipment, net
|
|
|
163,999
|
|
|
|
10,995
|
|
|
|
|
|
|
|
174,994
|
|
Goodwill
|
|
|
521,222
|
|
|
|
38,039
|
|
|
|
|
|
|
|
559,261
|
|
Trade names
|
|
|
157,283
|
|
|
|
|
|
|
|
|
|
|
|
157,283
|
|
Other intangible assets, net
|
|
|
29,948
|
|
|
|
24,721
|
|
|
|
|
|
|
|
54,669
|
|
Other assets, net
|
|
|
160,401
|
|
|
|
7,033
|
|
|
|
(126,010
|
)
|
|
|
41,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,449,458
|
|
|
$
|
158,000
|
|
|
$
|
(126,957
|
)
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable
|
|
$
|
76,990
|
|
|
$
|
645
|
|
|
$
|
|
|
|
$
|
77,635
|
|
Accounts payable
|
|
|
67,235
|
|
|
|
9,666
|
|
|
|
|
|
|
|
76,901
|
|
Accrued expenses
|
|
|
83,430
|
|
|
|
10,250
|
|
|
|
|
|
|
|
93,680
|
|
Income taxes payable
|
|
|
32,969
|
|
|
|
(817
|
)
|
|
|
(91
|
)
|
|
|
32,061
|
|
Redeemable warrants
|
|
|
15,444
|
|
|
|
|
|
|
|
|
|
|
|
15,444
|
|
Current portion of long-term obligations
|
|
|
28,406
|
|
|
|
6,500
|
|
|
|
|
|
|
|
34,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
304,474
|
|
|
|
26,244
|
|
|
|
(91
|
)
|
|
|
330,627
|
|
Long-term obligations, excluding current portion
|
|
|
522,392
|
|
|
|
16,500
|
|
|
|
|
|
|
|
538,892
|
|
Deferred income tax liabilities
|
|
|
101,000
|
|
|
|
570
|
|
|
|
|
|
|
|
101,570
|
|
Other
|
|
|
20,288
|
|
|
|
71,569
|
|
|
|
(79,956
|
)
|
|
|
11,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
948,154
|
|
|
|
114,883
|
|
|
|
(80,047
|
)
|
|
|
982,990
|
|
Redeemable common securities
|
|
|
18,389
|
|
|
|
|
|
|
|
|
|
|
|
18,389
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B Common Stock
|
|
|
|
|
|
|
339
|
|
|
|
(339
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
335,731
|
|
|
|
46,167
|
|
|
|
(46,075
|
)
|
|
|
335,823
|
|
Retained earnings
|
|
|
155,579
|
|
|
|
(5,476
|
)
|
|
|
(546
|
)
|
|
|
149,557
|
|
Accumulated other comprehensive loss
|
|
|
(8,395
|
)
|
|
|
(50
|
)
|
|
|
50
|
|
|
|
(8,395
|
)
|
Party City Holdings Inc. stockholders equity
|
|
|
482,915
|
|
|
|
40,980
|
|
|
|
(46,910
|
)
|
|
|
476,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
2,137
|
|
|
|
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
482,915
|
|
|
|
43,117
|
|
|
|
(46,910
|
)
|
|
|
479,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common securities and
stockholders equity
|
|
$
|
1,449,458
|
|
|
$
|
158,000
|
|
|
$
|
(126,957
|
)
|
|
$
|
1,480,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF INCOME
For The Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,493,103
|
|
|
$
|
110,144
|
|
|
$
|
(23,570
|
)
|
|
$
|
1,579,677
|
|
Royalties and franchise fees
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
19,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,512,520
|
|
|
|
110,144
|
|
|
|
(23,570
|
)
|
|
|
1,599,094
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
884,957
|
|
|
|
81,600
|
|
|
|
(23,499
|
)
|
|
|
943,058
|
|
Wholesale selling expenses
|
|
|
31,379
|
|
|
|
11,346
|
|
|
|
|
|
|
|
42,725
|
|
Retail operating expenses
|
|
|
296,891
|
|
|
|
|
|
|
|
|
|
|
|
296,891
|
|
Franchise expenses
|
|
|
12,269
|
|
|
|
|
|
|
|
|
|
|
|
12,269
|
|
General and administrative expenses
|
|
|
124,542
|
|
|
|
11,170
|
|
|
|
(1,320
|
)
|
|
|
134,392
|
|
Art and development costs
|
|
|
15,024
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
14,923
|
|
Impairment of trade name
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,392,462
|
|
|
|
104,015
|
|
|
|
(24,819
|
)
|
|
|
1,471,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
120,058
|
|
|
|
6,129
|
|
|
|
1,249
|
|
|
|
127,436
|
|
Interest expense, net
|
|
|
40,791
|
|
|
|
59
|
|
|
|
|
|
|
|
40,850
|
|
Other (income) expense, net
|
|
|
(1,312
|
)
|
|
|
1,159
|
|
|
|
4,361
|
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
80,579
|
|
|
|
4,911
|
|
|
|
(3,112
|
)
|
|
|
82,378
|
|
Income tax expense
|
|
|
31,215
|
|
|
|
1,756
|
|
|
|
(26
|
)
|
|
|
32,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,364
|
|
|
$
|
3,155
|
|
|
$
|
(3,086
|
)
|
|
$
|
49,433
|
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
49,364
|
|
|
$
|
3,041
|
|
|
$
|
(3,086
|
)
|
|
$
|
49,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-70
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF INCOME
For The Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,291,848
|
|
|
$
|
199,723
|
|
|
$
|
(24,247
|
)
|
|
$
|
1,467,324
|
|
Royalties and franchise fees
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,311,342
|
|
|
|
199,723
|
|
|
|
(24,247
|
)
|
|
|
1,486,818
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
794,363
|
|
|
|
128,677
|
|
|
|
(23,999
|
)
|
|
|
899,041
|
|
Wholesale selling expenses
|
|
|
29,580
|
|
|
|
10,206
|
|
|
|
|
|
|
|
39,786
|
|
Retail operating expenses
|
|
|
226,159
|
|
|
|
35,532
|
|
|
|
|
|
|
|
261,691
|
|
Franchise expenses
|
|
|
11,991
|
|
|
|
|
|
|
|
|
|
|
|
11,991
|
|
General and administrative expenses
|
|
|
104,072
|
|
|
|
16,441
|
|
|
|
(1,320
|
)
|
|
|
119,193
|
|
Art and development costs
|
|
|
13,324
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
13,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,179,489
|
|
|
|
190,775
|
|
|
|
(25,319
|
)
|
|
|
1,344,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
131,853
|
|
|
|
8,948
|
|
|
|
1,072
|
|
|
|
141,873
|
|
Interest expense, net
|
|
|
38,785
|
|
|
|
2,696
|
|
|
|
|
|
|
|
41,481
|
|
Other (income) expense, net
|
|
|
(7,818
|
)
|
|
|
1,346
|
|
|
|
6,440
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
100,886
|
|
|
|
4,906
|
|
|
|
(5,368
|
)
|
|
|
100,424
|
|
Income tax expense
|
|
|
36,631
|
|
|
|
1,133
|
|
|
|
(91
|
)
|
|
|
37,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
64,255
|
|
|
|
3,773
|
|
|
|
(5,277
|
)
|
|
|
62,751
|
|
Less net income attributable to noncontrolling interests
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
64,255
|
|
|
$
|
3,575
|
|
|
$
|
(5,277
|
)
|
|
$
|
62,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF INCOME
For Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Combined Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,359,780
|
|
|
$
|
201,055
|
|
|
$
|
(23,194
|
)
|
|
$
|
1,537,641
|
|
Royalties and franchise fees
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,381,800
|
|
|
|
201,055
|
|
|
|
(23,194
|
)
|
|
|
1,559,661
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
861,368
|
|
|
|
128,097
|
|
|
|
(23,039
|
)
|
|
|
966,426
|
|
Wholesale selling expenses
|
|
|
32,172
|
|
|
|
9,722
|
|
|
|
|
|
|
|
41,894
|
|
Retail operating expenses
|
|
|
233,348
|
|
|
|
40,279
|
|
|
|
|
|
|
|
273,627
|
|
Franchise expenses
|
|
|
13,686
|
|
|
|
|
|
|
|
|
|
|
|
13,686
|
|
General and administrative expenses
|
|
|
104,445
|
|
|
|
17,147
|
|
|
|
(1,320
|
)
|
|
|
120,272
|
|
Art and development costs
|
|
|
12,462
|
|
|
|
|
|
|
|
|
|
|
|
12,462
|
|
Impairment of trade name
|
|
|
17,376
|
|
|
|
|
|
|
|
|
|
|
|
17,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,274,857
|
|
|
|
195,245
|
|
|
|
(24,359
|
)
|
|
|
1,445,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
106,943
|
|
|
|
5,810
|
|
|
|
1,165
|
|
|
|
113,918
|
|
Interest expense, net
|
|
|
48,130
|
|
|
|
2,785
|
|
|
|
|
|
|
|
50,915
|
|
Other income, net
|
|
|
(7,526
|
)
|
|
|
(552
|
)
|
|
|
7,260
|
|
|
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
66,339
|
|
|
|
3,577
|
|
|
|
(6,095
|
)
|
|
|
63,821
|
|
Income tax expense
|
|
|
21,900
|
|
|
|
2,345
|
|
|
|
(57
|
)
|
|
|
24,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
44,439
|
|
|
|
1,232
|
|
|
|
(6,038
|
)
|
|
|
39,633
|
|
Less net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
$
|
44,439
|
|
|
$
|
2,109
|
|
|
$
|
(6,038
|
)
|
|
$
|
40,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-72
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,364
|
|
|
$
|
3,155
|
|
|
$
|
(3,086
|
)
|
|
$
|
49,433
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
49,364
|
|
|
|
3,041
|
|
|
|
(3,086
|
)
|
|
|
49,319
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
48,427
|
|
|
|
991
|
|
|
|
|
|
|
|
49,418
|
|
Amortization of deferred financing costs
|
|
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
2,475
|
|
Provision for doubtful accounts
|
|
|
695
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
637
|
|
Deferred income tax expense
|
|
|
(8,942
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,942
|
)
|
Deferred rent
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
Undistributed gain in unconsolidated joint venture
|
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
|
(678
|
)
|
Impairment of trade name
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
27,400
|
|
Impairment of fixed assets
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
597
|
|
Loss (gain) on disposal of equipment
|
|
|
206
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
191
|
|
Equity based compensation
|
|
|
6,018
|
|
|
|
|
|
|
|
|
|
|
|
6,018
|
|
Write-off of deferred financing costs
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
2,448
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(14,428
|
)
|
|
|
7,921
|
|
|
|
|
|
|
|
(6,507
|
)
|
Increase in inventories
|
|
|
(84,538
|
)
|
|
|
(1,300
|
)
|
|
|
71
|
|
|
|
(85,767
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(21,711
|
)
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
(22,993
|
)
|
Increase (decrease) in accounts payable, accrued expenses and
income taxes payable
|
|
|
44,254
|
|
|
|
(4,217
|
)
|
|
|
3,015
|
|
|
|
43,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
56,087
|
|
|
|
5,081
|
|
|
|
|
|
|
|
61,168
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions
|
|
|
(53,350
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(53,348
|
)
|
Capital expenditures
|
|
|
(48,558
|
)
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
(49,623
|
)
|
Proceeds from disposal of property and equipment
|
|
|
159
|
|
|
|
46
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(101,749
|
)
|
|
|
(1,017
|
)
|
|
|
|
|
|
|
(102,766
|
)
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of loans, notes payable and long-term obligations
|
|
|
(393,259
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
(393,289
|
)
|
Proceeds from loans, notes payable and long-term obligations
|
|
|
742,112
|
|
|
|
41
|
|
|
|
|
|
|
|
742,153
|
|
Dividend distribution
|
|
|
(301,829
|
)
|
|
|
|
|
|
|
|
|
|
|
(301,829
|
)
|
Payments related to redeemable common stock and rollover options
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
(572
|
)
|
Proceeds from issuance of common stock and exercise of options,
net of retirements
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
46,504
|
|
|
|
11
|
|
|
|
|
|
|
|
46,515
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(243
|
)
|
|
|
360
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
599
|
|
|
|
4,435
|
|
|
|
|
|
|
|
5,034
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,599
|
|
|
|
1,821
|
|
|
|
|
|
|
|
15,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,198
|
|
|
$
|
6,256
|
|
|
$
|
|
|
|
$
|
20,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-73
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,255
|
|
|
|
3,773
|
|
|
$
|
(5,277
|
)
|
|
$
|
62,751
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
64,255
|
|
|
|
3,575
|
|
|
|
(5,277
|
)
|
|
|
62,553
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
39,885
|
|
|
|
4,497
|
|
|
|
|
|
|
|
44,382
|
|
Amortization of deferred financing costs
|
|
|
1,888
|
|
|
|
275
|
|
|
|
|
|
|
|
2,163
|
|
Provision for doubtful accounts
|
|
|
2,444
|
|
|
|
1,538
|
|
|
|
|
|
|
|
3,982
|
|
Deferred income tax expense
|
|
|
8,803
|
|
|
|
|
|
|
|
|
|
|
|
8,803
|
|
Deferred rent
|
|
|
977
|
|
|
|
786
|
|
|
|
|
|
|
|
1,763
|
|
Undistributed gain in unconsolidated joint venture
|
|
|
(632
|
)
|
|
|
|
|
|
|
|
|
|
|
(632
|
)
|
Loss on disposal of equipment
|
|
|
61
|
|
|
|
217
|
|
|
|
|
|
|
|
278
|
|
Equity based compensation
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
876
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
11,498
|
|
|
|
(5,161
|
)
|
|
|
|
|
|
|
6,337
|
|
Decrease (increase) in inventories
|
|
|
35,824
|
|
|
|
(5,139
|
)
|
|
|
248
|
|
|
|
30,933
|
|
Increase in prepaid expenses and other assets
|
|
|
(20,408
|
)
|
|
|
(765
|
)
|
|
|
|
|
|
|
(21,173
|
)
|
(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
|
|
|
(30,528
|
)
|
|
|
9,176
|
|
|
|
5,029
|
|
|
|
(16,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
114,943
|
|
|
|
8,999
|
|
|
|
|
|
|
|
123,942
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions
|
|
|
(726
|
)
|
|
|
(2,652
|
)
|
|
|
|
|
|
|
(3,378
|
)
|
Cash in escrow in connection with acquisitions
|
|
|
(24,881
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,881
|
)
|
Capital expenditures
|
|
|
(23,860
|
)
|
|
|
(2,335
|
)
|
|
|
|
|
|
|
(26,195
|
)
|
Proceeds from disposal of property and equipment
|
|
|
77
|
|
|
|
19
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(49,390
|
)
|
|
|
(4,968
|
)
|
|
|
|
|
|
|
(54,358
|
)
|
Cash flows used in financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of loans, notes payable and long-term obligations
|
|
|
(66,392
|
)
|
|
|
(3,855
|
)
|
|
|
|
|
|
|
(70,247
|
)
|
Proceeds from issuance of common stock and exercise of options,
net of retirements
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(66,302
|
)
|
|
|
(3,855
|
)
|
|
|
|
|
|
|
(70,157
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
488
|
|
|
|
2,447
|
|
|
|
|
|
|
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(261
|
)
|
|
|
2,623
|
|
|
|
|
|
|
|
2,362
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,501
|
|
|
|
4,557
|
|
|
|
|
|
|
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,240
|
|
|
$
|
7,180
|
|
|
$
|
|
|
|
$
|
15,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-74
PARTY
CITY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
STATEMENT OF CASH FLOWS
For Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amscan Holdings,
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Inc. and Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
44,439
|
|
|
$
|
1,232
|
|
|
$
|
(6,038
|
)
|
|
$
|
39,633
|
|
Less: net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Party City Holdings Inc.
|
|
|
44,439
|
|
|
|
2,109
|
|
|
|
(6,038
|
)
|
|
|
40,510
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
42,406
|
|
|
|
4,872
|
|
|
|
|
|
|
|
47,278
|
|
Amortization of deferred financing costs
|
|
|
1,956
|
|
|
|
265
|
|
|
|
|
|
|
|
2,221
|
|
Provision for doubtful accounts
|
|
|
945
|
|
|
|
147
|
|
|
|
|
|
|
|
1,092
|
|
Deferred income tax benefit
|
|
|
(7,885
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,885
|
)
|
Deferred rent
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
1,202
|
|
Undistributed gain in unconsolidated joint venture
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
|
(538
|
)
|
Impairment of trade name
|
|
|
17,376
|
|
|
|
|
|
|
|
|
|
|
|
17,376
|
|
(Gain) loss on disposal of equipment
|
|
|
(1,198
|
)
|
|
|
3
|
|
|
|
|
|
|
|
(1,195
|
)
|
Equity based compensation
|
|
|
4,311
|
|
|
|
46
|
|
|
|
|
|
|
|
4,357
|
|
Tax benefit on exercised options
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,823
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable
|
|
|
6,526
|
|
|
|
1,711
|
|
|
|
|
|
|
|
8,237
|
|
Increase in inventories
|
|
|
(51,358
|
)
|
|
|
(1,144
|
)
|
|
|
155
|
|
|
|
(52,347
|
)
|
Decrease in prepaid expenses and other current assets
|
|
|
29,595
|
|
|
|
1,645
|
|
|
|
|
|
|
|
31,240
|
|
(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
|
|
|
(22,075
|
)
|
|
|
6,396
|
|
|
|
5,883
|
|
|
|
(9,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
63,879
|
|
|
|
16,050
|
|
|
|
|
|
|
|
79,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions
|
|
|
(1,143
|
)
|
|
|
(473
|
)
|
|
|
|
|
|
|
(1,616
|
)
|
Capital expenditures
|
|
|
(44,457
|
)
|
|
|
(8,544
|
)
|
|
|
|
|
|
|
(53,001
|
)
|
Proceeds from disposal of property and equipment
|
|
|
3,390
|
|
|
|
28
|
|
|
|
|
|
|
|
3,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(42,210
|
)
|
|
|
(8,989
|
)
|
|
|
|
|
|
|
(51,199
|
)
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of loans, notes payable and long-term obligations
|
|
|
(24,250
|
)
|
|
|
(2,592
|
)
|
|
|
|
|
|
|
(26,842
|
)
|
Tax benefit on exercised options
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
1,823
|
|
Sale of additional interest to minority shareholder
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Purchase and retirement of redeemable common stock
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(20,441
|
)
|
|
|
(2,592
|
)
|
|
|
|
|
|
|
(23,033
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,075
|
)
|
|
|
(8,838
|
)
|
|
|
|
|
|
|
(9,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
153
|
|
|
|
(4,369
|
)
|
|
|
|
|
|
|
(4,216
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
8,391
|
|
|
|
8,883
|
|
|
|
|
|
|
|
17,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,544
|
|
|
$
|
4,514
|
|
|
$
|
|
|
|
$
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-75
SCHEDULE II
PARTY
CITY HOLDINGS INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Write-Offs
|
|
|
Additions
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
$
|
2,637
|
|
|
$
|
1,546
|
|
|
$
|
1,092
|
|
|
$
|
2,183
|
|
For the year ended December 31, 2009
|
|
|
2,183
|
|
|
|
3,168
|
|
|
|
3,982
|
|
|
|
2,997
|
|
For the year ended December 31, 2010
|
|
|
2,997
|
|
|
|
920
|
|
|
|
637
|
|
|
|
2,714
|
|
Inventory Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
10,416
|
|
|
|
5,128
|
|
|
|
3,030
|
|
|
|
8,318
|
|
For the year ended December 31, 2009
|
|
|
8,318
|
|
|
|
2,755
|
|
|
|
2,989
|
|
|
|
8,552
|
|
For the year ended December 31, 2010
|
|
|
8,552
|
|
|
|
2,734
|
|
|
|
4,687
|
|
|
|
10,505
|
|
Sales, Returns and Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
330
|
|
|
|
37,713
|
|
|
|
37,745
|
|
|
|
362
|
|
For the year ended December 31, 2009
|
|
|
362
|
|
|
|
46,849
|
|
|
|
46,667
|
|
|
|
180
|
|
For the year ended December 31, 2010
|
|
|
180
|
|
|
|
58,321
|
|
|
|
58,590
|
|
|
|
449
|
|
F-76
Party City Holdings
Inc.
Shares
Common Stock
Goldman, Sachs &
Co.
BofA Merrill Lynch
Barclays Capital
Deutsche Bank
Securities
Credit Suisse
Morgan Stanley
Wells Fargo
Securities
Baird
William Blair &
Company
RBC Capital Markets
Stifel Nicolaus
Weisel
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table indicates the expenses to be incurred in
connection with the offering described in this registration
statement, other than underwriting discounts and commissions,
all of which will be paid by the registrant and selling
stockholders. All amounts are estimated except the SEC
registration fee and FINRA fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
40,635
|
|
FINRA filing fee
|
|
|
35,500
|
|
Stock exchange listing fee
|
|
|
*
|
|
Accountants fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Transfer Agents fees and expenses
|
|
|
*
|
|
Printing and engraving expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total Expenses
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment |
|
|
ITEM 14.
|
Indemnification
of Directors and Officers.
|
Section 102(b)(7) of the DGCL enables a corporation in its
original certificates of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for
violations of the directors fiduciary duty, except
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for
liability of directors for unlawful payment of dividends or
unlawful stock purchase or redemptions pursuant to
Section 174 of the DGCL or (iv) for any transaction
from which a director derived an improper personal benefit. Our
certificate of incorporation includes a provision that
eliminates the personal liability of directors for monetary
damages for actions taken as a director to the fullest extent
authorized by the DGCL.
Section 145(a) of the DGCL provides in relevant part that a
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or
in the right of the corporation) by reason of the fact that such
person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director
or officer of another entity, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such
persons conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such
persons conduct was lawful.
Section 145(b) of the DGCL provides in relevant part that a
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
the person is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a
director or officer of another entity, against expenses
(including attorneys fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent
that
II-1
the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Our existing certificate of incorporation generally provides
that we will indemnify our directors and officers to the fullest
extent permitted by law. Our existing certificate of
incorporation also provides that the indemnification and
advancement of expenses provided by, or granted pursuant to the
existing certificate of incorporation are not exclusive of any
other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Section 145(f) of the DGCL further provides that a right to
indemnification or to advancement of expenses arising under a
provision of the certificate of incorporation shall not be
eliminated or impaired by an amendment to such provision after
the occurrence of the act or omission which is the subject of
the civil, criminal, administrative or investigation action,
suit or proceeding for which indemnification or advancement of
expenses is sought.
We currently have indemnification agreements in place with our
directors. In connection with this offering we will enter into
new indemnification agreements with our directors and executive
officers. Such agreements generally provide for indemnification
by reason of being our director or officer, as the case may be.
These agreements are in addition to the indemnification provided
by our amended and restated charter and bylaws.
We also will obtain officers and directors liability
insurance which insures against liabilities that officers and
directors of the registrant may, in such capacities, incur.
Section 145(g) of the DGCL provides that a corporation
shall have power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the
corporation, or is or was serving at the request of the
corporation as a director or officer of another entity, against
any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such
persons status as such, whether or not the corporation
would have the power to indemnify such person against such
liability under that section.
Pursuant to an agreement to be entered into with certain of the
selling stockholders, the company will agree to indemnify such
stockholders from certain liabilities incurred in connection
with this registration statement.
The underwriting agreement we will enter into in connection with
the offering of common stock described in this registration
statement provides for indemnification by the underwriters of
the registrant and its executive officers and directors, by the
registrant of the underwriters and by the selling stockholders
of the underwriters, for certain liabilities, including
liabilities arising under the Securities Act.
Also see Item 17. Undertakings.
|
|
ITEM 15.
|
Recent
Sales of Unregistered Securities.
|
The following sets forth information regarding all unregistered
securities sold during the last three fiscal years:
From January 1, 2008 to December 31, 2011, the
registrant has issued aggregate of 711.27 shares of
Class A common stock upon the exercise of employee stock
options for cash. These shares of Class A common stock were
issued to employees or former employees of the registrant who
had received the stock options for compensatory purposes.
Issuances of shares of Class A common stock upon the
exercise of options under the 2004 Equity Incentive Plan were
made in reliance on the registration exemption provided by
Rule 701 promulgated under Securities Act.
In early 2011, the registrant issued 1,285.49 shares of
common stock to three parties pursuant to the exercise of
warrants with a per share exercise price of $0.01 for an
aggregate purchase price of $12.85. The sales were made in
reliance on Section 4(2) of the Securities Act and were
made without general solicitation or advertising.
There were no underwritten offerings employed in connection with
any of the transactions set forth above.
II-2
|
|
ITEM 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits
|
|
|
|
|
Number
|
|
Description
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement
|
|
2
|
.1
|
|
Party City Acquisition Merger Agreement, dated as of
September 26, 2005 (incorporated by reference to
Exhibit 2.1 to Amscan Holdings Current Report on
Form 8-K
dated September 27, 2005)
|
|
3
|
.1*
|
|
Third Amended and Restated Certificate of Incorporation (to be
effective upon completion of this offering)
|
|
3
|
.2*
|
|
Amended and Restated Bylaws (to be effective upon completion of
this offering)
|
|
3
|
.3**
|
|
Second Amended and Restated Certificate of Incorporation of
Party City Holdings Inc., dated August 19, 2008, as amended
on April 19, 2011
|
|
3
|
.4**
|
|
By-Laws of Party City Holdings Inc.
|
|
4
|
.1**
|
|
Specimen common stock certificate
|
|
4
|
.2
|
|
Indenture, dated as of April 30, 2004, by and among Amscan
Holdings, Inc. (Amscan Holdings), the Guarantors
named therein and The Bank of New York with respect to the
8.75% Senior Subordinated Notes due 2014 (incorporated by
reference to Exhibit 4(1) to Amscan Holdings
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004 (Commission File
No. 000-21827))
|
|
4
|
.3
|
|
First Supplemental Indenture, dated as of June 21, 2004 by
and among Amscan Holdings, the Guarantors named therein and The
Bank of New York with respect to the 8.75% Senior
Subordinated Notes due 2014 (incorporated by reference to
Exhibit 4(2) to Amscan Holdings Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004 (Commission File
No. 000-21827))
|
|
5
|
.1*
|
|
Opinion of Ropes & Gray LLP
|
|
10
|
.1
|
|
2004 Equity Incentive Plan of AAH Holdings Corporation
(incorporated by reference to Exhibit 10(6) to Amscan
Holdings Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004 (Commission File
No. 000-21827))
|
|
10
|
.2
|
|
The MetLife Capital Corporation Master Lease Purchase Agreement
between MetLife Capital Corporation and Amscan Inc., Deco Paper
Products, Inc., Kookaburra USA Ltd., and Trisar, Inc., dated
November 21, 1991, as amended (incorporated by reference to
Exhibit 10(n) to Amendment No. 2 to Amscan
Holdings Registration Statement on
Form S-1
(Registration
No. 333-14107))
|
|
10
|
.3*
|
|
Form of Indemnification Agreement
|
|
10
|
.4**
|
|
Employment Agreement between Party City Holdings Inc. and Gerald
C. Rittenberg, dated June 1, 2011 and amended and restated
as of July 1, 2011
|
|
10
|
.5**
|
|
Employment Agreement between Party City Holdings Inc. and James
M. Harrison, dated June 1, 2011 and amended and restated as
of July 1, 2011
|
|
10
|
.6**
|
|
Amended and Restated Stockholders Agreement of AAH Holdings
Corporation, dated as of August 19, 2008
|
|
10
|
.7**
|
|
Severance Agreement between Amscan Inc. and Michael Correale,
dated as of April 28, 1997
|
|
10
|
.8**
|
|
Amended and Restated Management Agreement between Berkshire
Partners LLC, Weston Presidio Service Company LLC and Amscan
Holdings, Inc., dated as of November 10, 2006
|
|
10
|
.9
|
|
ABL Credit Agreement, dated as of August 13, 2010, among
the Company, Amscan Holdings, the Subsidiaries of Amscan
Holdings from time to time party thereto, the financial
institutions party thereto, as Lenders, Wells Fargo Retail
Finance, LLC, as Administrative Agent and Collateral Agent,
Wells Fargo Capital Finance, LLC and Banc of America Securities
LLC, as Joint Bookrunners and Joint Lead Arrangers, Bank of
America, N.A., as Syndication Agent, and SunTrust Bank, T.D.
Bank, N.A. and RBS Business Capital, as Co-Documentation Agents
(incorporated by reference to Exhibit 4.3 to Amscan
Holdings, Inc. Current Report on
Form 8-K
dated December 2, 2010)
|
II-3
|
|
|
|
|
Number
|
|
Description
|
|
|
10
|
.10
|
|
Pledge and Security Agreement dated as of August 13, 2010
by and among Amscan Inc., Anagram International, Inc.,
Am-Source, LLC, Factory Card Outlet of America Ltd., Gags and
Games, Inc., PA Acquisition Corp., Party City Corporation, and
Party City Franchise Group, LLC, each a Borrower and
collectively, Borrowers, Amscan Holdings, Inc., AAH Holdings
Corporation, the Subsidiary Parties from time to time party
hereto, and Wells Fargo Retail Finance, LLC, as administrative
and collateral agent for the lenders party to the Credit
Agreement (incorporated by reference to Exhibit 4.1 to
Amscan Holdings, Inc. Current Report on
Form 8-K
dated December 2, 2010)
|
|
10
|
.11
|
|
Term Loan Credit Agreement, dated as of December 2, 2010,
among the Company, Amscan Holdings, the subsidiaries of Amscan
Holdings from time to time party thereto, the financial
institutions party thereto, as Lenders, and Credit Suisse AG, as
Administrative Agent and Collateral Agent, Credit Suisse
Securities (USA) LLC and Goldman Sachs Lending Partners LLC, as
Joint Lead Arrangers, Credit Suisse Securities (USA) LLC,
Goldman Sachs Lending Partners LLC, Barclays Capital, Deutsche
Bank Securities Inc. and Wells Fargo Securities, LLC as Joint
Bookrunners, Goldman Sachs Lending Partners LLC and Wells Fargo
Securities, LLC, as
Co-Syndication
Agents, Barclays Capital and Deutsche Bank Securities Inc., as
Co-Documentation Agents (incorporated by reference to Exhibit
4.6 to Amscan Holdings, Inc. Annual Report on Form 10-K
dated April 13, 2011)
|
|
10
|
.12
|
|
Amendment No. 1 to ABL Credit Agreement, dated as of
December 2, 2010, by and among Wells Fargo Bank, National
Association successor by merger to Wells Fargo Retail Finance,
LLC, as Administrative Agent, the Lenders party thereto, the
Borrowers party thereto, the Company, Amscan Holdings, Inc. and
the other Guarantors party thereto (incorporated by reference to
Exhibit 4.5 to Amscan Holdings, Inc. Annual Report on Form 10-K
dated April 13, 2011)
|
|
10
|
.13**
|
|
Registration and Information Rights Agreement, dated as of
August 19, 2008, among AAH Holdings Corporation and
Advent-Amscan Acquisition LLC
|
|
10
|
.14**
|
|
Form of Management Agreement Termination
|
|
10
|
.15
|
|
Amendment No. 2 to ABL Credit Agreement, dated as of
September 8, 2011, by and among Wells Fargo Bank, National
Association successor by merger to Wells Fargo Retail Finance,
LLC, as Administrative Agent, the Lenders party thereto, the
Borrowers party thereto, the Company, Amscan Holdings, Inc. and
the other Guarantors party thereto (incorporated by reference to
Exhibit 10.1 to Amscan Holdings, Inc. Current Report on
Form 8-K
dated September 8, 2011)
|
|
14
|
.1*
|
|
Code of Business Conduct
|
|
21
|
.1
|
|
List of Subsidiaries of the Party City Holdings Inc.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm
|
|
23
|
.2*
|
|
Consent of Ropes & Gray LLP (included in
Exhibit 5.1)
|
|
24
|
.1**
|
|
Power of Attorney
|
|
|
|
* |
|
To be filed by amendment |
|
** |
|
Previously filed |
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-4
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) For the purpose of determining liability under the
Securities Act, if the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
(4) For the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
i. Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
iii. The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Elmsford, New York, on the 30th day
of January, 2012.
Party City Holdings Inc.
Name: Michael Correale
Title: CFO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gerald
C. Rittenberg
Gerald
C. Rittenberg
|
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
January 30, 2012
|
|
|
|
|
|
/s/ Michael
A. Correale
Michael
A. Correale
|
|
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
|
|
January 30, 2012
|
|
|
|
|
|
*
Robert
J. Small
|
|
Chairman of the Board of Directors
|
|
January 30, 2012
|
|
|
|
|
|
*
James
M. Harrison
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
Steven
J. Collins
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
Michael
F. Cronin
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
Kevin
M. Hayes
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
Jordan
A. Kahn
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
William
Kussell
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
Richard
K. Lubin
|
|
Director
|
|
January 30, 2012
|
II-6
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Carol
M. Meyrowitz
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
*
David
M. Mussafer
|
|
Director
|
|
January 30, 2012
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Michael Correale
Michael
Correale
Attorney-in-Fact
|
|
|
|
|
II-7