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EXCEL - IDEA: XBRL DOCUMENT - AMSCAN HOLDINGS INC | Financial_Report.xls |
EX-32 - CERTIFICATION OF CHIEF EXECUTIVE AND FINANCIAL OFFICER - AMSCAN HOLDINGS INC | d331515dex32.htm |
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - AMSCAN HOLDINGS INC | d331515dex312.htm |
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - AMSCAN HOLDINGS INC | d331515dex311.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-21827
Amscan Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 13-3911462 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
80 Grasslands Road Elmsford, NY | 10523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code:
(914) 345-2020
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 15, 2012, 1,000.00 shares of the Registrants common stock were outstanding.
Table of Contents
AMSCAN HOLDINGS, INC.
FORM 10-Q
March 31, 2012
Page | ||||
PART I | ||||
Item 1. Condensed Consolidated Financial Statements (Unaudited) |
||||
Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011 |
3 | |||
4 | ||||
Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2012 |
5 | |||
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 |
6 | |||
7 | ||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
23 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
29 | |||
29 | ||||
PART II |
||||
30 | ||||
31 |
References throughout this document to Amscan, AHI and the Company include Amscan Holdings, Inc. and its subsidiaries. In this document the words we, our, ours and us refer only to the Company and its subsidiaries and not to any other person.
You may read and copy any materials we file with the Securities and Exchange Commission (SEC) at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC, including us.
2
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(unaudited) | (Note 3) | |||||||
ASSETS |
| |||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 16,976 | $ | 22,053 | ||||
Accounts receivable, net |
121,657 | 127,122 | ||||||
Inventories, net |
429,052 | 434,983 | ||||||
Prepaid expenses and other current assets |
79,403 | 74,520 | ||||||
|
|
|
|
|||||
Total current assets |
647,088 | 658,678 | ||||||
Property, plant and equipment, net |
201,223 | 204,329 | ||||||
Goodwill |
682,933 | 681,760 | ||||||
Trade names |
132,793 | 132,722 | ||||||
Other intangible assets, net |
44,548 | 47,084 | ||||||
Other assets, net |
23,100 | 25,765 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,731,685 | $ | 1,750,338 | ||||
|
|
|
|
|||||
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Loans and notes payable |
$ | 176,939 | $ | 139,282 | ||||
Accounts payable |
84,654 | 119,305 | ||||||
Accrued expenses |
104,416 | 125,875 | ||||||
Income taxes payable |
33,056 | 39,273 | ||||||
Current portion of long-term obligations |
8,215 | 8,666 | ||||||
|
|
|
|
|||||
Total current liabilities |
407,280 | 432,401 | ||||||
Long-term obligations, excluding current portion |
832,746 | 834,310 | ||||||
Deferred income tax liabilities |
101,082 | 100,183 | ||||||
Deferred rent and other long-term liabilities |
21,961 | 20,414 | ||||||
|
|
|
|
|||||
Total liabilities |
1,363,069 | 1,387,308 | ||||||
Redeemable common securities (including 1,210.49 common shares issued and outstanding at March 31, 2012 and 1,210.49 common shares issued and outstanding at December 31, 2011) |
52,456 | 36,939 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Class A common stock ($0.01 par value; 19,051.31 shares issued and outstanding at March 31, 2012 and 19,051.31 shares issued and outstanding at December 31, 2011) |
0 | 0 | ||||||
Class B common stock ($0.01 par value; convertible into Class A common stock, 11,918.71 shares issued and outstanding at March 31, 2012 and 11,918.71 shares issued and outstanding at December 31, 2011) |
0 | 0 | ||||||
Additional paid-in capital |
271,676 | 286,451 | ||||||
Retained earnings |
50,761 | 48,717 | ||||||
Accumulated other comprehensive loss |
(8,717 | ) | (11,354 | ) | ||||
|
|
|
|
|||||
Amscan Holdings, Inc. stockholders equity |
313,720 | 323,814 | ||||||
Noncontrolling interests |
2,440 | 2,277 | ||||||
|
|
|
|
|||||
Total stockholders equity |
316,160 | 326,091 | ||||||
|
|
|
|
|||||
Total liabilities, redeemable common securities and stockholders equity |
$ | 1,731,685 | $ | 1,750,338 | ||||
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Revenues: |
||||||||
Net sales |
$ | 379,281 | $ | 352,501 | ||||
Royalties and franchise fees |
3,796 | 3,681 | ||||||
|
|
|
|
|||||
Total revenues |
383,077 | 356,182 | ||||||
Expenses: |
||||||||
Cost of sales |
236,624 | 225,014 | ||||||
Wholesale selling expenses |
13,628 | 13,852 | ||||||
Retail operating expenses |
70,617 | 61,848 | ||||||
Franchise expenses |
2,727 | 3,365 | ||||||
General and administrative expenses |
33,780 | 31,545 | ||||||
Art and development costs |
4,544 | 3,950 | ||||||
|
|
|
|
|||||
Total expenses |
361,920 | 339,574 | ||||||
|
|
|
|
|||||
Income from operations |
21,157 | 16,608 | ||||||
Interest expense, net |
18,102 | 20,368 | ||||||
Other (income) expense, net |
(237 | ) | 62 | |||||
|
|
|
|
|||||
Income (loss) before income taxes |
3,292 | (3,822 | ) | |||||
Income tax expense (benefit) |
1,208 | (1,330 | ) | |||||
|
|
|
|
|||||
Net income (loss) |
2,084 | (2,492 | ) | |||||
Less: net income attributable to noncontrolling interests |
40 | 71 | ||||||
|
|
|
|
|||||
Net income (loss) attributable to Amscan Holdings, Inc. |
$ | 2,044 | $ | (2,563 | ) | |||
|
|
|
|
|||||
Comprehensive income |
$ | 4,844 | $ | 1,859 | ||||
Less: comprehensive income attributable to noncontrolling interests |
163 | 120 | ||||||
|
|
|
|
|||||
Comprehensive income attributable to Amscan Holdings, Inc. |
$ | 4,681 | $ | 1,739 | ||||
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Three Months Ended March 31, 2012
(Unaudited)
(Amounts in thousands, except share amounts)
Class
A and Class B Common Shares |
Class A and Class B Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Amscan Holdings, Inc. Stockholders Equity |
Noncontrolling Interests |
Total Equity |
|||||||||||||||||||||||||
Balance at December 31, 2011 |
30,970.02 | $ | 0 | $ | 286,451 | $ | 48,717 | $ | (11,354 | ) | $ | 323,814 | $ | 2,277 | $ | 326,091 | ||||||||||||||||
Net income |
2,044 | 2,044 | 40 | 2,084 | ||||||||||||||||||||||||||||
Foreign currency adjustments |
3,143 | 3,143 | 123 | 3,266 | ||||||||||||||||||||||||||||
Impact of foreign exchange contracts, net of income taxes |
(506 | ) | (506 | ) | (506 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Comprehensive income |
4,681 | 163 | 4,844 | |||||||||||||||||||||||||||||
Revaluation of redeemable shares |
(15,010 | ) | (15,010 | ) | (15,010 | ) | ||||||||||||||||||||||||||
Equity based compensation expense |
235 | 235 | 235 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at March 31, 2012 |
30,970.02 | $ | 0 | $ | 271,676 | $ | 50,761 | $ | (8,717 | ) | $ | 313,720 | $ | 2,440 | $ | 316,160 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Cash flows used in operating activities: |
||||||||
Net income (loss) |
$ | 2,084 | $ | (2,492 | ) | |||
Less: net income attributable to noncontrolling interests |
40 | 71 | ||||||
|
|
|
|
|||||
Net income (loss) attributable to Amscan Holdings, Inc. |
2,044 | (2,563 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
Depreciation and amortization expense |
14,408 | 13,249 | ||||||
Amortization of deferred financing costs |
1,126 | 1,197 | ||||||
Provision for doubtful accounts |
394 | 361 | ||||||
Deferred income tax expense |
40 | 261 | ||||||
Deferred rent |
2,368 | 2,023 | ||||||
Undistributed income in unconsolidated joint venture |
(412 | ) | (313 | ) | ||||
Loss on disposal of equipment |
27 | 5 | ||||||
Equity based compensation |
742 | 143 | ||||||
Changes in operating assets and liabilities, net of effects of acquired businesses: |
||||||||
Decrease in accounts receivable |
6,445 | 1,660 | ||||||
Decrease in inventories |
7,628 | 2,721 | ||||||
(Increase) decrease in prepaid expenses and other current assets |
(4,625 | ) | 3,392 | |||||
Decrease in accounts payable, accrued expenses and income taxes payable |
(62,268 | ) | (35,043 | ) | ||||
|
|
|
|
|||||
Net cash used in operating activities |
(32,083 | ) | (12,907 | ) | ||||
Cash flows used in investing activities: |
||||||||
Cash paid in connection with acquisitions |
0 | (56,420 | ) | |||||
Capital expenditures |
(8,066 | ) | (10,977 | ) | ||||
Proceeds from disposal of property and equipment |
113 | 1 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(7,953 | ) | (67,396 | ) | ||||
Cash flows provided by financing activities: |
||||||||
Repayment of loans, notes payable and long-term obligations |
(4,503 | ) | (2,506 | ) | ||||
Proceeds from loans, notes payable and long-term obligations |
39,276 | 77,816 | ||||||
Distribution in lieu of dividend |
0 | 2 | ||||||
Proceeds from exercise of stock options |
0 | 28 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
34,773 | 75,340 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
186 | 2,730 | ||||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(5,077 | ) | (2,233 | ) | ||||
Cash and cash equivalents at beginning of period |
22,053 | 20,454 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 16,976 | $ | 18,221 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period |
||||||||
Interest |
$ | 13,631 | $ | 14,032 | ||||
Income taxes |
$ | 7,534 | $ | 3,081 |
See accompanying notes to unaudited condensed consolidated financial statements.
6
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 1 Description of Business
Amscan Holdings, Inc. (Amscan, AHI or the Company) 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, and operates its e-commerce website, PartyCity.com. The Company also franchises both individual stores and franchise areas throughout the United States and Puerto Rico principally under the name Party City. The Company is a wholly-owned subsidiary of Party City Holdings Inc. (PCHI).
Note 2 Acquisitions
Wholesale Acquisitions
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 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.
Retail Acquisitions
On July 29, 2011, the Company acquired all of the common stock of Party Packagers Inc. (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 Party Packagers purchase price over the fair value of the net assets acquired is initially being assigned to goodwill. The following summarizes the estimated fair value of the assets acquired and liabilities assumed: accounts receivable of $284, inventory of $10,477, fixed assets of $4,457, other current and non-current assets of $1,373, accounts payable and other current liabilities of $8,157 and other liabilities of $311. The remaining $23,660 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 by giving the Company a significant retail presence in Canada.
During the three months ended March 31, 2011, the Company acquired three franchisee stores in California for total consideration of $9,351. The results of these stores are included in the consolidated financial statements from the acquisition dates and are reported in the operating results of the Companys Retail segment.
7
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 3 Basis of Presentation and Recently Issued Accounting Pronouncements
The accompanying unaudited condensed consolidated financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011, and the audited balance sheet as of December 31, 2011, include the accounts of the Company and its majority-owned and controlled entities. All significant 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.
The Company has determined the differences between the retail operations Fiscal Year and Fiscal Quarters and the calendar year and calendar quarters to be insignificant.
Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. Our business is subject to substantial seasonal variations as our retail segment has realized a significant portion of its net sales, cash flows and net income in the fourth quarter of each year, principally due to its Halloween season sales in October and, to a lesser extent, other year-end holiday sales. We expect that this general pattern will continue. Our results of operations may also be affected by industry factors that may be specific to a particular period such as movement in, and the general level of, raw material costs. For further information see the consolidated financial statements, and notes thereto, included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.
Recently Issued Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11, Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. These amendments are effective during interim and annual periods beginning on or after January 1, 2013. Although the Company continues to review this pronouncement, it does not believe it will have a material impact on its financial statements or the notes thereto.
In September 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The pronouncement 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 required the reclassification adjustments for each component of accumulated other comprehensive income (AOCI) to be displayed in both net income and OCI. However, in December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which deferred such requirement. The FASB expects to complete a project to reconsider the presentation requirements for reclassification adjustments in 2012. For public companies, ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively. The Company adopted the pronouncement during the three months ended March 31, 2012. Since the update only required a change in presentation, the adoption did not have a material impact on the Companys results of operations, cash flows or financial condition.
8
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
In May 2011, the FASB 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 Accounting Standards Codification (ASC) 820, Fair Value Measurement, to converge U.S. 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. The Company adopted the pronouncement during the three months ended March 31, 2012. Such adoption did not have a material impact on the Companys financial statements or the notes thereto.
Note 4 Inventories
Inventories consisted of the following:
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
Finished goods |
$ | 420,679 | $ | 428,281 | ||||
Raw Materials |
15,296 | 13,660 | ||||||
Work in Process |
7,107 | 6,012 | ||||||
|
|
|
|
|||||
443,082 | 447,953 | |||||||
Reserve for slow-moving and obsolete inventory |
(14,030 | ) | (12,970 | ) | ||||
|
|
|
|
|||||
$ | 429,052 | $ | 434,983 | |||||
|
|
|
|
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 principally 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 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.
Note 5 Income Taxes
The income tax expense (benefit) for the three months ended March 31, 2012 and 2011 were determined based upon the Companys estimated consolidated effective income tax rates of 36.3% and 35.8% for the years ending December 31, 2012 and 2011, respectively. The differences between the estimated consolidated effective income tax rates and the U.S. federal statutory rate are primarily attributable to state income taxes and available domestic manufacturing deductions.
9
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 6 Comprehensive Income
Comprehensive income attributable to Amscan Holdings, Inc. consisted of the following:
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
$ | 2,044 | $ | (2,563 | ) | |||
Foreign currency adjustments |
3,143 | 3,794 | ||||||
Impact of interest rate swap contracts, net of income tax expense of $- and $416 |
| 708 | ||||||
Impact of foreign exchange contracts, net of income tax benefit of $296 and $117 |
(506 | ) | (200 | ) | ||||
|
|
|
|
|||||
Comprehensive income attributable to Amscan Holdings, Inc. |
$ | 4,681 | $ | 1,739 | ||||
|
|
|
|
Note 7 Capital Stock
At March 31, 2012 and December 31, 2011, 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 20,261.80 shares were issued and outstanding 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 March 31, 2012 and December 31, 2011, 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.
Of the Class A Common stock, 1,210.49 shares were redeemable at March 31, 2012 and December 31, 2011 and classified as redeemable common securities on the balance sheet, as described below.
10
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
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 employees. 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 paid and vested common securities, totaled $50,841 at March 31, 2012 and $35,831 at December 31, 2011, 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 on the Companys consolidated balance sheet.
The changes in redeemable common securities during the three months ended March 31, 2012 were as follows:
Common Shares | Rollover options | Total | ||||||||||
Balance December 31, 2011 |
$ | 35,831 | $ | 1,108 | $ | 36,939 | ||||||
Common stock revaluation |
15,010 | 507 | 15,517 | |||||||||
|
|
|
|
|
|
|||||||
Balance March 31, 2012 |
$ | 50,841 | $ | 1,615 | $ | 52,456 | ||||||
|
|
|
|
|
|
11
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 8 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 Companys e-commerce operations through its PartyCity.com website and the sale of franchises on an individual store and franchise area basis throughout the United States and Puerto Rico.
The Companys industry segment data for the three months ended March 31, 2012 and March 31, 2011 is as follows:
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended March 31, 2012 |
||||||||||||
Revenues: |
||||||||||||
Net sales |
$ | 214,795 | $ | 246,933 | $ | 461,728 | ||||||
Royalties and franchise fees |
| 3,796 | 3,796 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
214,795 | 250,729 | 465,524 | |||||||||
Eliminations |
(82,447 | ) | | (82,447 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Revenues |
$ | 132,348 | $ | 250,729 | $ | 383,077 | ||||||
|
|
|
|
|
|
|||||||
Income from operations |
$ | 18,908 | $ | 2,249 | $ | 21,157 | ||||||
|
|
|
|
|||||||||
Interest expense, net |
18,102 | |||||||||||
Other income, net |
(237 | ) | ||||||||||
|
|
|||||||||||
Income before income taxes |
$ | 3,292 | ||||||||||
|
|
|||||||||||
Total assets |
$ | 1,000,232 | $ | 731,453 | $ | 1,731,685 | ||||||
|
|
|
|
|
|
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended March 31, 2011 |
||||||||||||
Revenues: |
||||||||||||
Net sales |
$ | 199,576 | $ | 220,106 | $ | 419,682 | ||||||
Royalties and franchise fees |
| 3,681 | 3,681 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
199,576 | 223,787 | 423,363 | |||||||||
Eliminations |
(67,181 | ) | | (67,181 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Revenues |
$ | 132,395 | $ | 223,787 | $ | 356,182 | ||||||
|
|
|
|
|
|
|||||||
Income (loss) from operations |
$ | 17,286 | $ | (678 | ) | $ | 16,608 | |||||
|
|
|
|
|||||||||
Interest expense, net |
20,368 | |||||||||||
Other expense, net |
62 | |||||||||||
|
|
|||||||||||
Loss before income taxes |
$ | (3,822 | ) | |||||||||
|
|
|||||||||||
Total assets |
$ | 1,036,646 | $ | 672,682 | $ | 1,709,328 | ||||||
|
|
|
|
|
|
Geographic Segments
Intercompany 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. During the three months ended March 31, 2012 and March 31, 2011, net revenues related to foreign operations were $42,900 and $41,308, respectively. Additionally, during the three months ended March 31, 2012 and March 31, 2011, net revenues related to U.S. export sales of metallic balloons were $4,599 and $4,217, respectively.
12
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 9 Commitments and Contingencies
The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations.
We are an assignor with contingent lease liability for 14 stores sold to franchisees and other parties. The potential contingent lease obligations continue until the applicable leases expire in 2018. 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 March 31, 2012, the maximum amount of the contingent lease obligations was approximately $5,202. Payment of such amount is contingent upon certain events occurring, which management has not assessed as probable or estimable at this time.
Note 10 Stock Option Plan
The Company recorded $742 and $143 of stock-based compensation expense in general and administrative expenses during the three months ended March 31, 2012 and 2011, respectively.
During the three months ended March 31, 2012, the Company granted 10 time-based options to an employee under the Companys 2004 Equity Incentive Plan. The options vest at a rate of 20% per year and are exercisable at $42,000 per share.
During the three months ended March 31, 2012, no options were exercised. There are options to purchase 3,708.27 shares of common stock outstanding at March 31, 2012.
Additionally, in December 2010, in connection with the refinancing of the Companys $675,000 Term Loan Agreement (New Term Loan Credit Agreement), the Companys Board of Directors declared a one-time cash dividend of $9,400 per share of outstanding common stock. In addition, holders of unvested options at the declaration date may also receive a distribution of $9,400 per share if, and when, the options vest. During the three months ended March 31, 2012, certain options vested and the Company recorded a $287 charge to stock-based compensation expense. At March 31, 2012, the aggregate potential distribution associated with unvested time and performance options is $17,418.
Note 11 Derivative Financial Instruments
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the 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 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.
Foreign Exchange Risk Management
A portion of the Companys cash flows is derived from transactions denominated in foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling, the Euro, the Malaysian Ringgit, the Canadian Dollar and the Australian Dollar, the Company enters into foreign exchange contracts with major international financial institutions. Most of the forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For the contracts that qualify for hedge accounting, the terms of the contracts are such that cash flows from the contracts should be highly effective in offsetting the expected cash flows from the underlying forecasted transactions.
13
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
The foreign exchange contracts are reflected in the consolidated balance sheets at fair value. The fair value of the foreign exchange contracts is the estimated amount that the counterparties would receive or pay to terminate the foreign exchange contracts at the reporting date, taking into account current foreign exchange rates. At March 31, 2012 and December 31, 2011, the Company had unrealized net (losses) gains of $(1) and $505, respectively, recorded in accumulated other comprehensive loss related to foreign exchange contracts that qualify for hedge accounting. 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 unrealized gains and losses in accumulated other comprehensive loss related to these foreign exchange contracts will be reclassified into earnings by December 2012.
The following table displays the fair values and notional amounts of the Companys derivatives at March 31, 2012 and December 31, 2011:
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||
Notional Amounts | March 31, 2012 | December 31, 2011 | March 31, 2012 | December 31, 2011 | ||||||||||||||||||||||||||||||
Derivative Instrument |
March 31, 2012 |
December 31, 2011 |
Balance Sheet Line |
Fair Value |
Balance Sheet Line |
Fair Value |
Balance Sheet Line |
Fair Value |
Balance Sheet Line |
Fair Value |
||||||||||||||||||||||||
Foreign Exchange Contracts |
$ | 27,012 | $ | 27,884 | (a) PP | $ | 266 | (a) PP | $ | 808 | (b) AE | $ | 160 | (b) AE | $ | 18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | PP = Prepaid expenses and other current assets |
(b) | AE = Accrued expenses |
Note 12 Fair Value Measurements
The provisions of FASB ASC Topic 820, Fair Value Measurement, define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| Level 1 Quoted prices in active markets for identical assets or liabilities. |
| Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
14
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
The following table shows assets and liabilities as of March 31, 2012 that are measured at fair value on a recurring basis:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Unobservable Inputs (Level 3) |
Total as of March 31, 2012 |
|||||||||||||
Foreign exchange contract assets |
| $ | 266 | | $ | 266 | ||||||||||
Foreign exchange contract liabilities |
| 160 | | 160 |
The following table shows assets and liabilities as of December 31, 2011 that are measured at fair value on a recurring basis:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Unobservable Inputs (Level 3) |
Total as of December 31, 2011 |
|||||||||||||
Foreign exchange contract assets |
| $ | 808 | | $ | 808 | ||||||||||
Foreign exchange contract liabilities |
| 18 | | 18 |
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 and restructuring charges.
The carrying amounts for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value at March 31, 2012 and December 31, 2011 because of the short-term maturities of the instruments and/or their variable rates of interest.
The carrying amounts and fair values (based on observable inputs, including interest rates) of the Companys borrowings under the New Term Loan Credit Agreement and the 8.75% $175,000 Senior Subordinated Notes (Senior Subordinated Notes) are as follows:
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying Amount |
Fair Value (Level 2) |
Carrying Amount |
Fair Value (Level 2) |
|||||||||||||
New Term Loan Credit Agreement |
$ | 659,469 | $ | 667,712 | $ | 660,905 | $ | 663,383 | ||||||||
Senior Subordinated Notes |
175,000 | 176,750 | 175,000 | 176,750 |
The carrying amounts for other long-term debt approximate fair value at March 31, 2012 and December 31, 2011 based on the discounted future cash flow of each instrument at rates currently offered for similar debt instruments of comparable maturity.
15
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 13 Condensed Consolidating Financial Information
Borrowings under the New Term Loan Credit Agreement, the $350 million ABL revolving credit facility (New ABL Facility) and the Senior Subordinated Notes are guaranteed jointly and severally, fully and unconditionally, by the following domestic subsidiaries of the Company (collectively, the Guarantors):
| Amscan Inc. |
| Am-Source, LLC |
| Anagram Eden Prairie Property Holdings LLC |
| 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 |
| SSY Realty Corp. |
| Trisar, Inc. |
Non-guarantor subsidiaries (collectively, Non-guarantors) include the following:
| Amscan (Asia-Pacific) Pty. Ltd. |
| Amscan Asia International Ltd. |
| Amscan de Mexico, S.A. de C.V. |
| Amscan Distributors (Canada) Ltd. |
| Anagram Espana, S.A. |
| Anagram France S.C.S. |
| 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. |
| Party Packagers Inc. |
| Riethmüller GmbH |
The following information presents condensed consolidating balance sheets at March 31, 2012 and December 31, 2011, the condensed consolidating statements of comprehensive income for the three months ended March 31, 2012 and 2011, and the related condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011, for the combined Guarantors and the combined Non-guarantors, together with the elimination entries necessary to consolidate the entities comprising the combined companies.
16
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2012
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 7,278 | $ | 9,698 | $ | | $ | 16,976 | ||||||||
Accounts receivable, net |
83,221 | 38,436 | | 121,657 | ||||||||||||
Inventories, net |
372,214 | 58,890 | (2,052 | ) | 429,052 | |||||||||||
Prepaid expenses and other current assets |
67,900 | 13,290 | (1,787 | ) | 79,403 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
530,613 | 120,314 | (3,839 | ) | 647,088 | |||||||||||
Property, plant and equipment, net |
182,737 | 18,486 | | 201,223 | ||||||||||||
Goodwill |
610,285 | 72,648 | | 682,933 | ||||||||||||
Trade names |
129,882 | 2,911 | | 132,793 | ||||||||||||
Other intangible assets, net |
42,739 | 1,809 | | 44,548 | ||||||||||||
Investment in and advances to consolidated subsidiaries |
249,850 | | (249,850 | ) | | |||||||||||
Due from affiliates |
119,622 | 62,183 | (181,805 | ) | | |||||||||||
Other assets, net |
24,985 | 241 | (2,126 | ) | 23,100 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 1,890,713 | $ | 278,592 | $ | (437,620 | ) | $ | 1,731,685 | |||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Loans and notes payable |
$ | 164,197 | $ | 12,742 | $ | | $ | 176,939 | ||||||||
Accounts payable |
73,038 | 11,616 | | 84,654 | ||||||||||||
Accrued expenses |
91,098 | 13,318 | | 104,416 | ||||||||||||
Income taxes payable |
35,175 | | (2,119 | ) | 33,056 | |||||||||||
Due to affiliates |
82,328 | 99,478 | (181,806 | ) | | |||||||||||
Current portion of long-term obligations |
8,157 | 58 | | 8,215 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
453,993 | 137,212 | (183,925 | ) | 407,280 | |||||||||||
Long-term obligations, excluding current portion |
832,708 | 38 | | 832,746 | ||||||||||||
Deferred income tax liabilities |
101,323 | | (241 | ) | 101,082 | |||||||||||
Deferred rent and other long-term liabilities |
21,559 | 2,287 | (1,885 | ) | 21,961 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
1,409,583 | 139,537 | (186,051 | ) | 1,363,069 | |||||||||||
Redeemable common securities |
52,456 | | | 52,456 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Stockholders equity: |
||||||||||||||||
Common Stock |
| 336 | (336 | ) | | |||||||||||
Additional paid-in capital |
384,911 | 113,893 | (227,128 | ) | 271,676 | |||||||||||
Retained earnings |
52,480 | 30,984 | (32,703 | ) | 50,761 | |||||||||||
Accumulated other comprehensive loss |
(8,717 | ) | (8,598 | ) | 8,598 | (8,717 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Amscan Holdings Inc. stockholders equity |
428,674 | 136,615 | (251,569 | ) | 313,720 | |||||||||||
Noncontrolling interests |
| 2,440 | | 2,440 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders equity |
428,674 | 139,055 | (251,569 | ) | 316,160 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, redeemable common securities and stockholders equity |
$ | 1,890,713 | $ | 278,592 | $ | (437,620 | ) | $ | 1,731,685 | |||||||
|
|
|
|
|
|
|
|
17
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONSOLIDATING BALANCE SHEET
December 31, 2011
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 14,012 | $ | 8,041 | $ | | $ | 22,053 | ||||||||
Accounts receivable , net |
84,322 | 42,800 | | 127,122 | ||||||||||||
Inventories, net |
386,264 | 49,875 | (1,156 | ) | 434,983 | |||||||||||
Prepaid expenses and other current assets |
64,882 | 10,073 | (435 | ) | 74,520 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
549,480 | 110,789 | (1,591 | ) | 658,678 | |||||||||||
Property, plant and equipment, net |
186,999 | 17,330 | | 204,329 | ||||||||||||
Goodwill |
610,285 | 71,475 | | 681,760 | ||||||||||||
Trade names |
129,882 | 2,840 | | 132,722 | ||||||||||||
Other intangible assets, net |
45,292 | 1,792 | | 47,084 | ||||||||||||
Investment in and advances to consolidated subsidiaries |
250,799 | | (250,799 | ) | | |||||||||||
Due from affiliates |
89,325 | 56,001 | (145,326 | ) | | |||||||||||
Other assets, net |
24,603 | 1,162 | | 25,765 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 1,886,665 | $ | 261,389 | $ | (397,716 | ) | $ | 1,750,338 | |||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Loans and notes payable |
$ | 131,089 | $ | 8,193 | $ | | $ | 139,282 | ||||||||
Accounts payable |
103,774 | 15,531 | | 119,305 | ||||||||||||
Accrued expenses |
113,531 | 12,344 | | 125,875 | ||||||||||||
Income taxes payable |
39,758 | | (485 | ) | 39,273 | |||||||||||
Due to affiliates |
61,479 | 83,849 | (145,328 | ) | | |||||||||||
Current portion of long-term obligations |
8,625 | 41 | | 8,666 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
458,256 | 119,958 | (145,813 | ) | 432,401 | |||||||||||
Long-term obligations, excluding current portion |
834,262 | 48 | | 834,310 | ||||||||||||
Deferred income tax liabilities |
98,782 | 1,401 | | 100,183 | ||||||||||||
Deferred rent and other long-term liabilities |
20,273 | 141 | | 20,414 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
1,411,573 | 121,548 | (145,813 | ) | 1,387,308 | |||||||||||
Redeemable common securities |
36,939 | | | 36,939 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Stockholders equity: |
||||||||||||||||
Common Stock |
| 336 | (336 | ) | | |||||||||||
Additional paid-in capital |
399,686 | 113,893 | (227,128 | ) | 286,451 | |||||||||||
Retained earnings |
49,821 | 33,958 | (35,062 | ) | 48,717 | |||||||||||
Accumulated other comprehensive loss |
(11,354 | ) | (10,623 | ) | 10,623 | (11,354 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Amscan Holdings, Inc. stockholders equity |
438,153 | 137,564 | (251,903 | ) | 323,814 | |||||||||||
Noncontrolling interests |
| 2,277 | | 2,277 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders equity |
438,153 | 139,841 | (251,903 | ) | 326,091 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, redeemable common securities and stockholders equity |
$ | 1,886,665 | $ | 261,389 | $ | (397,716 | ) | $ | 1,750,338 | |||||||
|
|
|
|
|
|
|
|
18
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2012
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Net sales |
$ | 344,531 | $ | 44,050 | $ | (9,300 | ) | $ | 379,281 | |||||||
Royalties and franchise fees |
3,796 | | | 3,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
348,327 | 44,050 | (9,300 | ) | 383,077 | |||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
211,586 | 33,441 | (8,403 | ) | 236,624 | |||||||||||
Wholesale selling expenses |
7,881 | 5,747 | | 13,628 | ||||||||||||
Retail operating expenses |
68,023 | 2,594 | | 70,617 | ||||||||||||
Franchise expenses |
2,727 | | | 2,727 | ||||||||||||
General and administrative expenses |
27,874 | 5,906 | | 33,780 | ||||||||||||
Art and development costs |
4,344 | 200 | | 4,544 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
322,435 | 47,888 | (8,403 | ) | 361,920 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
25,892 | (3,838 | ) | (897 | ) | 21,157 | ||||||||||
Interest expense, net |
17,862 | 240 | | 18,102 | ||||||||||||
Other expense (income), net |
3,260 | 285 | (3,782 | ) | (237 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
4,770 | (4,363 | ) | 2,885 | 3,292 | |||||||||||
Income tax expense (benefit) |
2,161 | (621 | ) | (332 | ) | 1,208 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
2,609 | (3,742 | ) | 3,217 | 2,084 | |||||||||||
Less: net income attributable to noncontrolling interests |
| 40 | | 40 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
$ | 2,609 | $ | (3,782 | ) | $ | 3,217 | $ | 2,044 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss) |
$ | 5,246 | $ | (1,594 | ) | $ | 1,192 | $ | 4,844 | |||||||
Less: comprehensive income attributable to noncontrolling interests |
| 163 | | 163 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss) attributable to Amscan Holdings, Inc. |
$ | 5,246 | $ | (1,757 | ) | $ | 1,192 | $ | 4,681 | |||||||
|
|
|
|
|
|
|
|
19
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2011
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Net sales |
$ | 316,743 | $ | 41,308 | $ | (5,550 | ) | $ | 352,501 | |||||||
Royalties and franchise fees |
3,681 | | | 3,681 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
320,424 | 41,308 | (5,550 | ) | 356,182 | |||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
198,141 | 32,362 | (5,489 | ) | 225,014 | |||||||||||
Wholesale selling expenses |
8,313 | 5,539 | | 13,852 | ||||||||||||
Retail operating expenses |
61,848 | | | 61,848 | ||||||||||||
Franchise expenses |
3,365 | | | 3,365 | ||||||||||||
General and administrative expenses |
27,046 | 4,829 | (330 | ) | 31,545 | |||||||||||
Art and development costs |
3,889 | 61 | | 3,950 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
302,602 | 42,791 | (5,819 | ) | 339,574 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
17,822 | (1,483 | ) | 269 | 16,608 | |||||||||||
Interest expense, net |
20,129 | 239 | | 20,368 | ||||||||||||
Other expense (income), net |
1,840 | (638 | ) | (1,140 | ) | 62 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(4,147 | ) | (1,084 | ) | 1,409 | (3,822 | ) | |||||||||
Income tax (benefit) expense |
(1,622 | ) | 315 | (23 | ) | (1,330 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
(2,525 | ) | (1,399 | ) | 1,432 | (2,492 | ) | |||||||||
Less: Net income attributable to noncontrolling interests |
| 71 | | 71 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to Amscan Holdings, Inc. |
$ | (2,525 | ) | $ | (1,470 | ) | $ | 1,432 | $ | (2,563 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 1,777 | $ | 1,819 | $ | (1,737 | ) | $ | 1,859 | |||||||
Less: Comprehensive income attributable to noncontrolling interests |
| 120 | | 120 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income attributable to Amscan Holdings, Inc. |
$ | 1,777 | $ | 1,699 | $ | (1,737 | ) | $ | 1,739 | |||||||
|
|
|
|
|
|
|
|
20
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2012
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
Cash flows used in operating activities: |
||||||||||||||||
Net income (loss) |
$ | 2,609 | $ | (3,742 | ) | $ | 3,217 | $ | 2,084 | |||||||
Less: net income attributable to noncontrolling interests |
| 40 | | 40 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
2,609 | (3,782 | ) | 3,217 | 2,044 | |||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||||||||||
Depreciation and amortization expense |
13,466 | 942 | | 14,408 | ||||||||||||
Amortization of deferred financing costs |
1,126 | | | 1,126 | ||||||||||||
Provision for doubtful accounts |
282 | 112 | | 394 | ||||||||||||
Deferred income tax expense (benefit) |
1,713 | (1,673 | ) | | 40 | |||||||||||
Deferred rent |
2,305 | 63 | | 2,368 | ||||||||||||
Undistributed income in unconsolidated joint venture |
(412 | ) | | | (412 | ) | ||||||||||
Loss on disposal of equipment |
4 | 23 | | 27 | ||||||||||||
Equity based compensation |
742 | | | 742 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Decrease in accounts receivable |
819 | 5,626 | | 6,445 | ||||||||||||
Decrease (increase) in inventories |
12,767 | (6,036 | ) | 897 | 7,628 | |||||||||||
Increase in prepaid expenses and other current assets |
(1,156 | ) | (3,469 | ) | | (4,625 | ) | |||||||||
(Decrease) increase in accounts payable, accrued expenses and income taxes payable |
(65,090 | ) | 6,936 | (4,114 | ) | (62,268 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in operating activities |
(30,825 | ) | (1,258 | ) | | (32,083 | ) | |||||||||
Cash flows used in investing activities: |
||||||||||||||||
Capital expenditures |
(6,514 | ) | (1,552 | ) | | (8,066 | ) | |||||||||
Proceeds from disposal of property and equipment |
100 | 13 | | 113 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(6,414 | ) | (1,539 | ) | | (7,953 | ) | |||||||||
Cash flows provided by financing activities: |
||||||||||||||||
Repayments of loans, notes payable and long-term obligations |
(2,604 | ) | (1,899 | ) | | (4,503 | ) | |||||||||
Proceeds from loans, notes payable and long-term obligations |
33,109 | 6,167 | | 39,276 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by financing activities |
30,505 | 4,268 | | 34,773 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| 186 | | 186 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
(6,734 | ) | 1,657 | | (5,077 | ) | ||||||||||
Cash and cash equivalents at beginning of period |
14,012 | 8,041 | | 22,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at end of period |
$ | 7,278 | $ | 9,698 | $ | | $ | 16,976 | ||||||||
|
|
|
|
|
|
|
|
21
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2011
(Amounts in thousands)
AHI and Combined Guarantors |
Combined Non-Guarantors |
Eliminations | Consolidated | |||||||||||||
Cash flows (used in) provided by operating activities: |
||||||||||||||||
Net loss |
$ | (2,525 | ) | $ | (1,399 | ) | $ | 1,432 | $ | (2,492 | ) | |||||
Less: net income attributable to noncontrolling interests |
| 71 | | 71 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to Amscan Holdings, Inc. |
(2,525 | ) | (1,470 | ) | 1,432 | (2,563 | ) | |||||||||
Adjustments to reconcile net loss to net cash ( used in) provided by operating activities: |
||||||||||||||||
Depreciation and amortization expense |
12,691 | 558 | | 13,249 | ||||||||||||
Amortization of deferred financing costs |
1,197 | | | 1,197 | ||||||||||||
Provision for doubtful accounts |
312 | 49 | | 361 | ||||||||||||
Deferred income tax expense |
261 | | | 261 | ||||||||||||
Deferred rent |
2,023 | | | 2,023 | ||||||||||||
Undistributed income in unconsolidated joint venture |
(313 | ) | | | (313 | ) | ||||||||||
Loss on disposal of equipment |
5 | | | 5 | ||||||||||||
Equity based compensation |
143 | | | 143 | ||||||||||||
Changes in operating assets and liabilities, net of effects of acquired businesses: |
||||||||||||||||
Decrease in accounts receivable |
1,249 | 411 | | 1,660 | ||||||||||||
Decrease (increase) in inventories |
6,693 | (4,033 | ) | 61 | 2,721 | |||||||||||
(Increase) decrease in prepaid expenses and other current assets |
(198 | ) | 3,590 | | 3,392 | |||||||||||
(Decrease) increase in accounts payable, accrued expenses and income taxes payable |
(34,500 | ) | 950 | (1,493 | ) | (35,043 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by operating activities |
(12,962 | ) | 55 | | (12,907 | ) | ||||||||||
Cash flows used in investing activities: |
||||||||||||||||
Cash paid in connection with acquisitions |
(56,420 | ) | | | (56,420 | ) | ||||||||||
Capital expenditures |
(10,701 | ) | (276 | ) | | (10,977 | ) | |||||||||
Proceeds from disposal of property and equipment |
1 | | | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(67,120 | ) | (276 | ) | | (67,396 | ) | |||||||||
Cash flows provided by financing activities: |
||||||||||||||||
Repayments of loans, notes payable and long-term obligations |
(2,497 | ) | (9 | ) | | (2,506 | ) | |||||||||
Proceeds from loans, notes payable and long-term obligations |
77,534 | 282 | | 77,816 | ||||||||||||
Distribution in lieu of dividend |
2 | | | 2 | ||||||||||||
Proceeds from exercise of stock options |
28 | | | 28 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by financing activities |
75,067 | 273 | | 75,340 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
425 | 2,305 | | 2,730 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
(4,590 | ) | 2,357 | | (2,233 | ) | ||||||||||
Cash and cash equivalents at beginning of period |
14,198 | 6,256 | | 20,454 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at end of period |
$ | 9,608 | $ | 8,613 | $ | | $ | 18,221 | ||||||||
|
|
|
|
|
|
|
|
22
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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 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. 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.
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. Sales to international customers accounted for 20% of our gross wholesale sales during the three months ended March 31, 2012. 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, during 2011, our Halloween business represented approximately 26% of our total domestic 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 the merchandise is sold to the consumer. For segment 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.
23
Table of Contents
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. Factory Card & Party Outlet ( 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. Same-store sales for the Party City brand include e-commerce sales.
Cost of Sales. Cost of sales at wholesale reflects the production costs (i.e., raw materials, labor and overhead) of manufactured goods and the direct cost of purchased goods, inventory shrinkage, inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution costs 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, to total sales, 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. Wholesale 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 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 workforce and other administrative costs. These expenses generally do not vary proportionally with net sales or royalties and franchise fees.
General and Administrative Expenses. General and administrative expenses include all operating costs not included elsewhere in the statement of comprehensive income (loss). 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.
24
Table of Contents
Results of Operations
Three Months Ended March 31, 2012 Compared To Three Months Ended March 31, 2011
The following tables set forth the Companys operating results and operating results as a percentage of total revenues for the three months ended March 31, 2012 and 2011.
Three Months Ended March 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: |
||||||||||||||||
Net sales |
$ | 379,281 | 99.0 | % | $ | 352,501 | 99.0 | % | ||||||||
Royalties and franchise fees |
3,796 | 1.0 | 3,681 | 1.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
383,077 | 100.0 | 356,182 | 100.0 | ||||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
236,624 | 61.8 | 225,014 | 63.2 | ||||||||||||
Wholesale selling expenses |
13,628 | 3.6 | 13,852 | 3.9 | ||||||||||||
Retail operating expenses |
70,617 | 18.4 | 61,848 | 17.4 | ||||||||||||
Franchise expenses |
2,727 | 0.7 | 3,365 | 0.9 | ||||||||||||
General and administrative expenses |
33,780 | 8.8 | 31,545 | 8.9 | ||||||||||||
Art and development costs |
4,544 | 1.2 | 3,950 | 1.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
361,920 | 94.5 | 339,574 | 95.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from operations |
21,157 | 5.5 | 16,608 | 4.7 | ||||||||||||
Interest expense, net |
18,102 | 4.7 | 20,368 | 5.8 | ||||||||||||
Other (income) expense, net |
(237 | ) | (0.1 | ) | 62 | 0.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
3,292 | 0.9 | (3,822 | ) | (1.1 | ) | ||||||||||
Income tax expense (benefit) |
1,208 | 0.4 | (1,330 | ) | (0.4 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
2,084 | 0.5 | (2,492 | ) | (0.7 | ) | ||||||||||
Less: net income attributable to noncontrolling interests |
40 | 0.0 | 71 | 0.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
$ | 2,044 | 0.5 | % | $ | (2,563 | ) | (0.7 | )% | |||||||
|
|
|
|
|
|
|
|
Revenues
Total revenues for the first quarter of 2012 were $383.1 million and were 7.6% higher than the first quarter of 2011. The following table sets forth the Companys total revenues for the quarters ended March 31, 2012 and March 31, 2011.
Three Months Ended March 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Dollars in Thousands |
Percentage of Total Revenues |
Dollars in Thousands |
Percentage of Total Revenues |
|||||||||||||
Net Sales: |
||||||||||||||||
Wholesale |
$ | 214,795 | 56.1 | % | $ | 199,576 | 56.1 | % | ||||||||
Eliminations |
(82,447 | ) | (21.5 | )% | (67,181 | ) | (18.9 | )% | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net wholesale |
132,348 | 34.6 | % | 132,395 | 37.2 | % | ||||||||||
Retail |
246,933 | 64.4 | % | 220,106 | 61.8 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
379,281 | 99.0 | % | 352,501 | 99.0 | % | ||||||||||
Royalties and franchise fees |
3,796 | 1.0 | % | 3,681 | 1.0 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 383,077 | 100.0 | % | $ | 356,182 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
25
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Wholesale
Net sales for the first quarter of 2012 were $132.3 million and were principally consistent with the corresponding quarter of 2011. During the first quarter of 2012, net sales to domestic party goods retailers, including our franchisee network, and to other domestic party goods distributors totaled $71.2 million and were $5.0 million, or 7.6%, higher than the first quarter of 2011. The increase in net sales was partially attributable to higher juvenile birthday sales resulting from new licenses and new products for existing licenses. Additionally, the timing of shipments positively impacted the first quarter of 2012 as seasonal sales of certain Hawaiian luau and patriotic products shifted from the second quarter of 2011 to the first quarter of 2012. Net sales of metallic balloons, including export sales, totaled $28.0 million and were $1.2 million, or 4.5%, higher than the corresponding quarter of 2011, with the sales growth principally occurring in both the domestic and international balloon distributors channels. International net sales, excluding export sales of metallic balloons, totaled $33.1 million and were $6.3 million, or 16.0%, lower than the first quarter of 2011. The decrease was principally due to reduced sales volumes in Europe as certain customers accelerated the timing of their purchases into the fourth quarter of 2011. Additionally, as a result of the July 2011 acquisition of Party Packagers, our wholesale sales to the retailer are now included in intercompany sales and eliminated. Changes in foreign currency exchange rates resulted in a $0.6 million, or 1.5%, decrease in international net sales compared to the corresponding quarter of 2011.
Intercompany sales to our retail affiliates were $82.5 million and were $15.3 million, or 22.7%, higher than the corresponding quarter of 2011. Such sales represented 38.4% of total wholesale sales during the first quarter of 2012, compared to 33.7% during the first quarter of 2011. The increase in intercompany sales primarily related to higher sales of sports products and juvenile birthday products. Additionally, intercompany sales reflect the acquisition of Party Packagers in July 2011. During the first quarter of 2012 our wholesale sales to our domestic retail operations, including e-commerce, represented 65.4% of the retail operations total purchases, compared to 62.7% during the corresponding quarter of 2011. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.
Retail
Retail net sales for the first quarter of 2012 were $246.9 million and were $26.8 million, or 12.2%, higher than retail net sales for the corresponding quarter of 2011. The retail net sales at our domestic Party City stores (including all converted FCPO stores) totaled $203.1 million and were $23.0 million, or 12.8%, higher than the first quarter of 2011. Additionally, our e-commerce sales totaled $18.9 million during the first quarter of 2012 and were $6.7 million higher than 2011. Same-store sales for the Party City brand, including e-commerce, increased by 7.2% from the corresponding quarter of 2011, with e-commerce sales increasing by 54.9%, as a 55.4% increase in transaction count was partially offset by a 0.5% decrease in average transaction dollar size, and Party City same-store sales increasing by 4.0%, driven by a 2.5% increase in transaction count and a 1.5% increase in average transaction dollar size. The increase in sales was partially attributable to the continued shift in our principal advertising strategy from free standing newspaper inserts to a national broadcasting campaign, coupled with other successful online initiatives implemented since our re-launch of the PartyCity.com website in August 2009. The increase in domestic Party City store sales also reflected the net addition of 64 new stores during the twelve month period ended March 31, 2012, including the opening of 15 stores, the acquisition of five stores from franchisees, and the conversion of 49 FCPO stores to the Party City format during that time period, offset by the closure of five stores. During the first quarter of 2012, sales at stores converted from the FCPO format to the Party City format during the twelve month period ended March 31, 2012 were 20.1% higher than sales at those same stores during the corresponding quarter of 2011. Converted FCPO stores are included in Party Citys same-store sales beginning with the thirteenth month following conversion. The Party Packagers stores acquired at the end of July 2011 contributed net sales of $7.7 million during the first quarter of 2012. Sales at all other store formats, including unconverted FCPO and outlet stores, totaled $17.2 million and were $10.6 million, or 38.1%, lower than the corresponding quarter of 2011. The decrease principally reflected the conversion of 49 FCPO stores to the Party City format and the closure of 33 stores during the twelve month period ended March 31, 2012.
Royalties and franchise fees
Royalties and franchise fees for the first quarter of 2012 were $3.8 million, compared to $3.7 million for the first quarter of 2011. The negative impact on royalty income from the net decrease of nine franchise stores during the twelve month period ended March 31, 2012 was more than offset by the impact of increased same-store sales at the remaining franchise stores.
Gross Profit
Our total gross profit on net sales for the first quarter of 2012 was 37.6%. The gross profit percentage was 140 basis points higher than the first quarter of 2011. The following table sets forth the Companys gross profit for the quarters ended March 31, 2012 and March 31, 2011.
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Three Months Ended March 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Dollars in Thousands |
Percentage of Net Sales |
Dollars in Thousands |
Percentage of Net Sales |
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Wholesale |
$ | 46,079 | 34.8 | % | $ | 44,171 | 33.4 | % | ||||||||
Retail |
96,578 | 39.1 | % | 83,315 | 37.9 | % | ||||||||||
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Total |
$ | 142,657 | 37.6 | % | $ | 127,486 | 36.2 | % | ||||||||
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The gross profit on net sales at wholesale for the first quarter of 2012 was 34.8%. The gross profit percentage was 140 basis points higher than the corresponding quarter of 2011. The increase was principally due to price increases on certain products and a favorable product mix on sales to domestic party goods retailers.
The gross profit on net sales at retail for the first quarter of 2012 was 39.1%. The gross profit percentage was 120 basis points higher than the corresponding quarter of 2011 as lower occupancy costs, as a percentage of net sales, were partially offset by the inclusion of lower margin Party Packagers sales. During the first quarter of 2012, 62.9% of our domestic retail sales, including e-commerce, were products supplied by our wholesale operations, compared to 64.1% for the first quarter of 2011.
Operating expenses
Wholesale selling expenses of $13.6 million for the first quarter of 2012 were $0.2 million, or 1.6%, lower than the corresponding quarter of 2011. Wholesale selling expenses were 10.3% of net wholesale sales during the first quarter of 2012, compared to 10.5% during the first quarter of 2011.
Retail operating expenses during the first quarter of 2012 were $70.6 million and were $8.8 million, or 14.2%, higher than the first quarter of 2011. The increase was principally due to higher spending on a national broadcasting campaign, $2.6 million of operating expenses related to Party Packagers, increased e-commerce costs due to the growth of the business, and inflationary increases in retail expenses. Retail operating expenses were 28.6% of retail net sales during the first quarter of 2012, compared to 28.1% during the corresponding quarter of 2011. Franchise expenses during the first quarter of 2012 were $2.7 million and were $0.6 million lower than the first quarter of 2011.
General and administrative expenses during the first quarter of 2012 were $33.8 million and were $2.2 million, or 7.1%, higher than the first quarter of 2011, principally due to $1.2 million of expenses related to Party Packagers, and inflationary increases in general and administrative expenses. General and administrative expenses were 8.8% of total revenues during the first quarter of 2012, compared to 8.9% during the corresponding quarter of 2011.
Art and development costs totaled $4.5 million during the first quarter of 2012 and were $0.6 million higher than the corresponding quarter of 2011. As a percentage of total revenues, art and development costs were 1.2% during the first quarter of 2012, compared to 1.0% during the first quarter of 2011.
Interest expense, net
Interest expense, net, totaled $18.1 million during the first quarter of 2012 and was $2.3 million, or 11.1%, lower than the first quarter of 2011 due to higher interest rates in 2011, including the impact of an interest rate swap agreement, and reduced usage of the New ABL Facility.
Other (income) expense, net
Other income, net, was $0.2 million during the first quarter of 2012, compared to $0.1 million of expense during the first quarter of 2011. During both periods, other (income) expense, net, included income from an unconsolidated balloon distribution joint venture in Mexico. Additionally, the first quarter of 2011 included acquisition-related expenses.
Income tax expense (benefit)
The income tax expense (benefit) for the first quarters of 2012 and 2011 were determined based upon the Companys estimated consolidated effective income tax rates of 36.3% and 35.8% for the years ending December 31, 2012 and 2011, respectively. The differences between the estimated consolidated effective income tax rates and the U.S. federal statutory rate are primarily attributable to state income taxes and available domestic manufacturing deductions.
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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 Credit Agreement in amounts sufficient to enable us to repay our indebtedness, including the Senior Subordinated Notes, or to fund our other liquidity needs.
Cash Flow Data Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Net cash used in operating activities totaled $32.1 million during the first quarter of 2012, as compared to $12.9 million during the comparable quarter of 2011. Net cash flows provided by operating activities before changes in operating assets and liabilities were $20.7 million during the first quarter of 2012 and $14.4 million during the comparable quarter of 2011. Changes in operating assets and liabilities during the first quarter of 2012 and the first quarter of 2011 resulted in the use of cash of $52.8 million and $27.3 million, respectively, and principally reflect the pay down of Halloween and other fourth quarter seasonal trade accounts payables.
Net cash used in investing activities totaled $8.0 million during the first quarter of 2012, as compared to $67.4 million during the comparable quarter of 2011. Investing activities during the first quarter of 2011 included $47.1 million paid in connection with the purchase of Riethmuller and $9.3 million paid in connection with the purchase of retail franchise stores. Capital expenditures totaled $8.1 million during the first quarter of 2012, compared to $11.0 million during the corresponding quarter of 2011. Retail capital expenditures totaled $5.6 million in 2012 and were principally for store conversions, while wholesale capital expenditures, principally for printing plates and dies, totaled $2.5 million.
Net cash provided by financing activities was $34.8 million during the first quarter of 2012, compared to $75.3 million during the first quarter of 2011. Both periods principally reflect borrowings under the New ABL Facility, net of scheduled repayments for the New Term Loan Credit Agreement. Borrowings during the first quarter of 2012 and 2011 were used to pay down Halloween and other fourth quarter seasonal trade accounts payable. Borrowings during the first quarter of 2011 were also used to purchase Riethmuller.
Required repayments under the New Term Loan Credit Agreement for the remainder of 2012 will be $5.1 million. At March 31, 2012, we had $169.4 million of excess availability under the New ABL Facility.
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 on its financial condition or future results of operations.
Seasonality
Wholesale Operations
Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween and Christmas, the inventory balances of our wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, the promotional activities of our wholesale business, including special dating terms, particularly with respect to Halloween products sold to retailers and other distributors, result in slightly higher accounts receivable balances during the third quarter.
Retail Operations
Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent, our year-end holiday sales. We believe this general pattern will continue in the future.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that convey our current expectations or forecasts of future events. All statements in this report other than statements of historical fact are forward-looking statements. Forward-looking statements include statements about the adequacy of our liquidity, 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.
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Any or all of our forward-looking statements in this report 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, other factors which are beyond our control and the possible risks and uncertainties that have been noted in reports filed by us with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2011.
You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. 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 report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a result of our variable rate indebtedness, our earnings are affected by changes in interest rates. From time to time we have utilized interest rate swap agreements to manage the risk associated with such changes. If market interest rates for our variable rate indebtedness averaged 2% more than the interest rate actually incurred during the three months ended March 31, 2012 and 2011, our interest expense, after considering the effects of any interest rate swap agreements, would have increased by $4.1 million and $3.6 million, respectively. The income (loss) before income taxes for the quarters ended March 31, 2012 and 2011 would also have been impacted by the same amounts. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowings and considering any 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 could potentially take action to 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.
As a result of the sale of our products in foreign markets, our earnings are also affected by fluctuations in the value of the U.S. dollar when compared to the values of foreign currencies. 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 (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 income from operations of $3.0 million and $3.1 million for the three months ended March 31, 2012 and 2011, respectively. In addition to the direct effects of changes in exchange rates, 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.
Item 4. Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012 pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is: (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
32 | Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (ii) the Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2012 and 2011; (iii) the Condensed Consolidated Statement of Stockholders Equity for the three month period ended March 31, 2012 and (iv) the Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2012 and 2011; and (v) the Notes to the Condensed Consolidated Financial Statements tagged as blocks of text.* |
* | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMSCAN HOLDINGS, INC. | ||||||
By: | /s/ Michael A. Correale | |||||
Michael A. Correale | ||||||
Chief Financial Officer | ||||||
(on behalf of the registrant and as principal | ||||||
Date: May 15, 2012 | financial and accounting officer) |
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