UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~Form10-Q~~

Form 10-Q

(Mark One)

☒
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2022

☐
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number001-37344

Party City Holdco Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		46-0539758
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

80 Grasslands RoadElmsford, NY		10523
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:

~~(914)~~ (914) 345-2020

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, Par Value: $0.01/share	PRTY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by checkmark ~~whether~~whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” ~~and~~, “smaller reporting company”, and “emerging growth company” inRule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 1, 2017, 119,730,069~~April 28, 2022, 112,492,976 shares of the Registrant’s common stock were outstanding.

PARTY CITY HOLDCO INC.

Form10-Q

~~September 30, 2017~~March 31, 2022

TABLE OF CONTENTS


		Page
~~PART I~~
PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at ~~September 30, 2017 and~~March 31, 2022, December 31, ~~2016~~2021 and March 31, 2021		3
	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months ~~ended September 30, 2017~~Ended March 31, 2022 and ~~September 30, 2016~~March 31, 2021		4
	4
Condensed Consolidated Statements ~~of Operations and Comprehensive Income for the Nine Months ended September 30, 2017 and September 30, 2016~~			5
~~Condensed Consolidated Statement~~ of Stockholders’ Equity for the ~~Nine~~Three Months ~~ended September 30, 2017~~Ended March 31, 2022 and March 31, 2021		5
	6
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months ~~ended September 30, 2017~~Ended March 31, 2022 and ~~September 30, 2016~~March 31, 2021		6
	7
Notes to Condensed Consolidated Financial Statements			8	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18	15

Item 3. Quantitative and Qualitative Disclosures about Market Risk			30	24

Item 4. Controls and Procedures			30	24
~~PART II~~
PART II

Item 1. Legal Proceedings			32	25

Item 1A. Risk Factors			32	25

Item 6. Exhibits			32	26
~~Signature~~
Signature	33	27

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2017			December 31, 2016			March 31, 2022			December 31, 2021			March 31, 2021
	(Note 2) (Unaudited)			(Note 2)			(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	58,143		$	64,610		$	32,645		$	47,914		$	83,806
Accounts receivable, net		169,059			134,091			85,280			93,301			81,658
Inventories, net		687,254			613,868			517,459			443,295			428,316
Prepaid expenses and other current assets		84,859			68,255			69,668			57,656			47,803

Income tax receivable								55,614			56,317			68,632
Total current assets		999,315			880,824			760,666			698,483			710,215
Property, plant and equipment, net		298,758			292,904			224,134			221,870			214,698
Operating lease asset								729,587			693,875			687,214
Goodwill		1,631,806			1,572,568			664,943			664,296			659,865
Trade names		567,507			566,599			383,761			383,737			383,733
Other intangible assets, net		65,023			76,581			22,319			23,687			29,912
Other assets, net		12,703			4,502			25,425			25,952			9,832

Total assets	$	3,575,112		$	3,393,978		$	2,810,835		$	2,711,900		$	2,695,469

LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	241,339		$	120,138		$	209,112		$	84,181		$	142,859
Accounts payable		169,130			163,415			188,842			161,736			127,812
Accrued expenses		184,115			149,683			144,397			195,531			146,742
Current portion of operating lease liability								119,384			116,437			150,860
Income taxes payable		—			46,675			10,409			10,801			0
Current portion of long-term obligations		13,064			13,348			928			1,373			1,359

Total current liabilities		607,648			493,259			673,072			570,059			569,632
Long-term obligations, excluding current portion		1,534,146			1,539,604			1,346,724			1,351,189			1,358,495
Deferred income tax liabilities		282,376			278,819
Deferred rent and other long-term liabilities		80,389			65,507

Long-term portion of operating lease liability								681,949			655,875			628,217
Deferred income tax liabilities, net								28,067			29,195			31,036
Other long-term liabilities								23,266			22,868			33,195
Total liabilities		2,504,559			2,377,189			2,753,078			2,629,186			2,620,575
Redeemable securities		3,000			—
Commitments and contingencies
Stockholders’ equity:
Common stock (119,662,869 and 119,515,894 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively)		1,197			1,195
Common stock (112,463,647, 112,170,944 and 111,258,890 shares outstanding and 124,607,064, 124,157,500 and 122,573,377 shares issued at March 31, 2022, December 31, 2021, and March 31, 2021, respectively)								1,384			1,384			1,383
Additionalpaid-in capital		915,090			910,167			984,060			982,307			976,037
Retained earnings		188,049			157,666
Accumulated other comprehensive loss		(36,783	)		(52,239	)

Accumulated deficit								(598,874	)		(571,985	)		(579,486	)
Accumulated other comprehensive income								4,473			3,541			5,134
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury								391,043			415,247			403,068
Less: Common stock held in treasury, at cost (12,143,417, 11,986,556 and 11,314,487 shares at March 31, 2022, December 31, 2021, and March 31, 2021, respectively)								(333,286	)		(332,533	)		(327,388	)
Total Party City Holdco Inc. stockholders’ equity								57,757			82,714			75,680
Noncontrolling interests								0			0			(786	)
Total stockholders’ equity		1,067,553			1,016,789			57,757			82,714			74,894

Total liabilities, redeemable securities and stockholders’ equity	$	3,575,112		$	3,393,978

Total liabilities and stockholders’ equity							$	2,810,835		$	2,711,900		$	2,695,469

See accompanying notes to unaudited condensed consolidated financial statements.

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended
September 30,

   2017    2016
Revenues:

Net sales
   $ 557,350    $ 553,382
Royalties and franchise fees
   2,759    3,568




Total revenues
   560,109    556,950
Expenses:

Cost of sales
   357,523    356,662
Wholesale selling expenses
   16,274    14,739
Retail operating expenses
   100,739    100,746
Franchise expenses
   3,636    3,370
General and administrative expenses
   37,971    38,972
Art and development costs
   5,898    5,543
Development stage expenses
   680    —




Total expenses
   522,721    520,032




Income from operations
   37,388    36,918
Interest expense, net
   23,228    22,424
Other expense (income), net
   593    (905 )




Income before income taxes
   13,567    15,399
Income tax expense
   3,483    5,219




Net income
   $ 10,084    $ 10,180




Comprehensive income
   $ 15,329    $ 6,028
Net income per common share-Basic
   $ 0.08    $ 0.09
Net income per common share-Diluted
   $ 0.08    $ 0.08
Weighted-average number of common shares-Basic
   119,587,339    119,406,751
Weighted-average number of common shares-Diluted
   120,912,849    120,472,297
Dividends declared per share
   $ 0.00    $ 0.00


	Three Months Ended March 31,
	2022			2021
Net sales	$	432,976		$	426,807
Cost of sales		294,968			274,521
Gross profit		138,008			152,286
Selling, general and administrative expenses**		158,060			149,021
Loss on disposal of assets in international operations		0			3,211
(Loss) income from operations		(20,052	)		54
Interest expense, net		23,395			17,214
Other (income) expense, net		(203	)		427
(Loss) before income taxes		(43,244	)		(17,587	)
Income tax (benefit)		(16,355	)		(3,469	)
Net (loss)		(26,889	)		(14,118	)
Less: Net (loss) attributable to noncontrolling interests		0			(54	)
Net (loss) attributable to common shareholders of Party City Holdco Inc.	$	(26,889	)	$	(14,064	)
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic	$	(0.24	)	$	(0.13	)
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted	$	(0.24	)	$	(0.13	)
Weighted-average number of common shares-Basic		112,407,040			110,917,349
Weighted-average number of common shares-Diluted		112,407,040			110,917,349
Dividends declared per share	$	0		$	0
Comprehensive (loss) income	$	(25,937	)	$	20,937
Less: Comprehensive (loss) attributable to noncontrolling interests		0			(84	)
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc.	$	(25,937	)	$	21,021
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.

~~PARTY CITY HOLDCO INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In thousands, except share and per share data)~~

Nine Months Ended
September 30,

   2017    2016
Revenues:

Net sales
   $ 1,572,966    $ 1,523,094
Royalties and franchise fees
   9,020    11,009




Total revenues
   1,581,986    1,534,103
Expenses:

Cost of sales
   978,142    952,294
Wholesale selling expenses
   47,946    45,854
Retail operating expenses
   281,981    278,070
Franchise expenses
   10,666    10,507
General and administrative expenses
   125,763    115,828
Art and development costs
   17,638    16,596
Development stage expenses
   7,092    —




Total expenses
   1,469,228    1,419,149




Income from operations
   112,758    114,954
Interest expense, net
   65,214    67,857
Other expense (income), net
   860    (4,107 )




Income before income taxes
   46,684    51,204
Income tax expense
   16,301    18,903




Net income
   $ 30,383    $ 32,301




Comprehensive income
   $ 45,839    $ 22,355
Net income per common share-Basic
   $ 0.25    $ 0.27
Net income per common share-Diluted
   $ 0.25    $ 0.27
Weighted-average number of common shares-Basic
   119,546,451    119,340,610
Weighted-average number of common shares-Diluted
   120,907,979    120,312,492
Dividends declared per share
   $ 0.00    $ 0.00

See accompanying notes to unaudited condensed consolidated financial statements.

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In ~~thousands, except share data)~~thousands)

   Common
Shares    Common
Stock    Additional
Paid-in
Capital    Retained
Earnings    Accumulated
Other
Comprehensive
Loss Total
Stockholders’
Equity
Balance at December 31, 2016
   119,515,894    $ 1,195    $ 910,167    $ 157,666    $ (52,239 ) $ 1,016,789
Net income
            30,383    30,383
Employee equity based compensation
         3,852       3,852
Warrant expense
         286       286
Exercise of stock options
   146,975    2    785       787
Foreign currency adjustments
               16,818 16,818
Impact of foreign exchange contracts, net of taxes
               (1,362 ) (1,362 )










Balance at September 30, 2017
   119,662,869    $ 1,197    $ 915,090    $ 188,049    $ (36,783 ) $ 1,067,553


	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury			Common Stock Held In Treasury			Total Party City Holdco Inc. Stockholders’ Equity			Non- Controlling Interests		Total Stockholders’ Equity
Balance at December 31, 2021	$	1,384	$	982,307	$	(571,985	)	$	3,541	$	415,247		$	(332,533	)	$	82,714		$	—	$	82,714
Net (loss)		—		—		(26,889	)		—		(26,889	)		—			(26,889	)		—		(26,889	)
Stock-based compensation**		—		1,733		—			—		1,733			—			1,733			—		1,733
Treasury stock purchases		—		—		—			—		—			(753	)		(753	)		—		(753	)
Foreign currency adjustments		—		20		—			932		952			—			952			—		952
Balance at March 31, 2022	$	1,384	$	984,060	$	(598,874	)	$	4,473	$	391,043		$	(333,286	)	$	57,757		$	—	$	57,757


	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury			Common Stock Held In Treasury			Total Party City Holdco Inc. Stockholders’ Equity			Non- Controlling Interests			Total Stockholders’ Equity
Balance at December 31, 2020	$	1,373	$	971,972		$	(565,457	)	$	(29,916	)	$	377,972		$	(327,182	)	$	50,790		$	(269	)	$	50,521
Net (loss)		—		—			(14,064	)		—			(14,064	)		—			(14,064	)		(54	)		(14,118	)
Stock-based compensation**		—		1,230			—			—			1,230			—			1,230			—			1,230
Warrant expense (see Note 15 – Kazzam, LLC)		4		(4	)		—			—			—			—			—			—			—
Disposed non-controlling interest		—		—			—			—			—			—			—			(487	)		(487	)
Treasury stock purchases		—		—			—			—			—			(206	)		(206	)		—			(206	)
Exercise of stock options		6		2,849			—			—			2,855			—			2,855			—			2,855
Foreign currency adjustments		—		(10	)		35			36,398			36,423			—			36,423			24			36,447
Impact of foreign exchange contracts, net		—		—			—			(1,348	)		(1,348	)		—			(1,348	)		—			(1,348	)
Balance at March 31, 2021	$	1,383	$	976,037		$	(579,486	)	$	5,134		$	403,068		$	(327,388	)	$	75,680		$	(786	)	$	74,894

** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based, restricted stock units – performance-based and directors – non-cash compensation, which were shown separately in prior years.

See accompanying notes to unaudited condensed consolidated financial statements.

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended
September 30,

   2017 2016
Cash flows provided by operating activities:

Net income
   $ 30,383 $ 32,301
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense
   62,519 61,186
Amortization of deferred financing costs and original issuance discounts
   3,699 3,821
Provision for doubtful accounts
   432 429
Deferred income tax expense
   3,221 933
Deferred rent
   5,634 12,240
Undistributed (income) loss in unconsolidated joint ventures
   (92 ) 380
Loss on disposal of assets
   533 14
Non-employee equity based compensation
   3,286 —
Employee equity based compensation
   3,852 2,829
Changes in operating assets and liabilities, net of effects of acquired businesses:

Increase in accounts receivable
   (25,370 ) (46,576 )
Increase in inventories
   (46,292 ) (108,882 )
Increase in prepaid expenses and other current assets
   (11,299 ) (15,046 )
(Decrease) increase in accounts payable, accrued expenses and income taxes payable
   (24,244 ) 79,848


Net cash provided by operating activities
   6,262 23,477
Cash flows used in investing activities:

Cash paid in connection with acquisitions, net of cash acquired
   (72,804 ) (31,820 )
Capital expenditures
   (47,916 ) (57,324 )
Proceeds from disposal of property and equipment
   26 31


Net cash used in investing activities
   (120,694 ) (89,113 )
Cash flows provided by financing activities:

Repayment of loans, notes payable and long-term obligations
   (25,311 ) (28,158 )
Proceeds from loans, notes payable and long-term obligations
   129,150 97,943
Excess tax benefit from stock options
   —   526
Exercise of stock options
   787 1,281
Debt issuance costs
   —   (44 )


Net cash provided by financing activities
   104,626 71,548
Effect of exchange rate changes on cash and cash equivalents
   3,339 (1,214 )


Net (decrease) increase in cash and cash equivalents
   (6,467 ) 4,698
Cash and cash equivalents at beginning of period
   64,610 42,919


Cash and cash equivalents at end of period
   $ 58,143 $ 47,617


Supplemental disclosure of cash flow information:

Cash paid during the period

Interest
   $ 60,871 $ 71,095
Income taxes, net of refunds
   $ 65,002 $ 26,103


	Three Months Ended March 31,
	2022			2021
Cash flows (used in) operating activities:
Net (loss)	$	(26,889	)	$	(14,118	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization expense		15,860			17,944
Amortization of deferred financing costs and original issuance discounts		1,271			863
Provision for doubtful accounts		945			696
Deferred income tax (benefit)		(1,135	)		(3,386	)
Change in operating lease liability/asset		(6,723	)		(37,556	)
Undistributed loss in equity method investments		310			336
Loss on disposal of assets		153			110
Loss on disposal of assets in international operations		0			3,211
Goodwill, intangibles and long-lived assets impairment		2,154			0
Stock-based compensation**		1,733			1,230
Loss on debt refinancing		0			226
Changes in operating assets and liabilities:
Decrease in accounts receivable		7,255			2,952
Increase in inventories		(75,596	)		(17,565	)
Increase in prepaid expenses and other current assets		(11,205	)		(8,768	)
(Decrease) increase in accounts payable, accrued expenses and income taxes payable		(24,958	)		5,014
Net cash (used in) operating activities		(116,825	)		(48,811	)
Cash flows (used in) investing activities:
Cash paid in connection with acquisitions, net of cash acquired		(7	)		0
Capital expenditures		(18,620	)		(22,184	)
Proceeds from disposal of property and equipment		1,610			—
Proceeds from sale of international operations, net of cash disposed		0			20,556
Net cash (used in) investing activities		(17,017	)		(1,628	)
Cash flows provided by (used in) financing activities:
Repayment of loans, notes payable and long-term obligations		(5,518	)		(792,849	)
Proceeds from loans, notes payable and long-term obligations		124,759			794,750
Treasury stock purchases		(753	)		(206	)
Exercise of stock options		0			2,855
Debt issuance costs		0			(21,437	)
Net cash provided by (used in) financing activities		118,488			(16,887	)
Effect of exchange rate changes on cash and cash equivalents		85			(177	)
Net (decrease) in cash and cash equivalents and restricted cash		(15,269	)		(67,503	)
Change in cash classified within current assets held for sale		0			31,628
Cash and cash equivalents and restricted cash at beginning of period*		48,914			119,681
Cash and cash equivalents and restricted cash at end of period*	$	33,645		$	83,806
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense	$	41,173		$	20,309
Cash (received) paid during the period for income taxes, net of refunds	$	(421	)	$	127

*Includes $1,000 of restricted cash at March 31, 2022 and December 31, 2021. There was 0 restricted cash as of March 31, 2021. The Company records restricted cash in other assets, net as presented in the consolidated balance sheet at March 31, 2022 and December 31, 2021.
** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based, restricted stock units – performance-based and directors – non-cash compensation, which were shown separately in prior years.

See accompanying notes to unaudited condensed consolidated financial statements.

~~PARTY CITY HOLDCO INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share)

Note 1 – Description of Business

Party City Holdco Inc. (the “Company” or “Party City Holdco”) is a leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party ~~goods. The Company designs, manufactures, sources~~goods globally by revenue. With hundreds of retail stores filled with thousands of products across the United States, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and ~~distributes~~costumes for their celebration aided by the support of our party ~~goods, including paper~~experts both in-store and ~~plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s~~online. Our retail operations include ~~over 900~~approximately 830 specialty retail party supply stores (including ~~approximately 150~~ franchise stores) ~~in the United States and Canada,~~throughout North America operating under the names Party City and Halloween City, ande-commerce websites which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name PartyCity.com. ~~Party City Holdco franchises both individual~~

In addition to our retail operations, we are also a global designer, manufacturer and distributor of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and ~~franchise areas throughout the United States, Mexico and Puerto Rico, principally under the name Party City.~~dollar stores.

Party City Holdco is a holding company with no operating assets or operations. The Company owns ~~100%~~100% of PC Nextco Holdings, LLC (“PC Nextco”), which owns ~~100%~~100% of PC Intermediate Holdings, Inc. (“PC Intermediate”). PC Intermediate owns ~~100%~~100% of Party City Holdings Inc. (“PCHI”), which owns most of the Company’s operating subsidiaries.

Note 2 – Basis of Presentation and Recently Issued Accounting Pronouncements

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its majority-owned and controlled entities. All ~~significant~~ intercompany balances and transactions have been ~~eliminated in consolidation.~~eliminated. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.

The ~~majority of our~~Company’s retail operations define a fiscal year (“Fiscal Year”) as the52-week period or53-week period ended on the Saturday nearest December 31st of each year and define fiscal quarters (“Fiscal Quarter”) as the four interim13-week periods following the end of the previous Fiscal Year, except in the case of a53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The condensed consolidated financial statements of the Company combine the Fiscal Quarters of our retail operations with the calendar quarters of our ~~wholesale operations. The Company has determined~~Wholesale operations, as the differences ~~between the retail operation’s Fiscal Year and Fiscal Quarters and the calendar year and calendar quarters to be insignificant.~~

~~Operating results for interim periods~~ are not necessarily indicative of the results to be expected for the year ending December 31, 2017. 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 Company’s Form~~10-K~~ ~~for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 16, 2017.~~significant.

Recently Issued Accounting Pronouncements

In ~~August 2017,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~2017-12,~~ ~~“Derivatives~~ 2020-04, which provides guidance providing optional expedients and ~~Hedging: Targeted Improvements~~exceptions for applying U.S. generally accepted accounting principles to ~~Accounting for Hedging Activities”. The pronouncement amends~~contracts, hedging relationships, and other transactions affected by the ~~existing hedge accounting model~~discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. Additionally, in ~~order to enable~~January 2021, the FASB issued ASU 2021-01, which allows entities to ~~better portray~~elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the ~~economics~~interest rates. The Company has evaluated this guidance and it did not have an impact on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of ~~their risk management activities in their~~the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial ~~statements.~~statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The ~~update is~~new standard became effective for the Company ~~during the first quarter of 2019. Although the Company continues to evaluate this pronouncement, it does not believe that it will have a material impact~~ on ~~the Company’s consolidated~~January 1, 2022 and only impacts annual financial ~~statements.~~

~~In November 2016, the FASB issued ASU2016-18,~~ ~~“Statement of Cash Flows: Restricted Cash”.~~statement footnote disclosures. The pronouncement clarifies how entities should present changes in restricted cash on the statement of cash flows. The update is effective for the Company during the first quarter of 2018. The Company is in the process of evaluating the impact of the pronouncement on the Company’s consolidated financial statements.

~~In August 2016, the FASB issued ASU2016-15,~~ “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. The pronouncement clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The update is effective for the Company during the first quarter of 2018. The Company is in the process of evaluating the impact of the pronouncement on the Company’s consolidated financial statements.

~~In March 2016, the FASB issued ASU2016-09,~~ “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting”. The pronouncement simplifies several aspects of the accounting for share-based payment transactions. The Company adopted the pronouncement during the first quarter of 2017 and such adoption did not have a material ~~impact~~effect on ~~the Company’s~~our consolidated financial statements.

Note 3 – Disposition of Assets

In December 2021, the Company announced the closure of a manufacturing facility in New Mexico. The facility ceased operations in February ~~2016,~~2022. In December 2021, the ~~FASB issued ASU2016-02,~~ ~~“Leases”~~Company recorded charges of $11,545, consisting primarily of equipment and inventory impairments of $8,650 and $2,425, respectively, and severance and other costs of $470. During the three months ended March 31, 2022, additional charges of $2,154 were recorded.

In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations. The ~~ASU requires that companies recognize on their balance sheets assets and liabilities~~final consideration for the ~~rights and obligations created by~~sale amounted to $54.6 million. During the ~~companies’ leases. The update is effective for~~fourth quarter of 2020, the Company recorded a loss reserve of $73,948 in connection with this sale, and during the first quarter of ~~2019. The~~2021, the Company recorded an additional loss of $3,211, related to changes in working capital accounts through the transaction close date, which is reported in the ~~process~~Consolidated Statements of ~~evaluating the impact of the pronouncement on the Company’s consolidated financial statements.~~Operations and Comprehensive Income (Loss).

~~In January 2016, the FASB issued ASU2016-01,~~ ~~“Financial Instruments~~Note 4 – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The update impacts the accounting for equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The pronouncement will be effective for the Company during the first quarter of 2018. Although the Company continues to evaluate this pronouncement, it does not believe that it will have a material impact on the Company’s consolidated financial statements.Inventories, net

~~In July 2015, the FASB issued ASU2015-11,~~ ~~“Inventory: Simplifying the Measurement of Inventory”. The update changes the measurement principle for inventory from the lower of cost or market to lower of cost and~~Inventories, net ~~realizable value. The Company adopted the pronouncement during the first quarter of 2017 and such adoption did not have a material impact on the Company’s consolidated financial statements.~~

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The pronouncement contains a five-step model which replaces most existing revenue recognition guidance. The new standard is effective for the Company during the first quarter of 2018. The pronouncement can be applied retrospectively to prior reporting periods or through a cumulative-effect adjustment as of the date of adoption. The Company has decided to adopt the pronouncement using the modified retrospective approach. Although the Company continues to evaluate the pronouncement and it might impact the accounting for certain discounts and rebates within the Company’s wholesale business, the Company does not believe that the pronouncement will have a material impact on its consolidated financial statements.

~~Note 3 – Inventories~~

~~Inventories~~ consisted of the following:


	September 30, 2017		December 31, 2016		March 31, 2022		December 31, 2021		March 31, 2021
Finished goods	$	646,486	$	581,277	$	471,988	$	393,609	$	386,108
Raw materials		30,395		23,222		24,257		25,624		23,618
Work in process		10,373		9,369		21,214		24,062		18,589
					$	517,459	$	443,295	$	428,316
	$	687,254	$	613,868

Inventories, net are valued at the lower of cost or net realizable value. The Company principally determines the cost of inventory using the weighted average method.

The Company estimates retail inventory ~~shortage~~shrinkage for the ~~periods~~period between physical inventory dates on astore-by-store basis. Inventory shrinkage estimates can be affected by changes in merchandise mix and changes in actual shortage trends. The shrinkage rate from the most recent physical inventory, in combination with historical experience, is the basis for estimating shrinkage.

In the ordinary course of business the Company is involved in transactions with certain of its equity-method investees, primarily for the purchase of finished goods inventory. For the three months ended March 31, 2022, the Company purchased $13.9 million. As of March 31, 2022, approximately $36.2 million of these purchases are reflected in finished goods inventory with accounts payable of $22.9 million related to such transactions.

Note 45 – Income Taxes

The effective income tax rate for the ~~nine~~three months ended ~~September 30, 2017, 34.9%,~~March 31, 2022 of 37.8% is ~~lower than~~different from the ~~effective~~statutory rate ~~for the nine months ended September 30, 2016, 36.9%, principally~~of 21.0% primarily due to ~~discrete items related to uncertain tax positions, stock option exercises~~state taxes, and~~return-to-provision~~ ~~adjustments. The impact of such items was partially offset~~ valuation allowance resulting from interest carryforward deductions limited by ~~the effect of state tax rate changes on deferred tax liabilities.~~IRC Section 163(j).

Note 56 – Changes in Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The changes in accumulated other comprehensive ~~loss~~income (loss) consisted of the following:

   Three Months Ended September 30, 2017
   Foreign
Currency
Adjustments    Impact of
Foreign
Exchange
Contracts,
Net of Taxes    Total,
Net of Taxes
Balance at June 30, 2017
   $ (41,650 )    $ (378 )    $ (42,028 )
Other comprehensive income (loss) before reclassifications
   5,297    (281 )    5,016
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income
   —      229    229






Net current-period other comprehensive income (loss)
   5,297    (52 )    5,245






Balance at September 30, 2017
   $ (36,353 )    $ (430 )    $ (36,783 )


	Three Months Ended March 31, 2022
	Foreign Currency Translation Adjustments		Total, Net of Taxes
Balance at December 31, 2021	$	3,541	$	3,541
Other comprehensive income before reclassifications, net of tax		932		932
Net current-period other comprehensive income		932		932
Balance at March 31, 2022	$	4,473	$	4,473

   Three Months Ended September 30, 2016
   Foreign
Currency
Adjustments    Impact of
Foreign
Exchange
Contracts,
Net of Taxes    Total,
Net of Taxes
Balance at June 30, 2016
   $ (39,500 )    $ 916    $ (38,584 )
Other comprehensive loss before reclassifications
   (3,537 )    (470 )    (4,007 )
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net
   —      (145 )    (145 )






Net current-period other comprehensive loss, net
   (3,537 )    (615 )    (4,152 )






Balance at September 30, 2016
   $ (43,037 )    $ 301    $ (42,736 )

   Nine Months Ended September 30, 2017
   Foreign
Currency
Adjustments    Impact of
Foreign
Exchange
Contracts,
Net of Taxes    Total,
Net of Taxes
Balance at December 31, 2016
   $ (53,171 )    $ 932    $ (52,239 )
Other comprehensive income (loss) before reclassifications, net of income tax
   16,818    (1,077 )    15,741
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax
   —      (285 )    (285 )






Net current-period other comprehensive income (loss)
   16,818    (1,362 )    15,456






Balance at September 30, 2017
   $ (36,353 )    $ (430 )    $ (36,783 )

   Nine Months Ended September 30, 2016
   Foreign
Currency
Adjustments    Impact of
Foreign
Exchange
Contracts,
Net of Taxes    Total,
Net of Taxes
Balance at December 31, 2015
   $ (33,401 )    $ 611    $ (32,790 )
Other comprehensive (loss) income before reclassifications, net of income tax
   (9,636 )    183    (9,453 )
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax
   —      (493 )    (493 )






Net current-period other comprehensive loss
   (9,636 )    (310 )    (9,946 )






Balance at September 30, 2016
   $ (43,037 )    $ 301    $ (42,736 )






8


	Three Months Ended March 31, 2021
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at December 31, 2020	$	(31,264	)	$	1,348		$	(29,916	)
Other comprehensive income (loss) before reclassifications, net of tax		(191	)		77			(114	)
Release of cumulative foreign currency translation adjustment to net loss as a result of disposition of international operations		36,589			(1,422	)		35,167
Amounts reclassified from accumulated other comprehensive (loss) income to the condensed consolidated statement of operations and comprehensive income (loss), net of income tax		0			(3	)		(3	)
Net current-period other comprehensive income (loss)		36,398			(1,348	)		35,050
Balance at March 31, 2021	$	5,134		$	0		$	5,134

Note 67 – Capital Stock

At ~~September 30, 2017,~~March 31, 2022, the Company’s authorized capital stock consisted of 300,000,000 shares of ~~$0.01~~$0.01 par value common stock and 15,000,000 shares of ~~$0.01~~$0.01 par value preferred stock.

Note 78 – Segment Information

Industry Segments

The Company has ~~two identifiable business~~2 reportable operating segments. The Wholesale segment designs, manufactures, ~~sources~~contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties ~~gifts~~ and stationery throughout the world. The Retail segment operates specialty retail party supply stores in the United States, ~~and Canada,~~ principally under the names Party City and Halloween City, and it operatese-commerce websites, principally through the domain name ~~Partycity.com.~~ PartyCity.com. The ~~Retail segment also franchises both individual stores and franchise areas throughout the United States, Mexico and Puerto Rico, principally under the name Party City. The Company’s industry~~company's reportable operating segment data for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~September 30, 2016~~2021 was as follows:


	Wholesale			Retail			Consolidated
Three Months Ended March 31, 2022
Net sales before eliminations	$	239,680		$	340,951		$	580,631
Eliminations		(147,655	)		—			(147,655	)
Net sales		92,025			340,951			432,976
Gross profit	$	24,642		$	113,366		$	138,008
Income (loss) from operations	$	3,501		$	(23,553	)	$	(20,052	)
Interest expense, net								23,395
Other (income), net								(203	)
(Loss) before income taxes							$	(43,244	)


	Wholesale			Retail		Consolidated
Three Months Ended March 31, 2021
Net sales before eliminations	$	212,137		$	333,282	$	545,419
Eliminations		(118,612	)		—		(118,612	)
Net sales		93,525			333,282		426,807
Gross profit	$	29,108		$	123,178	$	152,286
(Loss) income from operations	$	(592	)	$	646	$	54
Interest expense, net							17,214
Other expense, net							427
(Loss) before income taxes						$	(17,587	)

In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations.

   Wholesale    Retail    Consolidated
Three Months Ended September 30, 2017

Revenues:

Net sales
   $ 381,858    $ 364,057    $ 745,915
Royalties and franchise fees
   —      2,759    2,759






Total revenues
   381,858    366,816    748,674
Eliminations
   (188,565 )    —      (188,565 )






Net revenues
   $ 193,293    $ 366,816    $ 560,109






Income from operations
   $ 22,808    $ 14,580    $ 37,388





Interest expense, net
         23,228
Other expense, net
         593


Income before income taxes
         $ 13,567


   Wholesale    Retail    Consolidated
Three Months Ended September 30, 2016

Revenues:

Net sales
   $ 416,387    $ 347,557    $ 763,944
Royalties and franchise fees
   —      3,568    3,568






Total revenues
   416,387    351,125    767,512
Eliminations
   (210,562 )    —      (210,562 )






Net revenues
   $ 205,825    $ 351,125    $ 556,950






Income from operations
   $ 35,532    $ 1,386    $ 36,918





Interest expense, net
         22,424
Other income, net
         (905 )


Income before income taxes
         $ 15,399

~~The Company’s industry segment data for the nine months ended September 30, 2017 and September 30, 2016 was as follows:~~9

   Wholesale    Retail    Consolidated
Nine Months Ended September 30, 2017

Revenues:

Net sales
   $ 929,255    $ 1,103,127    $ 2,032,382
Royalties and franchise fees
   —      9,020    9,020






Total revenues
   929,255    1,112,147    2,041,402
Eliminations
   (459,416 )    —      (459,416 )






Net revenues
   $ 469,839    $ 1,112,147    $ 1,581,986






Income from operations
   $ 49,258    $ 63,500    $ 112,758





Interest expense, net
         65,214
Other expense, net
         860


Income before income taxes
         $ 46,684


   Wholesale    Retail    Consolidated
Nine Months Ended September 30, 2016

Revenues:

Net sales
   $ 945,071    $ 1,043,212    $ 1,988,283
Royalties and franchise fees
   —      11,009    11,009






Total revenues
   945,071    1,054,221    1,999,292
Eliminations
   (465,189 )    —      (465,189 )






Net revenues
   $ 479,882    $ 1,054,221    $ 1,534,103






Income from operations
   $ 65,669    $ 49,285    $ 114,954





Interest expense, net
         67,857
Other income, net
         (4,107 )


Income before income taxes
         $ 51,204

Note 89 – 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.

On April 5, 2016, a derivative complaint was filed in the Supreme Court for the State of New York, naming certain directors and executives as defendants, and naming the Company as a nominal defendant. The complaint seeks unspecified damages and costs, and corporate governance reforms, for alleged injury to the Company in connection with public filings related to the Company’s April 2015 IPO, compensation paid to executives, and the termination of the management agreement disclosed in the initial public offering-related public filings. The Company intends to vigorously defend itself against this action. The Company is unable, at this time, to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition or cash flows.

Note 910 – Derivative Financial Instruments

The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market ~~risk~~risks managed through the use of derivative financial instruments isare interest rate risk and foreign currency exchange rate risk.

~~Foreign Exchange Risk Management~~

A portion of the Company’s 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 Canadian Dollar, the Euro, the Malaysian Ringgit and the Australian Dollar, the The Company enters into foreign exchange contracts with major international financial institutions. These forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For contracts that qualify for hedge accounting, the terms of the foreign exchange contracts are such that cash flows from the contracts should be highly effective in offsetting the expected cash flows from the underlying forecasted transactions.

The foreign currency exchange contracts are reflected in the condensed consolidated balance sheets at fair value. The fair value of the foreign currency exchange contracts is the estimated amount that the counterparties would receive or pay to terminate thedid not have any foreign currency exchange contracts at ~~the reporting date, taking into account current foreign exchange spot rates. At September 30, 2017 and December~~March 31, 2016, the Company had certain foreign currency exchange contracts that qualified for hedge accounting. No components of these agreements were excluded in the measurement of hedge effectiveness. As these hedges were 100% effective, there was no 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 currency exchange contracts will be reclassified into earnings by June 2018.2022 or 2021.

~~The following table displays the fair values of the Company’s derivatives at September 30, 2017 and December 31, 2016:~~

   Derivative Assets    Derivative Liabilities
   Balance
Sheet
Line Fair
Value    Balance
Sheet
Line Fair
Value    Balance
Sheet
Line Fair
Value    Balance
Sheet
Line Fair
Value
Derivative Instrument
   September 30, 2017    December 31, 2016    September 30, 2017    December 31, 2016
Foreign Exchange Contracts
   (a ) PP $ —      (a ) PP $ 697    (b ) AE $ 355    (b ) AE $ 215

~~(a)~~

~~PP = Prepaid expenses and other current assets~~

~~(b)~~

~~AE = Accrued expenses~~

~~The following table displays the notional amounts of the Company’s derivatives at September 30, 2017 and December 31, 2016:~~

Derivative Instrument
   September 30,
2017    December 31,
2016
Foreign Exchange Contracts
   $ 6,875    $ 22,502

Note 1011 – 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.

During 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. As part of Ampology’s compensation for designing, developing and launching the exchange platform, Ampology received an ownership interest in Kazzam. The ~~following table shows~~interest had been recorded as redeemable securities in the mezzanine of the Company’s consolidated balance sheet as Ampology had the right to cause the Company to purchase the interest. The liability was adjusted to the greater of the current fair value or the original fair value at the time at which the ownership interest was issued (adjusted for any subsequent changes in the ownership interest percentage). On March 23, 2020, the Company purchased all of Ampology’s interest in Kazzam. Refer to Note 15 – Kazzam, LLC for further detail.

The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, lease assets, inventories and ~~liabilities as of September 30, 2017 that~~property, plant and equipment, are ~~measured~~not required to be carried at fair value on a recurring ~~basis:~~

   Level 1    Level 2    Level 3    Total as of
September 30,
2017
Noncontrolling interests liabilities
   $ —      $ —      $ 6,016    $ 6,016
Derivative assets
   —      —      —      —
Derivative liabilities
   —      355    —      355

~~The following table shows assets~~basis. However, if certain triggering events occur (or at least annually for goodwill and ~~liabilities as of December 31, 2016 that are measured at fair value on~~indefinite-lived intangible assets), a ~~recurring basis:~~

   Level 1    Level 2    Level 3    Total as of
December 31,
2016
Noncontrolling interests liabilities
   $ —      $ —      $ —      $ —
Derivative assets
   —      697    —      697
Derivative liabilities
   —      215    —      215

~~In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company~~non-financial instrument is required to ~~record other assets and liabilities at~~be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value on a nonrecurring basis, generally as a result of impairment charges. No impairment charges were recorded during the nine months ended September 30, 2017 or the nine months ended September 30, 2016.value.

The carrying amounts for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximated fair value at ~~September 30, 2017~~March 31, 2022 because of the short-term maturities of the instruments and/or their variable rates of interest.

The carrying ~~amount~~amounts and ~~fair value of the Company’s borrowings under its senior secured term loan facility (“Term Loan Credit Agreement”) and its $350,000 of 6.125% senior notes (“Senior Notes”) are as follows:~~

   September 30, 2017
   Carrying
Amount    Fair
Value
Term Loan Credit Agreement
   $ 1,198,750    $ 1,220,406
Senior Notes
   345,162    364,809

~~The~~ fair values of borrowings under the Term Loan Credit Agreement and the ~~Senior Notes~~Company’s senior notes as of March 31, 2022 are as follows:


	March 31, 2022
	Gross Carrying Amount		Fair Value
8.75% Senior Secured First Lien Notes – due 2026	$	750,000	$	708,750
6.125% Senior Notes – due 2023		22,924		21,147
6.625% Senior Notes – due 2026		92,254		73,919
First Lien Party City Notes – due 2025		193,501		172,942
First Lien Anagram Notes – due 2025		149,537		159,631
Second Lien Anagram Notes – due 2026		144,625		150,229

The fair values represent Level 2 fair value measurements as the debt instruments trade in inactive markets.

The carrying amounts for other long-term debt approximated fair value at ~~September 30, 2017~~March 31, 2022 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.

During August 2015, the Company acquired 75% of the operations of Accurate Custom Injection Molding Inc. (“ACIM”). Based on the terms of the acquisition agreement, the Company will acquire the remaining 25% interest in ACIM over the next seven years and the Company’s liability for the estimated purchase price of such interest was $0 at September 30, 2017. The liability represents a Level 3 fair value measurement as it is based on unobservable inputs.

During March 2017, the Company acquired 85% of the common stock of Granmark, S.A. de C.V., a Mexican manufacturer and wholesaler of party goods. See Note 13 for further discussion of the acquisition. Based on the terms of the acquisition agreement, the Company is required to acquire the remaining 15% interest over the next five years and it has recorded a liability for the estimated purchase price of such interest, $3,342 at September 30, 2017. The liability represents a Level 3 fair value measurement as it is based on unobservable inputs.

During July 2017, the Company acquired 60% of Print Appeal, Inc. (“Print Appeal”). See Note 13 for further discussion of the acquisition. Based on the terms of the acquisition agreement, the Company will acquire the remaining 40% interest in Print Appeal over the next six years and the Company’s liability for the estimated purchase price of such interest was $2,674 at September 30, 2017. The liability represents a Level 3 fair value measurement as it is based on unobservable inputs.

Note 1112 – Earnings Per Share

Basic earnings per share are computed by dividing net income ~~available for~~attributable to common ~~stockholders~~shareholders of Party City Holdco Inc. by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated based on the weighted average number of outstanding common shares plus the dilutive effect of stock options and warrants, as if they were ~~exercised.~~exercised, and restricted stock units, as if they vested.

~~A reconciliation between basic~~Basic and diluted ~~income~~loss per share is as follows:

   Three Months
Ended
September 30,
2017    Three Months
Ended
September 30,
2016    Nine Months
Ended
September 30,
2017    Nine Months
Ended
September 30,
2016
Net income
   $ 10,084    $ 10,180    $ 30,383    $ 32,301
Weighted average shares—Basic
   119,587,339    119,406,751    119,546,451    119,340,610
Effect of dilutive securities:

Warrants
   —      —      —      —
Stock options
   1,325,510    1,065,546    1,361,528    971,882








Weighted average shares—Diluted
   120,912,849    120,472,297    120,907,979    120,312,492








Net income per common share—Basic
   $ 0.08    $ 0.09    $ 0.25    $ 0.27








Net income per common share—Diluted
   $ 0.08    $ 0.08    $ 0.25    $ 0.27


	Three Months Ended March 31,
	2022			2021
Net (loss) attributable to common shareholders of Party City Holdco Inc.	$	(26,889	)	$	(14,064	)
Weighted average shares - Basic		112,407,040			110,917,349
Effect of dilutive securities:
Warrants		0			0
Restricted stock units		0			0
Stock options		0			0
Weighted average shares - Diluted		112,407,040			110,917,349
Net (loss) per share attributable to common shareholders of Party City Holdco Inc. - Basic	$	(0.24	)	$	(0.13	)
Net (loss) per share attributable to common shareholders of Party City Holdco Inc. - Diluted	$	(0.24	)	$	(0.13	)

During the three months ended ~~September 30, 2017~~March 31, 2022, 4,819,273 restricted stock units, 4,146,742 performance restricted stock units and ~~September 30, 2016, 2,370,106~~1,800,535 stock options ~~and 2,276,695 stock options, respectively,~~ were excluded from the calculation of net ~~income~~loss per share attributable to common share – diluted as they were anti-dilutive. Additionally, during the three months ended September 30, 2017 and September 30, 2016, 596,000 warrants and 0 warrants, respectively, were excluded from the calculationshareholders of ~~net income per common share~~Party City Holdco Inc. – diluted as they were anti-dilutive. During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021, 657,920 restricted stock units, 2,853,716 performance restricted stock units and ~~September 30, 2016, 2,370,106~~2,808,395 stock options ~~and 2,276,695 stock options, respectively,~~ were excluded from the calculation of net ~~income~~loss per share attributable to common ~~share~~shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. ~~Additionally, during the nine months ended September 30, 2017~~

Note 13 – Current and ~~September 30, 2016, 596,000 warrants and 0 warrants, respectively, were excluded from the calculation of net income per common share – diluted as they were anti-dilutive.~~

~~Note 12 –~~ Long-Term Obligations

Long-term obligations at ~~September 30, 2017 and~~March 31, 2022, December 31, ~~2016~~2021 and March 31, 2021 consisted of the following:


	September 30, 2017			December 31, 2016			March 31, 2022												December 31, 2021			March 31, 2021
Term Loan Credit Agreement	$	1,198,750		$	1,205,496
Capital lease obligations		3,298			2,912
Senior Notes		345,162			344,544
							Principal Amount			Gross Carrying Amount			Deferred Financing Costs			Net Carrying Amount			Net Carrying Amount			Net Carrying Amount
8.75% Senior Secured First Lien Notes – due 2026							$	750,000		$	750,000		$	(16,185	)	$	733,815		$	732,957		$	730,508
6.125% Senior Notes – due 2023								22,924			22,924			(76	)		22,848			22,834			22,792
6.625% Senior Notes – due 2026								92,254			92,254			(627	)		91,627			91,591			91,483
First Lien Party City Notes – due 2025								161,669			193,501			0			193,501			198,004			202,657
First Lien Anagram Notes – due 2025								118,699			149,537			(706	)		148,831			149,569			150,568
Second Lien Anagram Notes – due 2026								93,613			144,625			0			144,625			144,619			148,159
Finance lease obligations								12,405			12,405			0			12,405			12,988			13,687
Total long-term obligations		1,547,210			1,552,952			1,251,564			1,365,246			(17,594	)		1,347,652			1,352,562			1,359,854
Less: current portion		(13,064	)		(13,348	)		(928	)		(928	)		—			(928	)		(1,373	)		(1,359	)

Long-term obligations, excluding current portion	$	1,534,146		$	1,539,604		$	1,250,636		$	1,364,318		$	(17,594	)	$	1,346,724		$	1,351,189		$	1,358,495

~~Note 13 – Acquisitions~~

~~During January 2017,~~Prior to April 2019, the Company ~~acquired 18 franchise stores,~~had a $540,000 asset-based revolving credit facility (with a seasonal increase to $640,000 during a certain period of each calendar year) (the “ABL Facility”), which ~~are located mostly~~matures during August 2023 (subject to a springing maturity at an earlier date if the

maturity date of certain of the Company’s other debt has not been extended or refinanced). It provides for (a) revolving loans, subject to a borrowing base, and (b) letters of credit, in ~~Louisiana and Alabama, for total consideration of approximately $15,000. The Company is in the process of finalizing purchase accounting.~~

an aggregate face amount at any time outstanding not to exceed $50,000. During ~~March 2017,~~April 2019, the Company ~~acquired 85%~~amended the ABL Facility. Such amendment removed the seasonal component and made the ABL Facility a $640,000 facility with no seasonal modification component. In connection with the refinancing, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000 in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of its subsidiaries as an unrestricted subsidiary under the ~~common stock of Granmark, S.A. de C.V. (“Granmark”), a Mexican manufacturer~~ABL Facility and ~~wholesaler of party goods, for total consideration of approximately $22,000 (exclusive of $5,600 of cash acquired). On~~ the ~~acquisition date, Granmark had $6,456 of debt outstanding under various revolving credit facilities. The majority of~~Term Loan Credit Agreement. Additionally, in February 2021 in conjunction with the ~~balance was repaid during the first quarter of 2017. The Company is in the process of finalizing purchase accounting. Based on the terms of the acquisition agreement,~~transaction discussed below, the Company ~~is required~~amended the ABL Facility by reducing the commitments to ~~acquire~~$475,000 and extending the ~~remaining 15% interest over a three~~maturity to ~~five year period and it has recorded a liability for the estimated purchase price of such interest, $3,342 at September 30, 2017.~~

Also, during March 2017, the Company acquired an additional 18 franchise stores, which are located in North Carolina and South Carolina, for total consideration of approximately $31,000. The Company is in the process of finalizing purchase accounting.

~~During April 2017, the Company paid approximately $3,500 for a 28% ownership interest in Punchbowl, Inc.~~February 2026, ~~a provider of digital greeting cards and digital invitations. The Company is accounting for the investment under the equity method of accounting.~~

During July 2017, the Company acquired 60% of the common stock of Print Appeal, Inc., a wholesaler of personalized cups, napkins, and other items, for total consideration of approximately $2,800. The Company is in the process of finalizing purchase accounting. Based on the terms of the acquisition agreement, the Company is required to acquire the remaining 40% interest over a four to six year period and it has recorded a liability for the estimated purchase price of such interest, $2,674 at September 30, 2017.

~~Note 14 – Organizational Restructuring~~

On March 15, 2017, the Company and its Chairman of the Board of Directors (“the Board”), Gerald Rittenberg, entered into a Transition and Consulting Agreement under which Mr. Rittenberg’s employment as Executive Chairman of the Company terminated effective March 31, 2017. Beginning on April 1, 2017 and continuing through December 31, 2020, unlessor earlier ~~terminated~~ as provided for in the ~~agreement (the “Consulting Period”~~agreement. On March 18, 2022, the ABL Facility was further amended. The amendment modified certain eligibility criteria with respect to the inventory component of the borrowing base. The changes lengthen the permitted in-transit time for eligible in-transit inventory being shipped from a location outside of the United States, subject to a cap on the aggregate amount of foreign in-transit inventory that is eligible to be reflected in the borrowing base.

PCHI had approximately $75.2 million, $192.4 million and $129.3 million of availability under the ABL Facility as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively. As discussed further below, Anagram had a separate asset-based revolving credit facility and there was approximately $14.4 million of availability under the Anagram ABL Facility as of March 31, 2022.

February 2021 Debt Transaction

During February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”)~~, Mr. Rittenberg~~. The 8.750% Senior Notes will ~~serve~~mature in February 2026. The Company used the proceeds from the 8.750% Senior Notes to prepay the outstanding balance of $694,220 under its existing Term Loan Credit Agreement. The prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement.

In connection with the transaction, the Company wrote-off a portion of the existing capitalized deferred financing costs and original issuance discounts. Additionally, the Company incurred $18,976 of third-party fees, principally banker fees. The amounts expensed were recorded in Other expense, net in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income and included in Gain on debt repayment in the Company’s Consolidated Statement of Cash Flows.

In conjunction with the amendment of the ABL Facility, the Company wrote-off a portion of existing deferred financing costs. Such amount was recorded in Other expense, net in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income and included in Gain on debt repayment in the Company’s Consolidated Statement of Cash Flows. The remaining capitalized costs, and $2,400 of new third-party costs incurred in conjunction with the amendment, will be amortized over the revised term of the ABL Facility.

Interest on the 8.750% Senior Notes is payable semi-annually in arrears on February 15th and August 15th of each year. The 8.750% Senior Notes are guaranteed, jointly and severally, on a ~~part-time~~senior secured basis asby each of PCHI’s existing and future domestic subsidiaries. The 8.750% Senior Notes and related guarantees are secured by a ~~non-employee~~first priority lien on substantially all assets of PCHI and the guarantors, except for the collateral that secures the senior ~~adviser~~ credit facilities on a first lien basis, with respect to which the ~~Company. Additionally, Mr. Rittenberg~~8.750% Senior Notes and related guarantees will ~~remain as Chairman~~be secured by a second priority lien, in each case subject to permitted liens and certain exclusions and release provisions.

The indenture governing the 8.750% Senior Notes contains covenants that, among other things, limit the PCHI’s ability and the ability of its restricted subsidiaries to:

•

incur additional indebtedness or issue certain disqualified stock or preferred stock;

•

create liens;

•

pay dividends or distributions, redeem or repurchase equity;

•

prepay junior lien indebtedness, unsecured pari passu indebtedness or subordinated indebtedness or make certain investments;

•

transfer or sell assets;

•

engage in consolidation, amalgamation or merger, or sell, transfer or otherwise dispose of all or substantially all of their assets; and

•

enter into certain transactions with affiliates.

The indenture governing the notes also contains certain customary affirmative covenants and events of default.

On or after August 15, 2023, 2024, and 2025, respectively, PCHI may redeem some or all of the ~~Board through~~8.750% Senior Notes at the ~~end~~redemption price of ~~his existing director term (the Company’s 2018 annual meeting of shareholders)~~104.375%, 102.188% and ~~subsequently, he will be nominated by the Board~~100.000%, respectively, plus accrued and unpaid interest, if any. In addition, PCHI may redeem up to ~~serve asa non-employee member~~ ~~of such Board throughout the remainder~~40% of the ~~Consulting Period.~~aggregate principal amount outstanding on or before August 15, 2023 with the cash proceeds from certain equity offerings at a redemption price of 108.750% of the principal amount, plus accrued and unpaid interest. PCHI may also redeem some or all of the notes before August 15, 2023 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture. At any time prior to August 15, 2023, PCHI may also at its option redeem during each 12-month period commencing with the issue date up to 10% of the aggregate principal amount of the 8.750% Senior Notes at a redemption price of 103% of the aggregate principal amount, plus accrued and unpaid interest, if any. Also, if PCHI experiences certain types of change in control, as defined, it may be required to offer to repurchase the 8.750% Senior Notes at 101% of their principal amount.

On May 7, 2021, Anagram Holdings, LLC (“Anagram”), a wholly owned subsidiary of the Company, entered into a $15 million asset-based revolving credit facility (“Anagram ABL Facility”), which matures during May 2024. It provides for (a) revolving loans, subject to a borrowing base described below, and (b) under the Anagram ABL Facility, Borrowers would be entitled to request letters of credit (“Letters of Credit”). The aggregate amount of outstanding Letters of Credit would be reserved against the credit availability and subject to a $3 million cap.

Under the ~~Transition and Consulting Agreement, Mr. Rittenberg~~Anagram ABL Facility, the borrowing base at any time equals (a) a percentage of eligible trade receivables, plus (b) a percentage of eligible inventory, plus (c) a percentage of eligible credit card receivables, less (d) certain reserves. The Anagram ABL Facility generally provides for the following pricing options: All revolving loans will ~~receive payments from April 1, 2017 through December 31, 2017 in amounts equal to his base salary had he remained employed as Executive Chairman during such period (i.e., pay~~bear interest, at ~~an annual~~the Anagram's election, at a per annum rate equal to ~~$2,090). Additionally, he will remain eligible to receive an annual bonus~~either (a) a base rate, which represents for ~~full-year 2017 based on the terms of the Company’s 2017 bonus plan and the terms of his previous employment agreement (a target amount~~any day a rate equal to ~~80%~~the greater of ~~his 2017 base salary). Further, during 2018, Mr. Rittenberg will receive severance payments aggregating $2,049, which will be made~~(i) the prime rate on such day subject to a 0% floor, (ii) the federal funds rate plus 5.0% and (iii) one-half of one percent per annum, in ~~four equal quarterly installments. Finally, beginning~~each case, plus a margin of 1.5% or (b) the Daily One Month LIBOR subject to a 0.5% floor, plus a margin of 2.5%.

In addition to paying interest on ~~January 1, 2018 and for the remainder~~outstanding principal, Anagram is required to pay a commitment fee of ~~the Consulting Period, Mr. Rittenberg will receive payments equal~~0.5% to ~~$40~~1% per ~~month~~annum in ~~consideration for his consulting services.~~respect of unutilized commitments. Anagram must also pay customary letter of credit fees.

~~Additionally,~~All obligations under the ~~Transition~~Anagram ABL Facility are jointly and ~~Consulting Agreement, during the Consulting Period, Mr. Rittenberg’s existing unvested stock options will remain eligible to vest in accordance~~severally guaranteed by Anagram and its subsidiaries. The Anagram ABL facility contains covenants and events of default customary for such credit facilities.

Note 14 – Revenue from Contracts with ~~their original terms and Mr. Rittenberg’s existing vested stock options will remain outstanding (also, in accordance~~Customers

The following table summarizes revenue from contracts with ~~their original terms).~~

As a result of the Transition and Consulting Agreement, the Company recorded a $4,296 severance charge in general and administrative expenses during the nine months ended September 30, 2017. Such amount represents: (1) the amount that he will be paid from April 1, 2017 – December 31, 2017 that is above and beyond the fair value ($40 per month) of his consulting services during such period, $1,207, (2) an estimate of his bonuscustomers for the period from April 1, 2017 – December 31, 2017, $1,040, and (3) the severance to be paid during 2018, $2,049. Throughout the Consulting Period, the Company will record $40 per month in general and administrative expenses, such amount representing the fair value of his consulting services.

Additionally, as a result of the Transition and Consulting Agreement: (1) allowing Mr. Rittenberg’s existing unvested stock options to continue vesting (such options would have been forfeited had he left the Company) and (2) allowing his existing vested stock options to remain outstanding (had he left the Company, he would have only had 60 days to exercise vested options), during the three months ended March 31, ~~2017~~2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Retail Net Sales:
North American Party City Stores	$	339,399	$	330,045
Other		1,552		3,237
Total Retail Net Sales	$	340,951	$	333,282
Wholesale Net Sales:
Domestic	$	62,209	$	55,357
International		29,816		38,168
Total Wholesale Net Sales	$	92,025	$	93,525
Total Consolidated Sales	$	432,976	$	426,807

The Company maintains allowances for credit losses resulting from the inability of the Company’s customers to make required payments. Judgment is required in assessing the ultimate realization of these receivables, including consideration of the Company’s history of receivable write-offs, the level of past due accounts and the economic status of the Company’s customers. In an effort to identify adverse trends relative to customer economic status, the Company ~~recorded a $1,362 charge~~assesses the financial health of the markets it operates in ~~general~~ and ~~administrative expenses due to the modification of such options.~~

~~Also, during the nine months ended September 30, 2017, the Company recorded a $3,195 severance charge related to the restructuring~~performs periodic credit evaluations of its ~~Retail segment. Of such amount, $2,291 was recorded in retail operating expenses~~customers and ~~$904 was recorded in general~~ongoing reviews of account balances and ~~administrative expenses. The majority~~aging of receivables. Amounts are considered past due when payment has not been received within the time frame of the ~~severance~~credit terms extended. Write-offs are charged directly against the allowance for credit losses and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses. At March 31, 2022, December 31, 2021 and March 31, 2021, the allowance for credit losses was ~~paid during the second quarter of 2017.~~$8,096, $8,057 and $7,499, respectively.

Note 15 – Kazzam, LLC

During the first quarter of 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. ~~The website will allow consumers to select, schedule and pay for various services (including entertainment, activities and food) all through a single portal.~~

~~Although~~At December 31, 2019, although the Company ~~currently only owns 30%~~owned 26% of Kazzam’s equity, ~~the Company has concluded that: a)~~ Kazzam iswas a variable interest entity ~~as it has insufficient equity at risk~~ and b) the Company ~~is its primary beneficiary. Therefore, the Company has~~ consolidated Kazzam into the Company’s financial statements. Further, as the Company ~~is currently~~was funding all of Kazzam’sstart-up activities via a loan to Kazzam ~~(which will be repaid when the venture is profitable), the Company is recording 100% of Kazzam’s~~and recorded its operating results in “development stage expenses” in the Company’s consolidated statement of operations and comprehensive (loss) income.

~~Additionally, as part of~~ Ampology’s ~~compensation for designing, developing and launching the exchange platform, Ampology has received a 70%~~ ownership interest in Kazzam had been recorded in redeemable securities in the mezzanine of the Company’s consolidated balance sheet.

In January 2020, the Company and Ampology terminated certain services agreements and warrants that Ampology had in the Company stock. The parties concurrently entered into an interim transition agreement for which expenses are recorded as development stage expenses.

On March 23, 2020, the Company agreed to purchase Ampology’s interest in Kazzam in exchange for a three-year royalty on net service revenue and a warrant to ~~acquire 596,000~~purchase up to 1,000,000 shares of ~~Party City Holdco Inc.~~the Company’s common stock. ~~During~~The acquisition of Ampology’s interest in Kazzam is an equity transaction and the ~~nine months ended September 30, 2017, Kazzam recognized $3,000 of expense related to~~difference between the fair value of the ~~70% interest. Additionally, during such period,~~consideration transferred and the carrying value of Ampology’s interest in Kazzam was recorded ~~$286 of expense related to~~within the ~~warrant. The amounts were recorded in “development stage expenses” in the Company’s~~ consolidated statement of ~~operations and comprehensive income. The 70% interest has been recorded as redeemable securities~~stockholders’ equity.

During the first quarter of 2021, Ampology exercised a warrant in a cashless redemption transaction which is reflected in the ~~Company’s~~ consolidated ~~balance sheet as, in the future, Ampology has the right to cause the Company to purchase the interest. The warrant has an exercise price~~statement of ~~$15.60 and a fair value of $2,544, which is being amortized over four years.~~stockholders’ equity.

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References throughout this document to the “Company” include Party City Holdco Inc. and its subsidiaries. In this document the words “we,” “our,” “ours” and “us” refer only to the Company and its subsidiaries and not to any other person.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this report are based on management’s good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; successful implementation of our store growth strategy; decreases in our Halloween sales; product recalls or product liability; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending, including inflationary pressures; the continuing impact of COVID-19 on our global supply chain, retail store operations and customer demand; labor and material shortages and investments; disruption to the transportation system or increases in transportation costs; the impact of inflation on consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; the impact of tariffs and our ability to mitigate impacts; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2021, in Item 1A of Part II of this report, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.

Business Overview

Our Company

We are ~~the~~a leading party goods ~~retailer~~company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. ~~With over 900 locations (inclusive of approximately 150 franchised stores),~~We are a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, we ~~have the onlycoast-to-coast~~ ~~network of party superstores in the U.S.~~are a global, world-class organization that combines state-of-the-art manufacturing and ~~Canada that make it easy~~sourcing operations and ~~fun to enhance special occasions~~sophisticated wholesale operations with a ~~differentiated shopping experience~~multi-channel retailing strategy and ~~an unrivaled assortment of innovative~~e-commerce retail operations. We design, manufactures, sources and ~~exciting merchandise offered at a compelling value. We also operate multiple~~distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. Our retail operations include approximately 830 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce ~~sites,~~ websites, principally ~~under~~through the domain name ~~PartyCity.com, and during the Halloween selling season we open a network of approximately 250 - 300 temporary stores under the Halloween City banner.~~PartyCity.com.

In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party ~~supplies,~~products, with ~~products~~items found in ~~over 40,000~~ retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores. ~~Our products are available in over 100 countries with the United Kingdom (“U.K.”), Germany, Mexico and Australia among the largest end markets for our products outside of the U.S..~~

During the first quarter of 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity for the purpose of designing, developing and launching an online exchange platform for party-related services. The website will allow consumers to select, schedule and pay for various services (including entertainment, activities and food) all through a single portal.

How We Assess the Performance of Our Company

In assessing the performance of our company, we consider a variety of performance and financial measures for our two reportable operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses. We also review other metrics such as adjusted net income (loss), adjusted net income (loss) per common share – diluted and adjusted EBITDA. For a discussion of our use of these measures and a reconciliation of adjusted net income (loss) and adjusted EBITDA to net income (loss), please refer to “Financial ~~Measures—~~Measures - Adjusted EBITDA,” “Financial ~~Measures—~~Measures - Adjusted Net Income (Loss)” and “Financial ~~Measures—~~Measures - Adjusted Net Income (Loss) Per Common Share – Diluted” and “Results of Operations” below.

Segments

We have two reportable operating segments: Retail and Wholesale.

Our retail ~~operations generate~~segment generates revenue primarily through the sale of our party supplies, which are sold under the Amscan, ~~Designware,~~ Anagram and Costumes USA ~~and other party supplies~~brand names through Party City, Halloween City and PartyCity.com. ~~During 2016, approximately 77%~~For the three months ended March 31, 2022, 78.6% of the product that was sold by our retail ~~operations~~segment was supplied by our wholesale ~~operations.~~segment and 31.1 % of the product that was sold by our retail segment was self-manufactured.

Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent, year-end holiday sales. To maximize our seasonal opportunity, we operate a chain of temporary Halloween stores, under the Halloween City banner, during the months of September and October of each year.

Our wholesale revenues are generated from the sale of decorated party goods for all occasions, including paper and plastic tableware, accessories and novelties, costumes, metallic and latex balloons and stationery. Our products are sold at wholesale to party goods superstores ~~including~~(including our franchise ~~stores,~~stores), other party goods retailers, mass merchants, independent card and gift stores, dollar stores and ~~other~~e-commerce merchandisers.

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 the Company’s wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, the promotional activities of the Company’s wholesale business, including special dating terms, particularly with respect to Halloween products sold to retailers and other distributors, ~~throughout~~result in slightly higher accounts receivable balances during the ~~world.~~third quarter.

Intercompany sales between the ~~Wholesale~~wholesale and the ~~Retail segment~~retail segments are eliminated, and the wholesale profits on intercompany sales are deferred and realized at the time the merchandise is sold to the retail consumer. For operating segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on total revenues.

Financial Measures

Revenues. ~~Revenues~~ Revenue from retail store operations is recognized at the point of sale as control of the product is transferred to the customer at such time. Retail e-commerce sales are recognized ~~at point of sale.~~when the consumer receives the product as control transfers upon delivery. We estimate future retail sales returns and record a provision in the period in which the related sales are recorded based on historical information.~~E-commerce~~ ~~sales are recorded on a FOB destination basis and include shipping revenues.~~ Retail sales are reported net of taxes collected. ~~Franchise royalties are recognized based on reported franchise retail sales. Additionally, fees paid by franchisees when franchise stores are opened are recognized upon~~

Under the ~~completion~~terms of our ~~performance requirements~~agreements with our franchisees, we provide both: 1) brand value (via significant advertising spend) and ~~the opening~~2) support with respect to planograms, in exchange for a royalty fee that ranges from 4% to 6% of the ~~franchise store.~~franchisees’ sales. The Company records the royalty fees at the time that the franchisees’ sales are recorded.

~~Revenues from our wholesale operations represent the sale of our products to third parties, less rebates, discounts and other allowances. The terms~~For most of our wholesale sales, control transfers upon the shipment of the product as: 1) legal title transfers on such date and 2) we have a present right to payment at such time. Wholesale sales returns are not significant as we generally ~~FOB shipping point,~~only accept the return of goods that were shipped to the customer in error or that were damaged when received by the customer. Additionally, due to our extensive history operating as a leading party goods wholesaler, we have sufficient history with which to estimate future sales returns and ~~revenue is recognized when goods are shipped. We~~we use the expected value method to estimate ~~reductions to revenues for volume-based rebate programs and subsequent credits at the time sales are recognized.~~ such activity.

Intercompany sales from our wholesale operations to our retail stores are eliminated in our consolidated total revenues.

Comparable ~~Retail~~ Same-Store Sales. The growth in same-store sales represents the percentage change in same-store sales in the period presented compared to the prior year. Same-store sales exclude the net sales of a store for any period if the store was not open during the same period of the prior year. Acquired stores are excluded from same-store sales until they are converted to the Party City format and included in our sales for the comparable period of the prior year. Comparable sales are calculated based upon stores that were open at least thirteen full months as of the end of the applicable reporting ~~period.~~period and do not exclude stores closed due to state regulations regarding COVID-19. When a store is reconfigured or relocated within the same general territory, the store continues to be treated as the same store. If, during the period presented, a store was closed, sales from that store up to and including the closing day are included as same-store sales as long as the store was open during the same period of the prior year. Same-store sales for the Party City brand include North American retaile-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, ~~at both retail and wholesale,~~ inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution costs and outbound freight to get goods to our wholesale customers. At ~~retail,~~Retail, cost of sales reflects the direct cost of goods purchased from third parties and the production or purchase costs of goods acquired from our wholesale ~~operations.~~segment. Retail cost of sales also includes inventory

shrinkage, inventory adjustments, inbound freight, occupancy costs related to store operations (such as rent and common area maintenance, utilities and depreciation on assets) and all logistics costs associated with our retaile-commerce business.

Our cost of sales increases in higher volume periods as the direct costs of manufactured and purchased goods, inventory shrinkage and freight are generally tied to net sales. However, other costs are largely fixed or vary based on other factors and do not necessarily increase as sales volume increases. Changes in the mix of our products may also impact our overall cost of sales. The direct costs of manufactured and purchased goods are influenced by raw material costs (principally paper, petroleum-based resins and cotton), domestic and international labor costs in the countries where our goods are purchased or manufactured and logistics costs associated with transporting our goods. We monitor our inventory levels on anon-going basis in order to identify slow-moving goods.

~~Wholesale~~ Cost of sales related to sales from our wholesale segment to our retail segment are eliminated in our consolidated financial statements.

Selling, General and Administrative Expenses.Selling, general and administrative expenses include wholesale selling expenses, retail operating expenses, and art and development costs. Wholesale selling expenses include the costs associated with our wholesale sales and marketing efforts, including merchandising and customer service. Costs include the salaries and benefits of the related work force, including sales-based bonuses and commissions. Other costs include catalogues, showroom ~~rent,~~expenses, travel and other operating costs. Certain selling expenses, such as sales-based bonuses and commissions, vary in proportion to sales, while other costs vary based on other factors, such as our marketing efforts, or are largely fixed and do not necessarily increase as sales volumes increase.

~~Retail Operating Expenses.~~ Retail operating expenses include all of the costs associated with retail store operations, excluding occupancy-related costs included in cost of sales. Costs include store payroll and benefits, advertising, supplies and credit card costs. Retail expenses are largely variable but do not necessarily vary in proportion to net sales.

~~Franchise Expenses.~~ ~~Franchise expenses~~ Art and development costs include the costs associated with art production, creative development and product management. and all operating ~~our~~costs and franchise ~~network, including~~expenses not included elsewhere in the statement of operations and comprehensive income (loss). Costs include the salaries and benefits of the ~~administrative~~related work ~~force and other administrative costs.~~force. These expenses generally do not vary proportionally with ~~royalties and franchise fees.~~

~~General and Administrative Expenses.~~ ~~General~~net sales. Selling, general and administrative expenses also include all operating costs and franchise expenses not included elsewhere in the statement of operations and 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, stock and equity-based compensation and data-processing costs. These expenses generally do not vary proportionally with net sales.

~~Art and Development Costs.~~ Art and development costs include the costs associated with art production, creative development and product management. Costs include the salaries and benefits of the related work force. These expenses generally do not vary proportionally with net sales.

~~Development Stage Expenses.~~ ~~Representsstart-up~~ ~~activities related to Kazzam, LLC. See footnote 15 of the consolidated financial statements in Item 1 for further discussion.~~

Adjusted EBITDA. We define EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers calculate Adjusted EBITDA in the same manner. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because we believe it assists investors in comparing our performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies, and (iii) because the credit facilities use Adjusted EBITDA to measure compliance with certain covenants.

Adjusted Net Income (Loss). Adjusted net income (loss) represents our net income (loss), adjusted for, among other items, intangible asset amortization,non-cash purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, ~~refinancing charges, equity based~~equity-based compensation and impairment charges. We present adjusted net income because we believe it assists investors in comparing our performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance.

Adjusted Net Income (Loss) Per Common Share – Diluted. Adjusted net income (loss) per common share – diluted represents adjusted net income (loss) divided by the Company’s diluted weighted average common shares outstanding. We present the metric because we believe it assists investors in comparing our per share performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance.

~~Results of Operations~~

~~Three Months Ended September 30, 2017 Compared To Three Months Ended September 30, 2016~~

~~The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended September 30, 2017 and 2016.~~

   Three Months Ended September 30,
   2017 2016
   (Dollars in thousands)
Revenues:

Net sales
   $ 557,350    99.5 % $ 553,382    99.4 %
Royalties and franchise fees
   2,759    0.5 3,568    0.6






Total revenues
   560,109    100.0 556,950    100.0
Expenses:

Cost of sales
   357,523    63.8 356,662    64.0
Wholesale selling expenses
   16,274    2.9 14,739    2.7
Retail operating expenses
   100,739    18.0 100,746    18.1
Franchise expenses
   3,636    0.6 3,370    0.6
General and administrative expenses
   37,971    6.8 38,972    7.0
Art and development costs
   5,898    1.1 5,543    1.0
Development stage expenses
   680    0.1 —      0.0






Total expenses
   522,721    93.3 520,032    93.4






Income from operations
   37,388    6.7 36,918    6.6
Interest expense, net
   23,228    4.1 22,424    4.0
Other expense (income), net
   593    0.1 (905 )    (0.2 )






Income before income taxes
   13,567    2.4 15,399    2.8
Income tax expense
   3,483    0.6 5,219    1.0






Net income
   $ 10,084    1.8 % $ 10,180    1.8 %






Net income per common share – Basic
   $ 0.08    $ 0.09
Net income per common share – Diluted
   $ 0.08    $ 0.08

~~Revenues~~

Total revenues for the third quarter of 2017 were $560.1 million and were $3.2 million, or 0.6%, higher than the third quarter of 2016. The following table sets forth the Company’s total revenues for the three months ended September 30, 2017 and 2016.

   Three Months Ended September 30,
   2017 2016
   Dollars in
Thousands    Percentage of
Total Revenues Dollars in
Thousands    Percentage of
Total Revenues
Net Sales:

Wholesale
   $ 381,858    68.2 % $ 416,387    74.8 %
Eliminations
   (188,565 )    (33.7 )% (210,562 )    (37.8 )%






Net wholesale
   193,293    34.5 % 205,825    37.0 %
Retail
   364,057    65.0 % 347,557    62.4 %






Total net sales
   557,350    99.5 % 553,382    99.4 %
Royalties and franchise fees
   2,759    0.5 % 3,568    0.6 %






Total revenues
   $ 560,109    100.0 % $ 556,950    100.0 %

~~Retail~~

Retail net sales during the third quarter of 2017 were $364.1 million and increased $16.5 million, or 4.7%, compared to the third quarter of 2016. Retail net sales at our Party City stores totaled $324.8 million and were $19.2 million, or 6.3%, higher than 2016 as franchise store acquisitions and new store growth were partially offset by negative same-store sales (see below for further detail). During the twelve months ended September 30, 2017, we acquired 36 franchise stores and 1 independent store, opened 28 new stores and closed 8 stores. Global retail~~e-commerce~~ ~~sales totaled $34.1 million during the third quarter of 2017 and were $1.7 million, or 4.7%, lower than during the corresponding quarter of 2016. The North Americane-commerce~~ sales that are included in our Party City brand comp decreased by 9.9% during the third quarter (see below for further detail). Sales at our temporary Halloween City stores were $5.2 million during the third quarter of 2017 or $1.0 million lower than the corresponding quarter of 2016 due, in part, to stores opening later than last year.

~~Same-store sales for the Party City brand (including North American retaile-commerce~~ sales) decreased by 2.6% during the third quarter of 2017, principally due to the adverse effects of Hurricanes Harvey and Irma, which negatively impacted brand comp sales by approximately 140 basis points.

~~Excluding the impact ofe-commerce,~~ same-store sales decreased by 1.8% as a 2.2% decrease in transaction count was partially offset by a 0.4% increase in average transaction dollar size. Hurricane Harvey and Hurricane Irma adversely impacted same-store sales by approximately 130 basis points.

~~The North American retaile-commerce~~ sales included in our Party City brand comp decreased by 9.9% due to a 9.1% decrease in transaction count and a 0.8% decrease in average transaction dollar size. Hurricane Harvey and Hurricane Irma adversely impacted the percentage by approximately 140 basis points. The remainder of the decrease in transaction count reflects lower traffic as customer conversion levels were consistent with the corresponding quarter of the prior year. The decrease in average transaction dollar size was principally due to increased promotional activity as units per transaction increased by approximately 3% versus the third quarter of 2016.

~~Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.~~

~~Wholesale~~

Wholesale net sales during the third quarter of 2017 totaled $193.3 million and were $12.5 million, or 6.1%, lower than the third quarter of 2016. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $80.8 million and were $18.3 million, or 18.5%, lower than during 2016. The decrease was partially due to our acquisition of 36 franchise stores during the first quarter of 2017; as post-acquisition sales to such stores (approximately $10 million during the third quarter of 2016) are now eliminated as intercompany sales. Additionally, sales to existing franchisees decreased versus the corresponding quarter of 2016, principally due to carryover inventory from the 2016 Halloween selling season. Further, gift product sales decreased by approximately $1 million due to the continued~~de-emphasis~~ and product-line refinement of our Grasslands Road gift business. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $19.2 million during the third quarter of 2017 and were $0.7 million, or 3.8%, higher than during the corresponding quarter of 2016. Our international sales

(which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $93.3 million and were $5.1 million, or 5.8%, higher than in 2016. Our growth was largely driven by the acquisition of Granmark S.A. de C.V. (“Granmark”) in Q1 of this year, as well as continued strong performance in the U.K. and German markets.

Intercompany sales to our retail affiliates totaled $188.6 million during the third quarter of 2017 and were $22.0 million, or 10.4%, lower than during the corresponding quarter of 2016. Intercompany sales represented 49.4% of total wholesale sales during the third quarter of 2017, compared to 50.6% during 2016. The decrease in intercompany sales was due to carryover inventory from the 2016 Halloween selling season. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

~~Royalties and franchise fees~~

Royalties and franchise fees for the third quarter of 2017 totaled $2.8 million and were $0.8 million lower than during the third quarter of 2016 principally due to the acquisition of 36 franchise stores during the first quarter of 2017.

~~Gross Profit~~

~~The following table sets forth the Company’s gross profit for the three months ended September 30, 2017 and September 30, 2016.~~

   Three Months Ended September 30,
   2017 2016
   Dollars in
Thousands    Percentage of
Net Sales Dollars in
Thousands    Percentage of
Net Sales
Retail
   $ 141,334    38.8 % $ 133,177    38.3 %
Wholesale
   58,493    30.3 63,543    30.9






Total
   $ 199,827    35.9 % $ 196,720    35.5 %

The gross profit margin on net sales at retail during the third quarter of 2017 was 38.8%. Such percentage was 50 basis points higher than during the third quarter of 2016. The benefits of increased share of shelf (i.e., the percentage of our retail product cost of sales supplied by our wholesale operations) and reduced product costs were partially offset by increased promotional activities. Our wholesale share of shelf at our Party City stores and our North American retail~~e-commerce~~ ~~operations increased from 75.1% during the third quarter of 2016 to 78.0% during the third quarter of 2017.~~

~~The gross profit on net sales at wholesale during 2017 and 2016 was 30.3% and 30.9%, respectively. The decrease was principally due to sales mix (including increased international sales) andde-leveraging~~ ~~of our fixed distribution costs due to the lower overall sales levels.~~

~~Operating expenses~~

Wholesale selling expenses were $16.3 million during the third quarter of 2017 and $14.7 million during the corresponding quarter of 2016. The increase was due to approximately $1.5 million of selling costs at Granmark (acquired in March 2017). Wholesale selling expenses were 8.4% and 7.2% of net wholesale sales during the third quarters of 2017 and 2016, respectively. See above for a discussion of the decrease in net wholesale sales.

Retail operating expenses during the third quarter of 2017 were $100.7 million and were principally consistent with the third quarter of 2016. The impact of the higher store count (discussed above) was offset by further realized savings associated with improved labor productivity and efficiency in our stores and slightly lower advertising costs. Retail operating expenses were 27.7% and 29.0% of net retail sales during the third quarters of 2017 and 2016, respectively.

~~Franchise expenses during the third quarters of 2017 and 2016 were $3.6 million and $3.4 million, respectively.~~

General and administrative expenses during the third quarter of 2017 totaled $38.0 million and were $1.0 million, or 2.6%, lower than in the third quarter of 2016. Lower executive compensation was partially offset by inflationary cost increases. General and administrative expenses as a percentage of total revenues were 6.8% and 7.0% during the third quarters of 2017 and 2016, respectively.

~~Art and development costs were $5.9 million and $5.5 million during the third quarters of 2017 and 2016, respectively.~~

~~Development stage expenses representstart-up~~ ~~costs related to Kazzam (see footnote 15 to the Company’s consolidated financial statements for further detail).~~

~~Interest expense, net~~

Interest expense, net, totaled $23.2 million during the third quarter of 2017, compared to $22.4 million during the third quarter of 2016. The increase principally relates to adjustments to the Company’s minority interest liabilities for Print Appeal and ACIM (see footnote 10 to the Company’s consolidated financial statements for further detail). The adjustments were partially offset by the impact of a $100 million prepayment of the Company’s Term Loan Credit Agreement during the Company’s October 2016 refinancing; as well as the impact of the credit spread on such debt being reduced by 25 basis points at such time.

~~Other expense (income), net~~

~~For the third quarter of 2017, other expense, net, totaled $0.6 million.~~

~~For the third quarter of 2016, other income, net, totaled $0.9 million. Such amount principally represented foreign currency transaction gains.~~

~~Income tax expense~~

The effective income tax rate for the three months ended September 30, 2017, 25.7%, is lower than the effective rate for the three months ended September 30, 2016, 33.9%, principally due to discrete items related to uncertain tax positions, stock option exercises and~~return-to-provision~~ ~~adjustments. The impact of such items was partially offset by the effect of state tax rate changes on deferred tax liabilities.~~

~~Nine Months Ended September 30, 2017 Compared To Nine Months Ended September 30, 2016~~

~~The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the nine months ended September 30, 2017 and 2016.~~

   Nine Months Ended September 30,
   2017 2016
   (Dollars in thousands)
Revenues:

Net sales
   $ 1,572,966    99.4 % $ 1,523,094    99.3 %
Royalties and franchise fees
   9,020    0.6 11,009    0.7






Total revenues
   1,581,986    100.0 1,534,103    100.0
Expenses:

Cost of sales
   978,142    61.8 952,294    62.1
Wholesale selling expenses
   47,946    3.0 45,854    2.9
Retail operating expenses
   281,981    17.8 278,070    18.1
Franchise expenses
   10,666    0.7 10,507    0.7
General and administrative expenses
   125,763    7.9 115,828    7.6
Art and development costs
   17,638    1.1 16,596    1.1
Development stage expenses
   7,092    0.4 —      0.0






Total expenses
   1,469,228    92.9 1,419,149    92.5






Income from operations
   112,758    7.1 114,954    7.5
Interest expense, net
   65,214    4.1 67,857    4.4
Other expense (income), net
   860    0.1 (4,107 )    (0.2 )






Income before income taxes
   46,684    3.0 51,204    3.3
Income tax expense
   16,301    1.0 18,903    1.2






Net income
   $ 30,383    1.9 % $ 32,301    2.1 %






Net income per common share – Basic
   $ 0.25    $ 0.27
Net income per common share – Diluted
   $ 0.25    $ 0.27

~~Revenues~~

Total revenues for the first nine months of 2017 were $1,582.0 million and were $47.9 million, or 3.1%, higher than the corresponding period of 2016. The following table sets forth the Company’s total revenues for the nine months ended September 30, 2017 and 2016.

   Nine Months Ended September 30,
   2017 2016
   Dollars in
Thousands    Percentage of
Total Revenues Dollars in
Thousands    Percentage of
Total Revenues
Net Sales:

Wholesale
   $ 929,255    58.7 % $ 945,071    61.6 %
Eliminations
   (459,416 )    (29.0 )% (465,189 )    (30.3 )%






Net wholesale
   469,839    29.7 % 479,882    31.3 %
Retail
   1,103,127    69.7 % 1,043,212    68.0 %






Total net sales
   1,572,966    99.4 % 1,523,094    99.3 %
Royalties and franchise fees
   9,020    0.6 % 11,009    0.7 %






Total revenues
   $ 1,581,986    100.0 % $ 1,534,103    100.0 %

~~Retail~~

Retail net sales during the first nine months of 2017 were $1,103.1 million and increased $59.9 million, or 5.7%, compared to the first nine months of 2016. Retail net sales at our Party City stores totaled $993.7 million and were $59.4 million, or 6.4%, higher than 2016 as franchise store acquisitions and new store growth were partially offset by negative same-store sales (see below for further detail). During the twelve months ended September 30, 2017, we acquired 36 franchise stores and 1 independent store, opened 28 new stores and closed 8 stores. Global retail~~e-commerce~~ ~~sales totaled $104.2 million during the first nine months of 2017 and were $1.5 million, or 1.5%, higher than during the corresponding period of 2016, driven by strong internationale-commerce~~ sales. Sales at our temporary Halloween City stores were $5.2 million during the period or $1.0 million lower than the corresponding period of 2016 partially due to the fact that we opened stores later this year than a year ago.

~~Same-store sales for the Party City brand (including North American retaile-commerce~~ ~~sales) decreased by 0.3%, largely a result of the adverse impact of Hurricanes Harvey and Irma, which adversely impacted brand comp sales by approximately 50 basis points.~~

~~Excluding the impact ofe-commerce,~~ same-store sales decreased by 0.3% as a 0.9% decrease in transaction count was partially offset by a 0.6% increase in average transaction dollar size. Hurricane Harvey and Hurricane Irma adversely impacted same-store sales by approximately 40 basis points.

~~The North American retaile-commerce~~ sales included in our Party City brand comp increased by 0.1% as a 2.9% increase in transaction count was mostly offset by a decrease in average transaction dollar size. Hurricane Harvey and Hurricane Irma adversely impacted the percentage by approximately 50 basis points. The increase in~~e-commerce~~ transaction count reflects higher customer conversion levels versus the same period of last year. The decrease in average transaction dollar size principally relates to lower units, largely a reflection of lower free-freight promotional thresholds.

~~Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.~~

~~Wholesale~~

Wholesale net sales during the first nine months of 2017 totaled $469.8 million and were $10.0 million, or 2.1%, lower than during 2016. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $204.4 million and were $32.3 million, or 13.6%, lower than during the first nine months of 2016. The decrease was principally due to our acquisition of 36 franchise stores during the first quarter of 2017; as post-acquisition sales to such stores (approximately $19 million during the first nine months of 2016) are now eliminated as intercompany sales. Additionally, sales to existing franchisees decreased versus the corresponding period of 2016, principally due to carryover inventory from the 2016 Halloween selling season. Further, gift product sales decreased by approximately $3 million due to the continued~~de-emphasis~~ and product-line refinement of our Grasslands Road gift business. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $62.4 million during the first nine months of 2017 and were $3.7 million, or 6.3%, higher than during the corresponding period of 2016 primarily due to stronger Valentine’s Day sales, in part due to the timing of certain shipments. Our international sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $203.0 million and were $18.6 million, or 10.1%, higher than in 2016, despite a $4.9 million negative impact from foreign currency translation during the first nine months of 2017. This growth was attributable to two acquisitions and further expansion of our~~store-in-store~~ ~~concept with key retailers.~~

Intercompany sales to our retail affiliates totaled $459.4 million during the first nine months of 2017 and were $5.8 million, or 1.2%, lower than during the corresponding period of 2016. Intercompany sales represented 49.4% of total wholesale sales during the first nine months of 2017, compared to 49.2% during 2016. The decrease in intercompany sales was due to carryover inventory from the 2016 Halloween selling season. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

~~Royalties and franchise fees~~

Royalties and franchise fees for the first nine months of 2017 totaled $9.0 million and were $2.0 million, or 18.1%, lower than during the first nine months of 2016 principally due to the acquisition of 36 franchise stores during the first quarter of 2017.

~~Gross Profit~~

~~The following table sets forth the Company’s gross profit for the nine months ended September 30, 2017 and September 30, 2016.~~

   Nine Months Ended September 30,
   2017 2016
   Dollars in
Thousands    Percentage of
Net Sales Dollars in
Thousands    Percentage of
Net Sales
Retail
   $ 447,787    40.6 % $ 419,283    40.2 %
Wholesale
   147,037    31.3 151,517    31.6






Total
   $ 594,824    37.8 % $ 570,800    37.5 %

The gross profit margin on net sales at retail during the first nine months of 2017 was 40.6%. Such percentage was 40 basis points higher than during the corresponding period of 2016. The benefits of increased share of shelf (i.e., the percentage of our retail product cost of sales supplied by our wholesale operations) and reduced product costs were partially offset by increased promotional activities. Our wholesale share of shelf at our Party City stores and our North American retail~~e-commerce~~ ~~operations increased from 75.9% during the first nine months of 2016 to 78.0% during the first nine months of 2017.~~

The gross profit on net sales at wholesale during 2017 and 2016 was 31.3% and 31.6%, respectively. The decrease was principally due to the strengthening of the U.S. Dollar and its unfavorable impact on certain of our international subsidiaries that purchase product in U.S. Dollars and sell in local currency. Benefits associated with continued improvements in our sourcing efforts were offset by the impact of sales mix (including increased international sales) and~~de-leveraging~~ ~~of our fixed distribution costs due to the lower overall sales levels.~~

~~Operating expenses~~

Wholesale selling expenses were $47.9 million during the first nine months of 2017 and $45.9 million during the corresponding period of 2016. Approximately $3 million of selling costs at Granmark (acquired in March 2017) and inflationary cost increases were partially offset by favorable foreign currency translation ($0.7 million) and lower intangible asset amortization. Wholesale selling expenses were 10.2% and 9.6% of net wholesale sales during the first nine months of 2017 and 2016, respectively. See above for a discussion of the decrease in net wholesale sales.

Retail operating expenses during the first nine months of 2017 were $282.0 million and were $3.9 million, or 1.4%, higher than during the first nine months of 2016. The impact of the increased store count (discussed above) and inflationary cost increases were mostly offset by realized savings associated with improved labor productivity and efficiency in our stores and lower advertising expenses. Retail operating expenses were 25.6% and 26.7% of net retail sales during the first nine months of 2017 and 2016, respectively.

~~Franchise expenses during the first nine months of 2017 and 2016 were $10.7 million and $10.5 million, respectively.~~

General and administrative expenses during the first nine months of 2017 totaled $125.8 million and were $9.9 million, or 8.6%, higher than in the first nine months of 2016. In conjunction with the Transition and Consulting Agreement disclosed in Note 14 to our consolidated financial statements, during the first nine months of 2017 we recorded a $5.7 million severance charge, $1.4 million of which related to equity-based compensation. Additionally, as part of a retail restructuring (also disclosed in Note 14), during the first nine months of 2017 we recorded $0.9 million of severance expense for employees of our retail segment. The remainder of the variance versus the first nine months of 2016 was principally due to inflationary cost increases and administrative costs at Granmark (acquired in March 2017). General and administrative expenses as a percentage of total revenues increased from 7.6% in 2016 to 7.9% in 2017 due to the severance.

~~Art and development costs were $17.6 million and $16.6 million during the first nine months of 2017 and 2016, respectively. Such amounts represent 1.1% of total revenues in both periods.~~

~~Development stage expenses representstart-up~~ ~~costs related to Kazzam (see footnote 15 to the Company’s consolidated financial statements for further detail).~~

~~Interest expense, net~~

Interest expense, net, totaled $65.2 million during the first nine months of 2017, compared to $67.9 million during the first nine months of 2016. The decrease principally reflects a $100 million prepayment of the Company’s Term Loan Credit Agreement during the Company’s October 2016 refinancing; as well as the impact of the credit spread on such debt being reduced by 25 basis points at such time.

~~Other expense (income), net~~

~~For the first nine months of 2017, other expense, net, totaled $0.9 million.~~

During the corresponding period of 2016, other income, net, totaled $4.1 million. Such amount included $6.9 million of foreign currency transaction gains, primarily the impact of the change in the U.S. Dollar from December 31, 2015 to September 30, 2016 and the corresponding~~re-measurement~~ ~~of the U.S. dollar-denominated receivables and payables of our foreign operations.~~

~~Income tax expense~~

The effective income tax rate for the nine months ended September 30, 2017, 34.9%, is lower than the effective rate for the nine months ended September 30, 2016, 36.9%, principally due to discrete items related to uncertain tax positions, stock option exercises and~~return-to-provision~~ ~~adjustments. The impact of such items was partially offset by the effect of state tax rate changes on deferred tax liabilities.~~

~~Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Common Share – Diluted~~

The Company presents the measures of adjusted EBITDA, adjusted net income (loss) and adjusted net income ~~per common share—diluted as supplemental measures of its operating performance. The Company defines EBITDA as net income~~ (loss) before interest expense, net, income taxes, depreciation and amortization and defines adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of our core operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net income (loss) adjusted for, among other items, intangible asset amortization,~~non-cash~~ ~~purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, equity based compensation, and impairment charges. Adjusted net income~~ per common share ~~– diluted represents adjusted net income divided by diluted weighted average common shares outstanding. The Company presents these measures~~- Diluted as supplemental non-GAAP measures of its operating performance. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate for supplemental analysis. In evaluating the measures, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. The Company’s presentation of adjusted EBITDA, adjusted net income and adjusted net income per common ~~share-diluted~~share—diluted should not be construed as an inference that the Company’s future results will be unaffected by unusual ornon-recurring items. The Company presents the measures because the Company believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by eliminating items that the Company does not believe are indicative of its core operating performance. In addition, the Company uses adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of its business strategies and (iii) because its credit facilities use adjusted EBITDA to measure compliance with certain covenants. The Company also believes that adjusted net income and adjusted net income per common share—diluted are helpful benchmarks to evaluate its operating performance.

Adjusted EBITDA, adjusted net income, and adjusted net income per common share—diluted have limitations as analytical tools. ~~Some~~Because of these limitations, adjusted EBITDA, adjusted net income, and adjusted net income per common share—diluted should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by relying primarily on its GAAP results and using the metrics only on a supplemental basis and reconciliations from GAAP to non-GAAP measures are provided. Some of the limitations of non-GAAP measures are:

•

they do not reflect the Company’s cash expenditures or future requirements for capital expenditures or contractual commitments;

•

they do not reflect changes in, or cash requirements for, the Company’s working capital needs;

•

adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s indebtedness;

•

although depreciation and amortization arenon-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;

•

non-cash compensation is and will remain a key element of the Company’s overall long-term incentive compensation package, although the Company excludes it as an expense when evaluating its core operating performance for a particular period;

•

they do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; and

•

other companies in the Company’s industry may calculate adjusted EBITDA, adjusted net income and adjusted net income per common share differently than the Company does, limiting its usefulness as a comparative measure.

~~Because~~Results of ~~these limitations, adjusted EBITDA, adjusted~~Operations

Overview

The Company experienced revenue growth despite the impact of the COVID-19 Omicron variant earlier in the quarter. Our loss from operations was affected by higher costs, including greater freight and commodity costs. We expect supply chain and inflationary headwinds to continue through the rest of fiscal year 2022. While we navigate this near-term turbulence in costs, we are being thoughtful with our mitigating actions on pricing, and we are continuing to focus on our strategic priorities of enhancements to customer engagement as well as digital, IT and supply chain.

Three Months Ended March 31, 2022 Compared To Three Months Ended March 31, 2021

The following table sets forth the Company’s operating results and operating results as a percentage of total net ~~income~~sales for the three months ended March 31, 2022 and ~~adjusted net income per common share~~2021.


	Three months ended March 31,
	2022						2021
	(Dollars in thousands)
Net sales	$	432,976		100.0		%		$	426,807		100.0		%
Cost of sales		294,968		68.1					274,521		64.3
Gross profit		138,008		31.9					152,286		35.7
Selling, general and administrative expenses**		158,060		36.5					149,021		34.9
Loss on disposal of assets in international operations		—		—					3,211		0.8
(Loss) income from operations		(20,052	)	(4.6	)				54		—
Interest expense, net		23,395		5.4					17,214		4.0
Other (income) expense, net		(203	)	—					427		0.1
(Loss) before income taxes		(43,244	)	(10.0	)				(17,587	)	(4.1	)
Income tax (benefit)		(16,355	)	(3.8	)				(3,469	)	(0.8	)
Net (loss)		(26,889	)	(6.2	)				(14,118	)	(3.3	)
Less: Net (loss) attributable to noncontrolling interests		—		—					(54	)	—
Net (loss) attributable to common shareholders of Party City Holdco Inc.	$	(26,889	)	(6.2	)	%		$	(14,064	)	(3.3	)	%
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic	$	(0.24	)					$	(0.13	)
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted	$	(0.24	)					$	(0.13	)

** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.


	Three months ended March 31,
	2022			2021
(Dollars in thousands)
Net (loss)	$	(26,889	)	$	(14,118	)
Interest expense, net		23,395			17,214
Income tax (benefit)		(16,355	)		(3,469	)
Depreciation and amortization		15,860			17,944
EBITDA		(3,989	)		17,571
Inventory restructuring and early lease terminations (f)		—			3,138
Other restructuring, retention and severance (a)		—			2,051
Goodwill, intangibles and long-lived assets impairment (b)		2,154		—
Deferred rent (c)		2,525			1,526
Closed store expense (d)		987			1,593
Foreign currency (gains), net		(281	)		(539	)
Stock-based compensation - employee**		1,712			1,282
Undistributed loss in equity method investments		310			336
Gain on sale of property, plant and equipment		(119	)		—
COVID - 19 (e)		—			615
Inventory disposal reserve		621			—
Loss on sale of business		—			3,211
Net loss on debt repayment (g)		—			226
Other		684			1,409
Adjusted EBITDA	$	4,604		$	32,419

** Stock-based compensation consists of stock-option expense – ~~diluted should not be considered~~time-based, restricted stock units – time-based and restricted stock units – performance-based, which were shown separately in ~~isolation or as substitutes~~prior years.


	Three months ended March 31,
	2022			2021
(Dollars in thousands, except per share amounts)
(Loss) before income taxes	$	(43,244	)	$	(17,587	)
Intangible asset amortization		1,544			2,477
Amortization of deferred financing costs and original issuance discounts		1,271			863
Other restructuring, retention and severance (a)		—			1,936
Goodwill, intangibles and long-lived assets impairment (b)		2,154		—
Stock option expense		85			113
Restricted stock unit and restricted cash awards expense – performance-based		569			817
COVID - 19 (e)		—			615
Loss on disposal of assets		—			3,211
Inventory disposal reserve		621			764
Adjusted (loss) before income taxes		(37,000	)		(6,791	)
Adjusted income tax (benefit) (h)		(12,321	)		(1,382	)
Adjusted net (loss)	$	(24,679	)	$	(5,409	)
Adjusted net (loss) per common share – diluted	$	(0.22	)	$	(0.05	)
Weighted-average number of common shares-diluted		112,407,040			110,917,349

(a)

Amounts expensed principally relate to severance due to organizational changes.

(b)

In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that ceased operations in February 2022. As a result, the Company recorded related shutdown charges (see Note 3, Disposition of Assets in Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the Quarterly Report on Form 10-Q).

(c)

The “deferred rent” adjustment reflects the difference between accounting for ~~performance measures calculated~~rent and landlord incentives in accordance with ~~GAAP. We compensate~~GAAP and the Company’s actual cash outlay.

(d)

Charges incurred related to closing and relocating stores in the ordinary course of business.

(e)

Represents COVID-19 expenses for ~~these limitations~~employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.

(f)

Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.

(g)

The Company recognized net gain on debt repayment in 2021.

(h)

Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by ~~relying primarily on our GAAP results and using adjusted EBITDA, adjusted net~~applying to the pre-tax adjustments the effective income and adjusted net income per common share – diluted only on a supplemental basis. The reconciliations from net income (loss) to adjusted EBITDA and income (loss) before income taxes to adjusted net income (loss)tax rates for the ~~periods presented are~~specific legal entities in which the adjustments were recorded.

Reconciliation of Adjusted Third-Party Wholesale Sales


	Three Months Ended March 31,
	2022		2021			Percent Variance
Wholesale third-party sales	$	92,025	$	93,524			(1.6	)	%
Third-party sales of divested entities		—		(13,165	)
Adjusted Wholesale third-party sales	$	92,025	$	80,360			14.5		%

Sales

Total net sales for the first quarter of 2022 were $433.0 million and were $6.2 million, or 1.4%, higher than the first quarter of 2021. The following table sets forth the Company’s total net sales for the three months ended March 31, 2022 and 2021.


	Three months ended March 31,
	2022							2021
	Dollars in Thousands			Percentage of Net sales					Dollars in Thousands			Percentage of Net sales
Net sales:
Wholesale	$	239,680			55.4		%		$	212,137			49.7		%
Eliminations		(147,655	)		(34.1	)				(118,612	)		(27.8	)
Net wholesale		92,025			21.3					93,525			21.9
Retail		340,951			78.7					333,282			78.1
Total net sales	$	432,976			100.0		%		$	426,807			100.0		%

Retail

Retail net sales during the first quarter of 2022 were $ 341.0 million and were $ 7.7 million, or 2.3%, higher than during the first quarter of 2021. The increase was due to recovery of sales from the prior year that were impacted by COVID. Retail net sales at our Party City stores totaled $323.2 million and were $12.6 million, or 4.1% higher than in the first quarter of 2021.

Same-store sales for the Party City brand (including North American retail e-commerce sales) increased by 2.1% during the first quarter of 2022 compared to the 13 weeks ended April 3, 2021, principally due to growth in seasonal sales.

Wholesale

Wholesale net sales during the first quarter of 2022 totaled $92.0 million and were $1.5 million, or 1.6%, lower than the first quarter of 2021. This decrease is principally due to the prior year divestiture of a significant portion of our international operations, partially offset by higher sales to franchise and independent customers as ~~follows:~~well as Anagram sales growth in the first quarter of 2022. Excluding the impact of the divestiture, sales increased 14.5%.

   Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(Dollars in thousands)
Net income
   $ 10,084 $ 10,180 $ 30,383 $ 32,301
Interest expense, net
   23,228 22,424 65,214 67,857
Income taxes
   3,483 5,219 16,301 18,903
Depreciation and amortization
   20,694 20,015 62,519 61,186


EBITDA
   57,489 57,838 174,417 180,247
Non-cash purchase accounting adjustments
   1,500 —   6,350 3,689
Restructuring, retention and severance (a)
   212 92 8,839 254
Deferred rent (b)
   2,719 7,095 5,634 12,240
Closed store expense (c)
   1,285 971 4,164 2,927
Foreign currency losses (gains), net
   36 (1,767 ) (1,684 ) (6,945 )
Employee equity based compensation (d)
   630 948 3,852 2,829
Non-employee equity based compensation (e)
   21 —   3,286 —
Undistributed loss (income) in unconsolidated joint ventures
   134 113 (92 ) 380
Corporate development (f)
   1,634 683 6,078 1,895
Hurricane-related costs
   385 —   385 —
Other
   84 61 562 118


Adjusted EBITDA
   $ 66,129 $ 66,034 $ 211,791 $ 197,634


   Three Months
Ended
September 30,
2017 Three Months
Ended
September 30,
2016 Nine Months
Ended
September 30,
2017 Nine Months
Ended
September 30,
2016
(Dollars in thousands, except per share amounts)
Income before income taxes
   $ 13,567 $ 15,399 $ 46,684 $ 51,204
Intangible asset amortization
   3,879 4,049 11,704 12,182
Non-cash purchase accounting adjustments (g)
   2,241 (102 ) 8,165 4,991
Amortization of deferred financing costs and original issuance discounts
   1,240 1,277 3,699 3,821
Restructuring, retention and severance (a)
   (323 ) —   7,491 —
Non-employee equity based compensation (e)
   21 —   3,286 —
Hurricane-related costs
   385 —   385 —
Employee equity based compensation (d)
   630 948 3,852 2,829


Adjusted income before income taxes
   21,640 21,571 85,266 75,027
Adjusted income tax expense (h)
   6,467 7,568 30,713 27,918


Adjusted net income
   $ 15,173 $ 14,003 $ 54,553 $ 47,109


Adjusted net income per common share –diluted
   $ 0.13 $ 0.12 $ 0.45 $ 0.39


Weighted-average number of common shares-diluted
   120,912,849 120,472,297 120,907,979 120,312,492

~~(a)~~ The “restructuring, retention and severance” amounts in the adjusted net income table relate entirely to an organizational restructuring which took place during the first quarter of 2017 and which consisted of: a) the Company entering into a Transition and Consulting Agreement with Gerry Rittenberg and b) a restructuring of the Company’s retail segment. See Note 14 for further discussion. The “restructuring, retention and severance” amounts in the adjusted EBITDA table also include additional restructuring, retention and severance charges incurred by the Company and excluded from the definition of adjusted EBITDA in the Company’s credit facilities (see above for a discussion of the Company’s use of adjusted EBITDA).
~~(b)~~ ~~The deferred rent adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items.~~
~~(c)~~ ~~Charges incurred related to closing underperforming stores.~~
~~(d)~~ ~~The first quarter of 2017 includes a $1,362 stock option modification charge for Gerald Rittenberg. See Note 14 for further discussion.~~
~~(e)~~ ~~Principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services. See Note 15 for further discussion.~~
~~(f)~~ ~~Primarily representsstart-up~~ ~~costs for Kazzam (see Note 15 for further discussion) and third-party costs related to acquisitions (principally legal expenses).~~
~~(g)~~ On July 27, 2012, PC Merger Sub, Inc., which was our wholly-owned indirect subsidiary, merged into Party City Holdings Inc. (“PCHI”), with PCHI being the surviving entity (the “Transaction”). As a result of the Transaction, the Company applied the acquisition method of accounting and increased the value of certain property, plant and equipment. The impact of such adjustments on depreciation expense increased the Company’s expenses. These property, plant and equipment depreciation amounts are included in~~“Non-cash~~ ~~purchase accounting adjustments” for purposes of calculating “adjusted net income,” but are excluded from“Non-cash~~ ~~purchase accounting adjustments” for purposes of calculating adjusted EBITDA since they are included in depreciation expense.~~
~~(h)~~ ~~Represents income tax expense/benefit after excluding the specific tax impacts for each of thepre-tax~~ ~~adjustments. The tax impacts for each of the adjustments were determined by applying to thepre-tax~~ ~~adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.~~

~~Liquidity~~

During 2015, the Company replaced its then-existing debt with indebtedness consisting of: (i) a senior secured term loan facility (“Term Loan Credit Agreement”), (ii) a $540 million asset-based revolving credit facility (with a seasonal increaseIntercompany sales to ~~$640~~our retail affiliates totaled $147.7 million during the first quarter of 2022 and were $29.0 million higher than during the corresponding quarter of 2021. Intercompany sales represented 61.6% of total Wholesale sales during the first quarter of 2022 and were 24.5% higher than during the first quarter of 2021, principally due to easing of supply chain constraints as we replenish store inventory. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

Gross Profit

The following table sets forth the Company’s gross profit for the three months ended March 31, 2022 and 2021.


	Three months ended March 31,
	2022					2021
	Dollars in Thousands		Percentage of Net Sales			Dollars in Thousands		Percentage of Net Sales
Retail gross profit	$	113,366		33.2	%	$	123,178		37.0	%
Wholesale gross profit		24,642		26.8			29,108		31.1
Total gross profit	$	138,008		31.9	%	$	152,286		35.7	%

The gross profit margin on net sales at Retail during the first quarter of 2022 was 33.2 % or 380 basis points lower than during the corresponding quarter of 2021. The change was primarily driven by higher helium and freight costs for the quarter. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of 31.1 % during the first quarter of 2022 was 1.9% lower as compared to the first quarter of 2021. Our wholesale share of shelf at our Party City stores and our North American retail e-commerce operations (i.e., the percentage of our retail product cost of sales supplied by our wholesale segment) was 78.6% during the first quarter of 2022 or 2.9% lower than during the first quarter of 2021.

The gross profit margin on net sales at Wholesale during the first quarters of 2022 and 2021 was 26.8% and 31.1%, respectively. This decrease is primarily due to higher freight, material and labor costs.

Selling, general and administrative expenses

Selling, general and administrative expenses during the first quarter of 2022 totaled $158.1 million and were $9.1 million, or 6.1%, higher than in the first quarter of 2021. The increase was primarily driven by higher employee-related costs resulting from higher wages, predominately in our retail stores, partially offset by the international divestiture.

Interest expense, net

Interest expense, net, totaled $23.4 million during the first quarter of 2022, compared to $17.2 million during the first quarter of 2021. The increase primarily reflects higher cost debt from the refinancing in the first quarter of 2021.

Other (income) expense, net

For the first quarters of 2022 and 2021, other (income) expense, net, totaled $(0.2) million and $0.4 million, respectively. The change is primarily due to recognition of a ~~certain period~~currency gain in 2022 versus a currency loss in 2021.

Income tax benefit

The effective income tax rate for the three months ended March 31, 2022 of ~~each calendar year) (“ABL Facility”)~~37.8%, is different from the statutory rate of 21.0% primarily due to state taxes, and ~~(iii) $350 million of 6.125% senior notes.~~valuation allowance resulting from interest carryforward deductions limited by IRC Section 163(j).

Liquidity and Capital Resources

We have proactively managed our liquidity profile throughout the quarter and expect to continue to do so going forward. We expect ~~that~~to rely on cash on hand, cash generated ~~from operating activities~~by operations and ~~availability~~borrowings available under our credit agreements to meet our working capital needs and will be our principal sources of liquidity. Based on our current level of operations, we believe that these sources will be adequate to meet our liquidity needs for at least the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 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 ~~ABL Facility~~Company's credit facilities and ~~the Term Loan Credit Agreement~~ in amounts sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.

Our business, results of operations, financial condition and liquidity have been and may continue to be materially and adversely affected by COVID-19. Further, the disruption to the global economy and to our business, along with the decline in our stock price, may negatively impact the carrying value of certain assets, including inventories, accounts receivable, intangibles and goodwill. Any additional impact to which COVID-19 and the measures to contain it will impact our business, operations, financial condition and liquidity will depend on future severity, duration of COVID-19 and, as applicable any continued response to the virus, all of which are uncertain in 2022. We will continue to actively monitor the impact of COVID-19.

However, if the duration of the COVID-19 pandemic continues longer than we expect or the severity worsens, we may need to access other sources of financing, including incurring additional indebtedness, selling our assets and raising additional equity capital. These alternatives may not be available to us on satisfactory terms or at all, which could have a material adverse effect on our business.
Sources of Cash
Based on our current operations and planned strategic initiatives (including new store and NXTGEN remodel growth plans and other capital expenditures), we expect to satisfy our short-term and long-term cash requirements through a combination of our existing cash and cash equivalents position, funds generated from operating activities, and the borrowing capacity available under our credit agreements. If cash generated from our operations and borrowings under our credit agreements are not sufficient or available to meet our liquidity requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders. Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time, in our sole discretion, purchase or retire all or a portion of our existing debt instruments through privately negotiated or open market transactions.
As of March 31, 2022, the Company had cash and cash equivalents of $33 million and available borrowings of $90 million.
Material Cash Commitments
Debt Obligations, Finance Leases and Interest Payments. As of March 31, 2022, we had $209.1 million in loans and notes payable, $0.9 million current long-term obligations and $1,346.7 million in long-term obligations outstanding. Repayment of the Company's debt is dependent on our subsidiaries' ability to make cash available. For additional information regarding the Company's debt, refer to Note 13, Current and Long-Term Obligations in Part I, Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q. As noted, the Company must make payments related to interest payments, principal and fees and the facilities contain debt covenants that the must be met.
Leases. As of March 31, 2022, we had an operating lease liability of $801.3 million. We have numerous non-cancelable operating leases for retail store sites, as well as leases for offices, distribution facilities and manufacturing facilities. These leases generally contain renewal options and require us to pay real estate taxes, utilities and related insurance costs.

Capital Expenditures. Cash commitments are described in the following section on Cash Flow Data.

8.75% Senior Secured Notes — Due 2026 (“8.75% Senior Notes”)

In accordance with the 8.75% Senior Notes, as discussed in Note 13, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company is required to provide quarterly and annual disclosure of certain financial metrics for Anagram Holdings, LLC and its subsidiary (“Anagram”). For the three months ended March 31, 2022, Anagram reported:

•

Revenue of $64,914 including net sales to Party City affiliates of $29,385

•

Operating income of $13,067

•

Adjusted EBITDA of 14,545

•

Total assets of $217,260, including affiliate accounts receivable of $22,326

Cash Flow Data – Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Net cash ~~provided by~~used in operating activities totaled ~~$6.3 million and $23.5~~$116.8 million during the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2022. Net cash ~~flows provided by~~used in operating activities ~~before changes in operating assets and liabilities were $113.5~~totaled $48.8 million during the ~~first nine~~three months ~~of 2017, compared to $114.1 million during 2016. Changes~~ended March 31, 2021. The increase in cash used in operating ~~assets~~activities is primarily attributable to increased inventory purchases to support higher anticipated sales and ~~liabilities during the first nine months of 2017 and 2016 resulted in the use of cash of $107.2 million and $90.6 million, respectively. The use of cash was higher during 2017 principally~~increased inventory cost due to ~~increased income tax payments~~freight. The increase in cash used is also due to timing of payments related to accounts payable and accrued expenses and a higher net loss, partially offset by lower lease payments as the ~~Company’s increased profitability.~~prior year reflected payment of COVID deferrals.

Net cash used in investing activities totaled ~~$120.7~~$17 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022, as compared to ~~$89.1~~$1.6 million during the ~~nine~~three months ended ~~September 30, 2016. Investing~~March 31, 2021. The increase in cash used in investing activities ~~during 2017 included $72.8 million paid in connection with acquisitions, principally related to franchise stores and Granmark (see Note 13~~is primarily due to the ~~consolidated financial statements for further detail).~~prior year reflecting the proceeds from the sale of our international operations, offset by lower capital expenditures in the current year. Capital expenditures during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 were ~~$47.9~~$18.6 million and ~~$57.3~~$22.2 million, respectively. Retail capital expenditures totaled $25.1 million during 2017 and principally related to store conversions and information technology-related expenditures. Wholesale capital expenditures during 2017 totaled $22.8 million and primarily related to printing plates and dies, as well as machinery and equipment at the Company’s manufacturing operations and main distribution center.

Net cash provided by financing activities was ~~$104.6~~$118.5 million during the ~~nine~~three months ended ~~September 30, 2017, as~~March 31, 2022 compared to ~~$71.5~~$16.9 million during the ~~corresponding period of 2016. Borrowings were higher during 2017~~three months ended March 31, 2021. The variance was principally due to ~~the acquisitions.~~

~~At September 30, 2017, the Company had approximately $372 million of availability~~higher borrowings under ~~its~~the ABL Facility ~~after considering borrowing base restrictions.~~in the current year and the impact of the prior year debt refinancing transactions as discussed in Note 13, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q.

~~Contractual Obligations~~22

Critical Accounting Estimates

~~Other than as described above under “Liquidity~~See Item 7, Management’s Discussion and ~~Capital Resources”, there were no material changes to our future minimum contractual obligations as~~Analysis of ~~December 31, 2016 as previously disclosed~~Results of Operations and Financial Condition in our Annual Report on Form10-K for the year ended December 31, ~~2016.~~

~~Off Balance Sheet Arrangements~~

~~We had no off balance sheet arrangements during the three months ended September 30, 2017 and the year ended December 31, 2016.~~

~~Seasonality~~

~~Wholesale Operations~~

~~Despite~~2021, for a ~~concentration of holidays in the fourth quarter of the year, as a result~~discussion of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween, the inventory balances of our wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, Halloween products sold to retailers and other distributors result in slightly higher accounts receivable balances during the quarter.critical accounting estimates.

~~Retail Operations~~

~~Cautionary Note Regarding Forward-Looking Statements~~

From time to time, including in this filing and, in particular, the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we make “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current expectations and are based upon data available to us at the time the statements were made. An example of a forward-looking statement is our belief that our cash generated from operating activities and availability under our credit facilities will be adequate to meet our liquidity needs for at least the next 12 months. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. These risks, as well as other risks and uncertainties, are detailed in the section titled “Risk Factors” included in our Annual Report on Form~~10-K~~ filed with the SEC on March 16, 2017. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. All forward-looking statements are qualified by these cautionary statements and are made only as of the date of this filing. Any such forward-looking statements, whether made in this filing or elsewhere, should be considered in context with the various disclosures made by us about our business. The following risks related to our business, among others, could cause actual results to differ materially from those described in the forward-looking statements:

~~our ability to compete effectively in a competitive industry;~~

~~fluctuations in commodity prices;~~

~~our ability to appropriately respond to changing merchandise trends and consumer preferences;~~

~~successful implementation of our store growth strategy;~~

~~decreases in our Halloween sales;~~

~~unexpected or unfavorable consumer responses to our promotional or merchandising programs;~~

~~failure to comply with existing or future laws relating to our marketing programs,e-commerce~~ ~~initiatives and the use of consumer information;~~

~~disruption to the transportation system or increases in transportation costs;~~

~~product recalls or product liability;~~

~~economic slowdown affecting consumer spending and general economic conditions;~~

~~loss or actions of third party vendors and loss of the right to use licensed material;~~

~~disruptions at our manufacturing facilities;~~

~~failure by suppliers or third-party manufacturers to follow acceptable labor practices or to comply with other applicable laws and guidelines;~~

~~our international operations subjecting us to additional risks;~~

~~potential litigation and claims;~~

~~lack of available additional capital;~~

~~our inability to retain or hire key personnel;~~

~~risks associated with leasing substantial amounts of space;~~

~~failure of existing franchisees to conduct their business in accordance with agreed upon standards;~~

~~adequacy of our information systems, order fulfillment and distribution facilities;~~

~~our ability to adequately maintain the security of our electronic and other confidential information;~~

~~our inability to successfully identify and integrate acquisitions;~~

~~adequacy of our intellectual property rights;~~

~~risks related to our substantial indebtedness; and~~

~~the other factors set forth under “Risk Factors” in our Annual Report on Form10-K,~~ ~~filed with the SEC on March 16, 2017.~~

Except as required by law, we undertake no obligation to update publicly any forward-looking statements after the date of this filing to conform these statements to actual results or to changes in our expectations.

~~You should read this filing with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.~~

~~Item 3.~~

~~Quantitative and Qualitative Disclosures about Market Risk~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our ~~market risks since December 31, 2016 as~~risk exposures from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk from those previously disclosed in our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2021.

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) as of ~~September 30, 2017.~~March 31, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is: (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

There were no changes in our internal control over financial reporting (as defined inRules 13a-15(f) and15d-15(f) under the Act) during the ~~quarter~~three months ended ~~September 30, 2017~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PARTII-OTHER~~ ~~INFORMATION~~

PART II-OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

Item 1. Legal Proceedings

Information in response to this Item is incorporated herein by reference from Note 8,9 – Commitments and Contingencies , to our Condensed Consolidated Financial Statements in this Quarterly Report on Form10-Q.

~~Item 1A.~~

~~Risk Factors~~

Item 1A. Risk Factors

There ~~have been~~were no material changes during the period covered in this report to the risk factors previously disclosed ~~under the heading “Risk Factors”~~ in ~~the Company’s~~Part I, Item 1A, of our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2021, except as follows:

Labor, product, and supply disruptions have had and may continue to have an adverse effect on our operating results.

We have experienced, and expect to continue to experience, logistics constraints and supply chain disruptions, including increased key raw material and helium costs, increased freight, shipping and transportation costs, increased labor wages, labor shortages and delivery delays and associated charges. Failure to effectively manage these disruptions has and may continue to adversely impact our operating results.

~~Item 6.~~

~~Exhibits~~

Item 6. Exhibits


~~3.1~~ Exhibit Number		Description

3.1		Certificate of Correction to Party City Holdco Inc.’s Second Amended and Restated Certificate of Incorporation filed on June 6, 2019, dated December 17, 2019 and corrected Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Party City Holdco Inc.’s Annual Report on Form~~8-K~~ ~~dated April 21, 2015)~~ 10-K for the fiscal year ended December 31, 2019)

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Party City Holdco Inc.’s Form8-K dated ~~April 21, 2015)~~June 7, 2019)

~~31.1~~ 10.1*		Second Amendment to and Restated Employment, dated as of April 18 ,2022, by and between Party City Holdings Inc., Party City Holdco Inc. and Denise Kulikowsky.

31.1*		Certification of Chief Executive Officer pursuant toRule 13a-14(a)/ and Rule 15d-14(a) of the Securities Exchange Act, ~~of 1934,~~ as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~ 31.2*		Certification of Chief Financial Officer pursuant toRule 13a-14(a)/ and Rule 15d-14(a) of the Securities Exchange Act, ~~of 1934,~~ as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~ 32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

~~32.2~~ 32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

~~101~~ 101.INS*		XBRL Instance Document - the instance document does not appear in the Interactive Data ~~Files pursuant to Rule 405 ofRegulation S-T:~~ ~~(i) Condensed Consolidated Balance Sheets at September 30, 2017~~File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*		Cover Page Interactive Data File (formatted as Inline XBRL and December 31, 2016; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income for the three month periods ended September 30, 2017 and September 30, 2016; (iii) Condensed Consolidated Statements of Operations and Comprehensive Income for the nine month periods ended September 30, 2017 and September 30, 2016; (iv) Condensed Consolidated Statement of Stockholders’ Equity for the nine month period ended September 30, 2017; (v) Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2017 and September 30, 2016; and (vi) Notes to the Condensed Consolidated Financial Statements.contained in Exhibit 101)

~~SIGNATURE~~

* Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report onForm 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


		~~PARTY CITY HOLDCO INC.~~

		~~By:~~	~~/s/ Daniel J. Sullivan~~ PARTY CITY HOLDCO INC.
			~~Daniel J. Sullivan~~
~~Date:November 9, 2017~~			By:	/s/ Todd Vogensen
	Todd Vogensen
	Chief Financial Officer (~~on behalf of the Registrant and as~~ Principal Financial Officer)

Date: May 9, 2022

3327


	Three Months Ended September 30,
	2017		2016
Revenues:
Net sales	$	557,350	$	553,382
Royalties and franchise fees		2,759		3,568

Total revenues		560,109		556,950
Expenses:
Cost of sales		357,523		356,662
Wholesale selling expenses		16,274		14,739
Retail operating expenses		100,739		100,746
Franchise expenses		3,636		3,370
General and administrative expenses		37,971		38,972
Art and development costs		5,898		5,543
Development stage expenses		680		—

Total expenses		522,721		520,032

Income from operations		37,388		36,918
Interest expense, net		23,228		22,424
Other expense (income), net		593		(905	)

Income before income taxes		13,567		15,399
Income tax expense		3,483		5,219

Net income	$	10,084	$	10,180

Comprehensive income	$	15,329	$	6,028
Net income per common share-Basic	$	0.08	$	0.09
Net income per common share-Diluted	$	0.08	$	0.08
Weighted-average number of common shares-Basic		119,587,339		119,406,751
Weighted-average number of common shares-Diluted		120,912,849		120,472,297
Dividends declared per share	$	0.00	$	0.00


	Nine Months Ended September 30,
	2017		2016
Revenues:
Net sales	$	1,572,966	$	1,523,094
Royalties and franchise fees		9,020		11,009

Total revenues		1,581,986		1,534,103
Expenses:
Cost of sales		978,142		952,294
Wholesale selling expenses		47,946		45,854
Retail operating expenses		281,981		278,070
Franchise expenses		10,666		10,507
General and administrative expenses		125,763		115,828
Art and development costs		17,638		16,596
Development stage expenses		7,092		—

Total expenses		1,469,228		1,419,149

Income from operations		112,758		114,954
Interest expense, net		65,214		67,857
Other expense (income), net		860		(4,107	)

Income before income taxes		46,684		51,204
Income tax expense		16,301		18,903

Net income	$	30,383	$	32,301

Comprehensive income	$	45,839	$	22,355
Net income per common share-Basic	$	0.25	$	0.27
Net income per common share-Diluted	$	0.25	$	0.27
Weighted-average number of common shares-Basic		119,546,451		119,340,610
Weighted-average number of common shares-Diluted		120,907,979		120,312,492
Dividends declared per share	$	0.00	$	0.00


	Common Shares		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at December 31, 2016		119,515,894	$	1,195	$	910,167	$	157,666	$	(52,239	)	$	1,016,789
Net income								30,383					30,383
Employee equity based compensation						3,852							3,852
Warrant expense						286							286
Exercise of stock options		146,975		2		785							787
Foreign currency adjustments										16,818			16,818
Impact of foreign exchange contracts, net of taxes										(1,362	)		(1,362	)

Balance at September 30, 2017		119,662,869	$	1,197	$	915,090	$	188,049	$	(36,783	)	$	1,067,553


	Three Months Ended September 30, 2017
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at June 30, 2017	$	(41,650	)	$	(378	)	$	(42,028	)
Other comprehensive income (loss) before reclassifications		5,297			(281	)		5,016
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income		—			229			229

Net current-period other comprehensive income (loss)		5,297			(52	)		5,245

Balance at September 30, 2017	$	(36,353	)	$	(430	)	$	(36,783	)


	Three Months Ended September 30, 2016
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at June 30, 2016	$	(39,500	)	$	916		$	(38,584	)
Other comprehensive loss before reclassifications		(3,537	)		(470	)		(4,007	)
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net		—			(145	)		(145	)

Net current-period other comprehensive loss, net		(3,537	)		(615	)		(4,152	)

Balance at September 30, 2016	$	(43,037	)	$	301		$	(42,736	)


	Nine Months Ended September 30, 2017
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at December 31, 2016	$	(53,171	)	$	932		$	(52,239	)
Other comprehensive income (loss) before reclassifications, net of income tax		16,818			(1,077	)		15,741
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax		—			(285	)		(285	)

Net current-period other comprehensive income (loss)		16,818			(1,362	)		15,456

Balance at September 30, 2017	$	(36,353	)	$	(430	)	$	(36,783	)


	Nine Months Ended September 30, 2016
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at December 31, 2015	$	(33,401	)	$	611		$	(32,790	)
Other comprehensive (loss) income before reclassifications, net of income tax		(9,636	)		183			(9,453	)
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax		—			(493	)		(493	)

Net current-period other comprehensive loss		(9,636	)		(310	)		(9,946	)

Balance at September 30, 2016	$	(43,037	)	$	301		$	(42,736	)


Derivative Instrument	September 30, 2017		December 31, 2016
Foreign Exchange Contracts	$	6,875	$	22,502


	Level 1		Level 2		Level 3		Total as of September 30, 2017
Noncontrolling interests liabilities	$	—	$	—	$	6,016	$	6,016
Derivative assets		—		—		—		—
Derivative liabilities		—		355		—		355


	September 30, 2017
	Carrying Amount		Fair Value
Term Loan Credit Agreement	$	1,198,750	$	1,220,406
Senior Notes		345,162		364,809


	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
Net income	$	10,084	$	10,180	$	30,383	$	32,301
Weighted average shares—Basic		119,587,339		119,406,751		119,546,451		119,340,610
Effect of dilutive securities:
Warrants		—		—		—		—
Stock options		1,325,510		1,065,546		1,361,528		971,882

Weighted average shares—Diluted		120,912,849		120,472,297		120,907,979		120,312,492

Net income per common share—Basic	$	0.08	$	0.09	$	0.25	$	0.27

Net income per common share—Diluted	$	0.08	$	0.08	$	0.25	$	0.27


	Three Months Ended September 30,
	2017				2016
	(Dollars in thousands)
Revenues:
Net sales	$	557,350	99.5	%	$	553,382		99.4	%
Royalties and franchise fees		2,759	0.5			3,568		0.6

Total revenues		560,109	100.0			556,950		100.0
Expenses:
Cost of sales		357,523	63.8			356,662		64.0
Wholesale selling expenses		16,274	2.9			14,739		2.7
Retail operating expenses		100,739	18.0			100,746		18.1
Franchise expenses		3,636	0.6			3,370		0.6
General and administrative expenses		37,971	6.8			38,972		7.0
Art and development costs		5,898	1.1			5,543		1.0
Development stage expenses		680	0.1			—		0.0

Total expenses		522,721	93.3			520,032		93.4

Income from operations		37,388	6.7			36,918		6.6
Interest expense, net		23,228	4.1			22,424		4.0
Other expense (income), net		593	0.1			(905	)	(0.2	)

Income before income taxes		13,567	2.4			15,399		2.8
Income tax expense		3,483	0.6			5,219		1.0

Net income	$	10,084	1.8	%	$	10,180		1.8	%

Net income per common share – Basic	$	0.08			$	0.09
Net income per common share – Diluted	$	0.08			$	0.08


	Nine Months Ended September 30,
	2017				2016
	(Dollars in thousands)
Revenues:
Net sales	$	1,572,966	99.4	%	$	1,523,094		99.3	%
Royalties and franchise fees		9,020	0.6			11,009		0.7

Total revenues		1,581,986	100.0			1,534,103		100.0
Expenses:
Cost of sales		978,142	61.8			952,294		62.1
Wholesale selling expenses		47,946	3.0			45,854		2.9
Retail operating expenses		281,981	17.8			278,070		18.1
Franchise expenses		10,666	0.7			10,507		0.7
General and administrative expenses		125,763	7.9			115,828		7.6
Art and development costs		17,638	1.1			16,596		1.1
Development stage expenses		7,092	0.4			—		0.0

Total expenses		1,469,228	92.9			1,419,149		92.5

Income from operations		112,758	7.1			114,954		7.5
Interest expense, net		65,214	4.1			67,857		4.4
Other expense (income), net		860	0.1			(4,107	)	(0.2	)

Income before income taxes		46,684	3.0			51,204		3.3
Income tax expense		16,301	1.0			18,903		1.2

Net income	$	30,383	1.9	%	$	32,301		2.1	%

Net income per common share – Basic	$	0.25			$	0.27
Net income per common share – Diluted	$	0.25			$	0.27


	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
(Dollars in thousands)
Net income	$	10,084		$	10,180		$	30,383		$	32,301
Interest expense, net		23,228			22,424			65,214			67,857
Income taxes		3,483			5,219			16,301			18,903
Depreciation and amortization		20,694			20,015			62,519			61,186

EBITDA		57,489			57,838			174,417			180,247
Non-cash purchase accounting adjustments		1,500			—			6,350			3,689
Restructuring, retention and severance (a)		212			92			8,839			254
Deferred rent (b)		2,719			7,095			5,634			12,240
Closed store expense (c)		1,285			971			4,164			2,927
Foreign currency losses (gains), net		36			(1,767	)		(1,684	)		(6,945	)
Employee equity based compensation (d)		630			948			3,852			2,829
Non-employee equity based compensation (e)		21			—			3,286			—
Undistributed loss (income) in unconsolidated joint ventures		134			113			(92	)		380
Corporate development (f)		1,634			683			6,078			1,895
Hurricane-related costs		385			—			385			—
Other		84			61			562			118

Adjusted EBITDA	$	66,129		$	66,034		$	211,791		$	197,634


	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
(Dollars in thousands, except per share amounts)
Income before income taxes	$	13,567		$	15,399		$	46,684		$	51,204
Intangible asset amortization		3,879			4,049			11,704			12,182
Non-cash purchase accounting adjustments (g)		2,241			(102	)		8,165			4,991
Amortization of deferred financing costs and original issuance discounts		1,240			1,277			3,699			3,821
Restructuring, retention and severance (a)		(323	)		—			7,491			—
Non-employee equity based compensation (e)		21			—			3,286			—
Hurricane-related costs		385			—			385			—
Employee equity based compensation (d)		630			948			3,852			2,829

Adjusted income before income taxes		21,640			21,571			85,266			75,027
Adjusted income tax expense (h)		6,467			7,568			30,713			27,918

Adjusted net income	$	15,173		$	14,003		$	54,553		$	47,109

Adjusted net income per common share –diluted	$	0.13		$	0.12		$	0.45		$	0.39

Weighted-average number of common shares-diluted		120,912,849			120,472,297			120,907,979			120,312,492

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