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

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐☐

Indicate by checkmark ~~whether~~whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of July ~~29, 2020, 94,602,386~~26, 2021, 111,913,238 shares of the Registrant’s common stock were outstanding.

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND COMPREHENSIVE LOSS~~STOCKHOLDERS’ EQUITY

See accompanying notes to unaudited condensed consolidated financial statements.

*Includes $1,000 and $18 of restricted cash for the six months ended June 30, 2021 and 2020. The Company recorded restricted cash in other assets, net as presented in the consolidated balance sheet at June 30, 2021 and in prepaid expenses and other current assets as presented in the consolidated balance sheets at December 31, 2020 and June 30, 2020.

See accompanying notes to unaudited condensed consolidated financial statements.

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

pronouncement had no impact on the Company’s consolidated statement of operations and comprehensive loss and it did not impact the Company’s compliance with its debt covenants. Additionally, the standard requires companies to make certain annual disclosures, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

~~During June 2019, the Company used proceeds from the sale (net of costs) described in this Note 5 – Sale/Leaseback~~ Transaction to paydown outstanding loans under the Term Loan Credit Agreement and the ABL Facility in an aggregate amount of $125,864, of which $62,770 was used to prepay the outstanding term loans and the balance was used to paydown the ABL Facility. See Note 16 – Current and Long-Term Obligations.

Note 76 – Inventories, net

Inventories, net consisted of the following:


	June 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020		June 30, 2020
Finished goods	$	587,327	$	606,036	$	384,949	$	367,275	$	587,327
Raw materials		30,958		34,259		22,274		27,111		30,958
Work in process		16,729		18,124		18,905		17,899		16,729
	$	635,014	$	658,419	$	426,128	$	412,285	$	635,014

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

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 and six months ended June 30, 2021, the Company purchased $22.6 million and $25.5 million, respectively. Substantially all of these purchases are reflected in finished goods inventory as of June 30, 2021. As of June 30, 2021, the Company had accounts payable of $19.7 million related to such transactions.

Note 87 – Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“the CARES Act”) was signed into law. The CARES Act is a $2$2 trillion legislative package intended to provide economic relief to companies impacted by the COVID-19 pandemic, and it enacted a number of Internal Revenue Code modifications which are of particular benefit to the Company, including: 5-year net operating loss carryback, temporary relaxation of the limitations on interest deductions, qualified improvement property eligible for bonus depreciation, employee retention tax credits, and deferral of payment of payroll tax.

The effective income tax rate for the three months ended June 30, 2021 of 25.5% is different from the statutory rate of 21.0% primarily due to state taxes and equity compensation.

The effective income tax rate for the six months ended June 30, ~~2020~~2021 of ~~15.6%~~30.1% is different from the statutory rate of ~~21.0%~~21.0% primarily due to ~~the non-deductible portions of goodwill impairment charges (see Note 4 – Goodwill and Intangibles Impairment above for further discussion),~~ state taxes, equity compensation, the effect of foreign losses with no associated tax benefit and ~~a rate benefit~~the additional loss related to the ~~carryback~~sale of a ~~net operating loss to years when~~substantial portion of the ~~statutory income tax rate was 35.0%.~~international operations recorded in the three months ended March 31, 2021.

Note 98 – Changes in Accumulated Other Comprehensive ~~Loss~~Income (Loss)

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


	Three Months Ended June 30, 2021
	Foreign Currency Translation Adjustments		Total, Net of Taxes
Balance at March 31, 2021	$	5,134	$	5,134
Other comprehensive income before reclassifications, net of tax		962		962
Net current-period other comprehensive income		962		962
Balance at June 30, 2021	$	6,096	$	6,096


	Three Months Ended June 30, 2020
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes		Total, Net of Taxes
Balance at March 31, 2020	$	(49,635	)	$	1,688	$	(47,947	)
Other comprehensive income before reclassifications, net of tax		4,014			59		4,073
Amounts reclassified from accumulated other comprehensive (loss) income to the condensed consolidated statement of operations and comprehensive income (loss), net of income tax		0			25		25
Net current-period other comprehensive income		4,014			84		4,098
Balance at June 30, 2020	$	(45,621	)	$	1,772	$	(43,849	)


	Six Months Ended June 30, 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 before reclassifications, net of tax		771			77			848
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 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)		37,360			(1,348	)		36,012
Balance at June 30, 2021	$	6,096		$	0		$	6,096


	Six Months Ended June 30, 2020
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes		Total, Net of Taxes
Balance at December 31, 2019	$	(37,434	)	$	1,700	$	(35,734	)
Other comprehensive (loss) income before reclassifications, net of income tax		(8,187	)		70		(8,117	)
Amounts reclassified from accumulated other comprehensive (loss) income to the condensed consolidated statement of operations and comprehensive income (loss), net of income tax		0			2		2
Net current-period other comprehensive (loss) income		(8,187	)		72		(8,115	)
Balance at June 30, 2020	$	(45,621	)	$	1,772	$	(43,849	)

Three Months Ended June 30, 2020

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total,
Net of Taxes

Balance at March 31, 2020

$
(49,635
)

$
1,688

$
(47,947
)
Other comprehensive income before reclassifications,
   net of tax

4,014

59

4,073

Amounts reclassified from accumulated other comprehensive
   loss to the condensed consolidated statement of operations
   and comprehensive loss, net of income tax

—

25

25

Net current-period other comprehensive income

4,014

84

4,098

Balance at June 30, 2020

$
(45,621
)

$
1,772

$
(43,849
)

Three Months Ended June 30, 2019

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total,
Net of Taxes

Balance at March 31, 2019

$
(45,900
)

$
342

$
(45,558
)
Other comprehensive income (loss) before reclassifications

556

(3
)

553

Amounts reclassified from accumulated other comprehensive
loss to the condensed consolidated statement of
operations and comprehensive loss, net of income tax

—

(211
)

(211
)
Net current-period other comprehensive income (loss)

556

(214
)

342

Balance at June 30, 2019

$
(45,344
)

$
128

$
(45,216
)

Six Months Ended June 30, 2020

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total,
Net of Taxes

Balance at December 31, 2019

$
(37,434
)

$
1,700

$
(35,734
)
Other comprehensive (loss) income before
   reclassifications, net of tax

(8,187
)

70

(8,117
)
Amounts reclassified from accumulated other comprehensive
   loss to the condensed consolidated statement of
   operations and comprehensive loss, net of income tax

—

2

2

Net current-period other comprehensive (loss) income

(8,187
)

72

(8,115
)
Balance at June 30, 2020

$
(45,621
)

$
1,772

$
(43,849
)

Six Months Ended June 30, 2019

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total,
Net of Taxes

Balance at December 31, 2018

$
(50,056
)

$
855

$
(49,201
)
Other comprehensive income before
   reclassifications, net of income tax

4,712

60

4,772

Amounts reclassified from accumulated other comprehensive
   loss to the condensed consolidated statement of
   operations and comprehensive income, net of income tax

—

(787
)

(787
)
Net current-period other comprehensive income (loss)

4,712

(727
)

3,985

Balance at June 30, 2019

$
(45,344
)

$
128

$
(45,216
)

Note 109 – Capital Stock

At June 30, ~~2020,~~2021, 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.

During 2013, Party City Holdco granted performance-based stock options to key employees and independent directors. For those performance-based options, vesting was contingent on Thomas H. Lee Partners, L.P. (“THL”) achieving specified investment returns when it sold its entire ownership stake in Party City Holdco. In June 2020, THL distributed its remaining shares. At the time of the THL distribution, there were 2,539,600 performance options outstanding with an average grant date fair value of $3.09. NaN of the performance-based options vested as the specified investment returns were not attained. The Company recorded compensation expense of $7,847.

Note 1110 – Segment Information

Industry Segments

The Company has 2 ~~identifiable business~~ reportable operating segments. The Wholesale segment designs, manufactures, ~~sources~~contracts for manufacture and distributes ~~decorated~~ party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties ~~gifts~~ and stationery throughout the world. The Retail segment operates specialty retail party supply stores in the United States, principally under the names Party City and Halloween City, and it operates e-commerce websites, principally through the domain name ~~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.~~ PartyCity.com. The Company’s ~~industry~~reportable operating segment data for the three months ended June 30, ~~2020~~2021 and June ~~30, 2019~~31, 2020 was as follows:


	Wholesale			Retail		Consolidated
Three Months Ended June 30, 2021
Net sales*	$	230,961		$	443,812	$	674,773
Eliminations		(139,027	)		0		(139,027	)
Net revenues		91,934			443,812		535,746
Gross Profit*	$	23,607		$	193,565	$	217,172
(Loss) income from operations	$	(3,225	)	$	65,061	$	61,836
Interest expense, net							23,116
Other (income), net							(1,300	)
Income before income taxes						$	40,020


	Wholesale			Retail			Consolidated
Three Months Ended June 30, 2020				��
Net sales*	$	131,296		$	185,782		$	317,078
Eliminations		(62,387	)		0			(62,387	)
Net revenues		68,909			185,782			254,691
Gross Profit*	$	(13,118	)	$	29,902		$	16,784
Loss from operations	$	(55,892	)	$	(70,902	)	$	(126,794	)
Interest expense, net								25,412
Other expense, net								1,484
Loss before income taxes							$	(153,690	)

Wholesale

Retail

Consolidated

Three Months Ended June 30, 2020

Revenues:

Net sales

$
131,296

$
184,737

$
316,033

Royalties and franchise fees

—

1,045

1,045

Total revenues

131,296

185,782

317,078

Eliminations

(62,387
)

—

(62,387
)
Net revenues

$
68,909

$
185,782

$
254,691

Loss from operations

$
(55,892
)

$
(70,902
)

$
(126,794
)
Interest expense, net

25,412

Other expense, net

1,484

Loss before income taxes

$
(153,690
)

Wholesale

Retail

Consolidated

Three Months Ended June 30, 2019

Revenues:

Net sales

$
289,067

$
423,157

$
712,224

Royalties and franchise fees

—

2,189

2,189

Total revenues

289,067

425,346

714,413

Eliminations

(150,522
)

—

(150,522
)
Net revenues

$
138,545

$
425,346

$
563,891

Income from operations

$
60,297

$
37,188

$
97,485

Interest expense, net

30,176

Other expense, net

3,342

Income before income taxes

$
63,967

The ~~Company’s industry~~company's reportable operating segment data for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 was as follows:

Wholesale

Retail

Consolidated

Six Months Ended June 30, 2020

Revenues:

Net sales

$
346,094

$
486,131

$
832,225

Royalties and franchise fees

—

2,627

2,627

Total revenues

346,094

488,758

834,852

Eliminations

(166,118
)

—

(166,118
)
Net revenues

$
179,976

$
488,758

$
668,734

Loss from operations

$
(219,440
)

$
(518,724
)

$
(738,164
)
Interest expense, net

50,532

Other expense, net

7,160

Loss before income taxes

$
(795,856
)


	Wholesale			Retail		Consolidated
Six Months Ended June 30, 2021
Net sales*	$	443,098		$	777,094	$	1,220,192
Eliminations		(257,639	)		0		(257,639	)
Net revenues		185,459			777,094		962,553
Gross Profit*	$	52,715		$	316,743	$	369,458
Income from operations	$	(3,817	)	$	65,707	$	61,890
Interest expense, net							40,330
Other (income), net							(873	)
Income before income taxes						$	22,433


	Wholesale			Retail			Consolidated
Six Months Ended June 30, 2020
Net sales*	$	346,094		$	488,758		$	834,852
Eliminations		(166,118	)		0			(166,118	)
Net revenues		179,976			488,758			668,734
Gross Profit*	$	8,225		$	125,845		$	134,070
Loss from operations	$	(219,440	)	$	(518,724	)	$	(738,164	)
Interest expense, net								50,532
Other expense, net								7,160
Loss before income taxes							$	(795,856	)

*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.

Wholesale

Retail

Consolidated

Six Months Ended June 30, 2019

Revenues:

Net sales

$
579,368

$
801,310

$
1,380,678

Royalties and franchise fees

—

4,203

4,203

Total revenues

579,368

805,513

1,384,881

Eliminations

(307,874
)

—

(307,874
)
Net revenues

$
271,494

$
805,513

$
1,077,007

Income from operations

$
62,520

$
24,668

$
87,188

Interest expense, net

59,433

Other expense, net

4,596

Income before income taxes

$
23,159

In 2019, the Company initiated a store optimization program under which the Company identified approximately 55 Party City stores to be ~~closed.~~closed, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In addition,in the first quarter of 2020, 21 stores were identified ~~in 2020~~ for closure ~~at a future date.~~and were closed throughout 2020. In conjunction with the program, during the three ~~months ended June 30, 2020~~ and ~~2019 the Company’s Retail segment recorded $1,164 and $8,890 of store impairment and restructuring charges, respectively. In conjunction with the program, during~~ six months ended June 30, 2020 ~~and 2019~~ the Company’s ~~Retail~~retail segment recorded ~~$30,588~~$1,164 and ~~$44,528~~$30,588 of store impairment and restructuring charges, respectively. See Note ~~3 – Store Impairment and Restructuring Charges for further detail.~~

During June 2019, the Company’s Wholesale segment sold its main distribution center in Chester, New York, its metallic balloons manufacturing facility in Eden Prairie, Minnesota and its injection molded plastics manufacturing facility in Los Lunas, New Mexico. The aggregate sale price was $128,000 and, during the three months ended June 30, 2019, the Company’s Wholesale segment recorded a $58,381 gain on the sale in the Company’s condensed consolidated statement of operations and comprehensive income. See Note 5 – Sale/Leaseback Transaction for further detail.

During the three months ended March 31, 2020, the Company identified intangible assets’ impairment indicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed interim impairment tests on the goodwill at its retail and wholesale reporting units and its other indefinite lived intangible assets as of March 31, 2020. As a result, the Company recognized non-cash pre-tax goodwill and trade name impairment charges. See Note 4 – Goodwill, Intangibles and ~~Intangibles~~Long-Lived Assets Impairment for further detail.

In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations. See 5 – Disposition of Asset Note 5 – Disposition of Assets for further detail.

~~The following table displays the notional amounts of the Company’s derivatives at June 30, 2020 and December 31, 2019:~~

The provisions of ASC Topic 820, “Fair Value Measurement”, define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

During 2017, the Company acquired a 28% ownership interest in Punchbowl, Inc. (“Punchbowl”), a provider of digital greeting cards and digital invitations. At such time, the Company provided Punchbowl’s other investors with the ability to “put” their interest in Punchbowl to the ~~Company at a future date. Additionally, at such time, the Company received the ability to “call” the interest~~fair value of the ~~other investors. During the twelve months ended December 31, 2019, the option was terminated~~assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and the Company wrote off its asset related to the call option and reversed its liability related to the put option. Prior to such time, the Company had been adjusting the put liability to fair value on a recurring basis. The liability represented a Level 3 fair value measurement as it was based onsimilar techniques that use significant unobservable inputs. ~~In November 2019, the Company sold its ownership interest in Punchbowl, and recorded a net charge of $2,169 in other expenses, net for the option termination and the sale of its ownership interest.~~

During 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. As part of Ampology’s compensation for designing, developing and launching the exchange platform, Ampology received an ownership interest in Kazzam. The interest 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 ~~agreed to purchase~~purchased all of Ampology’s interest in Kazzam. Refer to Note 1917 – Kazzam, LLC for further detail. ~~As of December 31, 2019 the original value was greater and, therefore, the liabilities are not disclosed as fair value measurements. As of June 30, 2020 there is no liability.~~

The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, lease assets, inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill and indefinite-lived intangible assets), a non-financial instrument is required to 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. See Note 3 – Store Impairment and Restructuring Charges and Note 4 – Goodwill, Intangibles and ~~Intangibles~~Long-Lived Assets Impairment for further detail.

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 June 30, ~~2020~~2021 because of the short-term maturities of the instruments and/or their variable rates of interest.

The carrying amounts and fair values of borrowings under the Term Loan Credit Agreement and the Company’s senior notes as of June 30, ~~2020~~2021 are as follows:

The fair values ~~of the Term Loan Credit Agreement and the Senior Notes~~ represent Level 2 fair value measurements as the debt instruments trade in inactive markets. The carrying amounts for other long-term debt approximated fair value at June 30, 2021 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.

Note 1514 – Earnings Per Share

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

Basic and diluted loss per share is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019		Three Months Ended June 30,					Six Months Ended June 30,
Net (loss) income attributable to common shareholders of Party City Holdco Inc.	$	(130,015	)	$	48,074	$	(671,528	)	$	17,856
											2021		2020			2021		2020
Net income (loss) attributable to common shareholders of Party City Holdco Inc.											$	29,811	$	(130,015	)	$	15,747	$	(671,528	)
Weighted average shares - Basic		93,419,078			93,293,176		93,407,344			93,233,865		111,340,295		93,419,078			111,128,822		93,407,344
Effect of dilutive securities:
Warrants		—			—		—			—		0		0			62,121		0
Restricted stock units		—			19,228		—			23,628		4,568,313		—			3,971,807		—
Stock options		—			391,142		—			534,270		342,543		0			336,554		0
Weighted average shares - Diluted		93,419,078			93,703,546		93,407,344			93,791,763		116,251,151		93,419,078			115,499,304		93,407,344
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Basic	$	(1.39	)	$	0.52	$	(7.19	)	$	0.19
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted	$	(1.39	)	$	0.51	$	(7.19	)	$	0.19
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc. - Basic											$	0.27	$	(1.39	)	$	0.14	$	(7.19	)
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc. - Diluted											$	0.26	$	(1.39	)	$	0.14	$	(7.19	)

During the three and six months ended June 30, 2021, 1,706,449 stock options and 133,406 restricted stock units were excluded from the calculation of net income per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. During the three and six months ended June 30, 2020, 3,613,482 stock options, 1,000,000warrants and 413,968 restricted stock units were excluded from the calculation of net loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. ~~During the three and six months ended June 30, 2019, 2,118,443 stock options,~~

17596,000 warrants and 199,978 restricted stock units were excluded from the calculation of net loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive.

Note 1615 – Current and Long-Term Obligations

Long-term obligations at June 30, 2021, December 31, 2020 and ~~December 31, 2019~~June 30, 2020 consisted of the following:

	June 30, 2020			December 31, 2019
Term Loan Credit Agreement	$	713,789		$	718,596
6.125% Senior Notes – due 2023		347,427			347,015
6.625% Senior Notes – due 2026		495,297			494,910
							June 30, 2021												December 31, 2020			June 30, 2020
							Principal Amount			Gross Carrying Amount			Deferred Financing Costs			Net Carrying Amount			Net Carrying Amount			Net Carrying Amount
Senior secured term loan facility (“Term Loan Credit Agreement”)							$	—		$	—		$	—		$	—		$	690,165		$	713,789
8.75% Senior Secured First Lien Notes – due 2026								750,000			750,000			(18,695	)		731,305			—			—
6.125% Senior Notes – due 2023								22,924			22,924			(118	)		22,806			22,779			347,427
6.625% Senior Notes – due 2026								92,254			92,254			(735	)		91,519			106,315			495,297
First Lien Party City Notes – due 2025								161,669			202,588			—			202,588			206,775			—
First Lien Anagram Notes – due 2025								112,979			151,313			(862	)		150,451			151,335			—
Second Lien Anagram Notes – due 2026								86,981			148,114			—			148,114			152,032			—
Finance lease obligations		14,873			14,990			13,398			13,398			—			13,398			13,983			14,873
Total long-term obligations		1,571,386			1,575,511			1,240,205			1,380,591			(20,410	)		1,360,181			1,343,384			1,571,386
Less: current portion		(13,810	)		(71,524	)		(1,265	)		(1,265	)		—			(1,265	)		(13,576	)		(13,810	)
Long-term obligations, excluding current portion	$	1,557,576		$	1,503,987		$	1,238,940		$	1,379,326		$	(20,410	)	$	1,358,916		$	1,329,808		$	1,557,576

Prior to April 2019, the Company had a ~~$540,000~~$540,000 asset-based revolving credit facility (with a seasonal increase to ~~$640,000~~$640,000 during a certain period of each calendar year) (the “ABL Facility”), which matures during August 2023 (subject to a springing maturity at an earlier date if the maturity date of certain of the Company’s other debt has not been extended or refinanced). It provides for (a) revolving loans, subject to a borrowing base, and (b) letters of credit, in an aggregate face amount at any time outstanding not to exceed ~~$50,000.~~$50,000. During April 2019, the Company amended the ABL Facility. Such amendment removed the seasonal component and made the ABL Facility a ~~$640,000~~$640,000 facility with no seasonal modification component.

In connection with the ~~first half~~refinancing transactions as follows, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000 in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of ~~2020 the Company drew down $269.9 million~~its subsidiaries as an unrestricted subsidiary under the ABL ~~Facility.~~Facility and the Term Loan Credit Agreement. Additionally, in February 2021 in conjunction with the transaction discussed below, the Company amended the ABL Facility by reducing the commitments to $475,000 and extending the maturity to February 2026, or earlier as provided for in the agreement.

The Company had approximately $170.2 million, $176.5 million and $136.1 million of availability under the ABL Facility as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. At June 30, 2020, ~~$119.6~~$119.6 million was invested in US Treasury funds with maturities of less than three months. ~~The Company~~As discussed further below, Anagram had a separate asset-based revolving credit facility and there was approximately ~~$136.1~~$14.6 million of availability under the Anagram ABL Facility as of June 30, ~~2020.~~2021.

~~Refer~~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”). The 8.750% Senior Notes will mature in February 2026. The Company used the proceeds from the 8.750% Senior Notes to ~~Note 20 – Subsequent Events for~~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.~~further disclosure about~~

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 ~~current~~Consolidated Statement of Operations and ~~long-term debt.~~ 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 senior secured basis by each of PCHI’s existing and future domestic subsidiaries. The 8.750% Senior Notes and related guarantees are secured by a first priority lien on substantially all assets of PCHI and the guarantors, except for the collateral that secures the senior credit facilities on a first lien basis, with respect to which the 8.750% Senior Notes and related guarantees will 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 8.750% Senior Notes at the redemption price of 104.375%, 102.188% and 100.000%, respectively, plus accrued and unpaid interest, if any. In addition, PCHI may redeem up to 40% of the 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 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 bear interest, at the Anagram's election, at a per annum rate equal to either (a) a base rate, which represents for any day a rate equal to the greater of (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 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 outstanding principal, Anagram is required to pay a commitment fee of 0.5% to 1% per annum in respect of unutilized commitments. Anagram must also pay customary letter of credit fees.

All obligations under the Anagram ABL Facility are jointly and severally guaranteed by Anagram and its subsidiaries. The Anagram ABL facility contains covenants and events of default customary for such credit facilities.

Note 1716 – Revenue from Contracts with Customers

The following table summarizes revenue from contracts with customers for the three ~~and six~~ months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Retail Net Sales:
North American Party City Stores	$	441,675	$	181,404	$	771,720	$	471,035
Other*		2,137		4,378		5,374		17,723
Total Retail Net Sales	$	443,812	$	185,782	$	777,094	$	488,758
Wholesale Net Sales:
Domestic	$	61,789	$	39,121	$	117,146	$	97,875
International		30,145		29,788		68,313		82,101
Total Wholesale Net Sales	$	91,934	$	68,909	$	185,459	$	179,976
Total Consolidated Revenue	$	535,746	$	254,691	$	962,553	$	668,734

*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.

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 assesses the financial health of the markets it operates in and performs periodic credit evaluations of its customers and ongoing reviews of account balances and aging of receivables. Amounts are considered past due when payment has not been received within the time frame of the credit terms extended. Write-offs are charged directly against the allowance for credit losses and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses. At June 30, 2021, December 31, 2020 and ~~2019:~~

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Retail Net Sales:

North American Party City Stores

$
147,729

$
387,308

$
407,607

$
733,448

Global E-commerce

33,675

35,364

63,428

67,172

Other

3,333

485

15,096

690

Total Retail Net Sales

$
184,737

$
423,157

$
486,131

$
801,310

Royalties and Franchise Fees

1,045

2,189

2,627

4,203

Total Retail Revenue

$
185,782

$
425,346

$
488,758

$
805,513

Wholesale Net Sales:

Domestic

$
39,121

$
74,766

$
97,875

$
148,587

International

29,788

63,779

82,101

122,907

Total Wholesale Net Sales

$
68,909

$
138,545

$
179,976

$
271,494

Total Consolidated Revenue

$
254,691

$
563,891

$
668,734

$
1,077,007

~~Note 18 – Cash, Cash Equivalents and Restricted Cash~~

~~The Company’s~~ June 30, 2020, ~~consolidated balance sheet included $154,133 of cash~~the allowance for credit losses was $7,933, $7,232 and cash equivalents (with maturities of less than three months) and $18 of restricted cash. The Company’s December 31, 2019 consolidated balance sheet included $34,917 of cash and cash equivalents and $259 of restricted cash.$8,620, respectively.

~~Restricted cash is recorded in Prepaid expenses and other current assets.~~

Note 1917 – 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.

At December 31, 2019, although the Company owned ~~26%~~26% of Kazzam’s equity, Kazzam was a variable interest entity and the Company consolidated Kazzam into the Company’s financial statements. Further, the Company was funding all of Kazzam’s start-up activities via a loan to Kazzam and recorded its operating results in “development stage expenses” in the Company’s consolidated statement of operations and comprehensive (loss) income. Ampology’s 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 purchase up to 1,000,000 shares of the Company’s common stock. The acquisition of Ampology’s interest in Kazzam is an equity transaction and the difference between the fair value of the consideration transferred and the carrying value of Ampology’s interest in Kazzam iswas recorded within the consolidated statement of stockholders’ equity.

~~Note 20 – Subsequent Events~~

~~Completion~~During the first quarter of ~~Refinancing Transactions~~

~~On July 30, 2020 (the “Settlement Date”), the Company and certain of its direct or indirect subsidiaries, including PCHI, Anagram Holdings, LLC,~~2021, Ampology exercised a ~~Delaware limited liability company and wholly owned direct subsidiary of PCHI (“Anagram Holdings”), and Anagram International, Inc.,~~warrant in a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings, completed certain previously announced refinancing transactions, including, among other things: (i) the exchange of $327,076,000.00 of 6.125% Senior Notes due 2023 (the “2023 Notes”) and $392,746,000.00 of 6.625% Senior Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “Existing Notes”) issued by PCHI, in each case tenderedcashless redemption transaction which is reflected in the ~~Company’s offers to exchange pursuant to~~consolidated statement of stockholders’ equity for the terms described in a confidential offering memorandum, for (A) $156,669,177.00 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,686,977.00 of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings and Anagram International (together, the “Anagram Issuers”); and (C) 15,942,551 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”); (ii) the issuance of $110,000,000.00 in the aggregate of 15.00% PIK/Cash Senior Secured First Lien Notes due 2025 (the “First Lien Anagram Notes”) by the Anagram Issuers and an additional $5,000,000 of First Lien Party City Notes in connection with a rights offering and a private placement, as applicable; and (iii) the solicitations of certain consents (the “Consent Solicitations”) with respect to the indentures governing Existing Notes.

The First Lien Party City Notes were issued pursuant to an indenture, dated as of the Settlement Date, among PCHI, as issuer, certain guarantors party thereto (the “Party City Guarantors”) and Ankura Trust Company, LLC (“Ankura”), as trustee and collateral trustee. The First Lien Party City Notes were issued in an aggregate amount of $161,669,177.00 and will mature on July 15, 2025. Interest on the First Lien Party City Notes accrues from the Settlement Date at a floating rate equal to the 6-month London Inter-Bank Offered Rate plus 500 basis points (with a floor of 75 basis points) per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2021. The First Lien Party City Notes are senior secured obligations of PCHI and the Party City Guarantors. The First Lien Party City Notes are pari passu in right of payment with all of PCHI’ other senior indebtedness, including the existing senior secured term loan facility and the ABL Facility, and are structurally subordinated to the First Lien Anagram Notes and the Second Lien Anagram Notes, to the extent of the value of the Anagram Collateral (as defined below). The First Lien Party City Notes are secured by a first priority lien on collateral that includes liens on substantially all assets (other than certain accounts, inventory, deposit accounts, securities accounts, related assets and general intangibles) of the Party City Guarantors, in each case subject to certain exceptions and permitted liens.

The First Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, certain guarantors party thereto (the “Anagram Guarantors”) and Ankura, as trustee and collateral trustee. The First Lien Anagram Notes were issued in an aggregate amount of $110,000,000.00 and will mature on August 15, 2025. Interest on the First Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 10.00% per annum, payable in cash; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding First Lien Anagram Notes or issuing additional First Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021. The First Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The First Lien Anagram Notes are secured by a first priority lien on collateral that consists of substantially all assets and properties of the Anagram Issuers and the Anagram Guarantors, subject to certain exceptions and permitted liens (the “Anagram Collateral”). Such security interests are senior in priority to the security interests in such assets that secure the Second Lien Anagram Notes.

The Second Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, the Anagram Guarantors and Ankura, as trustee and collateral trustee. The Second Lien Anagram Notes were issued in an aggregate amount of $84,686,977.00 and will mature on August 15, 2026. Interest on the Second Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 5.00% per annum, payable, at the Anagram Issuers’ option, entirely in cash or entirely by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021; ~~provided~~, ~~however~~, that on August 15, 2025, interest will be required to be paid by increasing the principal amount of the Second Lien Anagram Notes or issuing the principal amount of the Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes. On February 15, 2026, the Anagram Issuers will prepay in cash a portion of the Second Lien Anagram Notes then outstanding in an amount necessary such that the Second Lien Anagram Notes are not treated as “applicable high yield discount obligations” within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended. The Second Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The Second Lien Anagram Notes are secured by a second priority lien on the Anagram Collateral. Such security interests are junior to the security interests in such assets that secure the First Lien Anagram Notes.

In connection with the refinancing transactions described above, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000,000.00, in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of its subsidiaries as an unrestricted subsidiary under the ABL Facility and the Term Loan Credit Agreement.

~~Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.~~

On April 9, 2020, the Company received written notice (the “Notice”) from the New York Stock Exchange (the “NYSE”) that the Company is no longer in compliance with the NYSE continued listing standards set forth in Section 802.01C of the NYSE’s Listed Company Manual, which requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.

~~Under NYSE continued listing standards, the Company has a period of~~ six months following the receipt of the Notice to regain compliance with the minimum share price requirement. However, on April 20, 2020, the NYSE made a rule filing with the Securities and Exchange Commission for relief on the $1.00 share closing price standard, which became effective on April 21, 2020. The relief provides issuers additional time to cure noncompliance with the $1.00 share closing price standard. As a result, the Company’s new noncompliance cure expiration date was December 18, 2020. The Company regained compliance after its closing share price onended June 30, ~~2020 and its average closing price for the 30 trading-day period ending June 30, 2020 both exceeded $1.00.~~2021.

~~Registration of Additional Sharesand Share Activity.~~

~~On July 10, 2020, the Company filed a registration statement on Form S-8 to register an additional 1,600,000 shares under its Registrant’s Amended and Restated 2012 Omnibus Equity Incentive Plan.~~On July 18, 2020, 6,448,276 performance-based restricted stock units ("PRSUs") were granted to certain executive officers and other employees. Each PRSU represents the contingent right to receive one share of Common Stock. The PRSUs will vest in quarters if the volume weighted average of the fair market value per share of the Common Stock meets or exceeds $2.50, $5.00, $7.50, and $10.00, respectively, for a period of not less than 90 consecutive trading days on the New York Stock Exchange, subject to the each of the executive officers’ and employees’ continued employment by the Company through each vesting date.

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

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

Business Overview

Our Company

We are the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is a leading player in its category and vertically integrated in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. ~~As of June 30, 2020, the~~The Company’s retail operations include ~~854~~831 specialty retail party supply stores (including franchise stores) throughout ~~the United States and Mexico~~North America operating under the names Party City and Halloween City, and e-commerce websites, ~~including~~principally through the domain name ~~PartyCity.com and others.~~PartyCity.com.

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

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 - Adjusted EBITDA,” “Financial Measures - Adjusted Net Income (Loss)” and “Financial Measures - Adjusted Net Income (Loss) Per Common Share – Diluted” below.

Segments

We have two ~~reporting~~reportable operating segments: Retail and Wholesale.

Our retail segment generates revenue primarily through the sale of our party supplies, which are sold under the Amscan, Designware, Anagram and Costumes USA brand names through Party City, Halloween City and PartyCity.com. For the six months ended June 30, ~~2020, 81.7%~~2021, 81.2% of the product that was sold by our retail segment was supplied by our wholesale segment and ~~30.7%~~31.4 % of the product that was sold by our retail segment was self-manufactured.

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

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. 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 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. Retail sales are reported net of taxes collected.

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

For most of our wholesale sales, control transfers upon the shipment of the product as: 1) legal title transfers on such date and 2) we have a present right to payment at such time. Wholesale sales returns are not significant as we generally only accept the return of goods that were shipped to the customer in error or that were damaged when received by the customer. Additionally, due to our extensive history operating as a leading party goods wholesaler, we have sufficient history with which to estimate future sales returns and we use the expected value method to estimate such activity.

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

Comparable Retail Same-Store Sales. 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 retail e-commerce sales.

Cost of Sales. Cost of sales at wholesale reflects the production costs (i.e., raw materials, labor and overhead) of manufactured goods and the direct cost of purchased goods, inventory shrinkage, inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution costs ~~including rent at distribution facilities,~~ 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 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 retail e-commerce business.

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

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

Wholesale Selling Expenses. 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 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 include the costs associated with operating our franchise network, including salaries and benefits of the administrative work force and other administrative costs. These expenses generally do not vary proportionally with royalties and franchise fees.

General and Administrative Expenses. General and administrative expenses include all operating costs and franchise expenses not included elsewhere in the statement of operations and comprehensive income (loss) ~~income.~~. 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.~~ ~~Development stage expenses represent start-up activities related to Kazzam, LLC (“Kazzam”).~~

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, 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

~~Impact of the COVID-19 Pandemic~~

This led to a temporary furlough of approximately 90% of store employees and 70% of wholesale, manufacturing and corporate employees for whom the Company provides health benefits. In addition, there were non-payroll expense reductions including advertising and other store operating expenses, as well as professional and consulting fees, and cancellation of orders and negotiated receipt delays to manage inventory levels.

The Company began reopening stores on May 1, 2020, in accordance with state and local health ordinances, and as of June 12, 2020 had reopened 85% of its stores with store employees returning from furlough. By June 22, 2020, all stores were re-opened. But our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected. The disruption to the global economy and to our business, along with the decline in our stock price, negatively impacted the recoverability value of certain assets, including intangibles, and goodwill in the first quarter of 2020.

Three Months Ended June 30, ~~2020~~2021 Compared To Three Months Ended June 30, ~~2019~~2020

The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Three Months Ended June 30,

2020

2019

(Dollars in thousands)
Revenues:

Net sales

$
253,646

99.6

%

$
561,702

99.6

%
Royalties and franchise fees

1,045

0.4

2,189

0.4

Total revenues

254,691

100.0

563,891

100.0

Expenses:

Cost of sales

237,907

93.4

353,056

62.6

Wholesale selling expenses

9,707

3.8

16,884

3.0

Retail operating expenses

65,236

25.6

96,143

17.0

Franchise expenses

3,121

1.2

3,236

0.6

General and administrative expenses

59,931

23.5

41,510

7.4

Art and development costs

3,516

1.4

5,712

1.0

Development stage expenses

903

0.4

3,012

0.5

Gain on sale/leaseback transaction

—

0.0

(58,381
)

(10.4
)

Store impairment and restructuring charges

1,164

0.5

5,234

0.9

Total expenses

381,485

149.8

466,406

82.7

(Loss) income from operations

(126,794
)

(49.8
)

97,485

17.3

Interest expense, net

25,412

10.0

30,176

5.4

Other expense, net

1,484

0.6

3,342

0.6

(Loss) income before income taxes

(153,690
)

(60.3
)

63,967

11.3

Income tax (benefit) expense

(23,631
)

(9.3
)

15,962

2.8

Net (loss) income

(130,059
)

(51.1
)

48,005

8.5

Less: Net loss attributable to noncontrolling interests

(44
)

—

(69
)

—

Net (loss) income attributable to common shareholders of Party City Holdco Inc.

$
(130,015
)

(51.0
)
%

$
48,074

8.5

%
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic

$
(1.39
)

$
0.52

Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted

$
(1.39
)

$
0.51


	Three Months Ended June 30,
	2021						2020
	(Dollars in thousands)
Net sales	$	535,746		100.0		%	$	254,691		100.0		%
Cost of sales		318,574		59.5				237,907		93.4
Gross Profit		217,172		40.5				16,784		6.6
Wholesale selling expenses		7,358		1.4				9,707		3.8
Retail operating expenses		97,179		18.1				65,236		25.6
General and administrative expenses		45,795		8.5				63,955		25.1
Art and development costs		5,004		0.9				3,516		1.4
Store impairment and restructuring charges		—		0.0				1,164		0.5
Income (loss) from operations		61,836		11.5				(126,794	)	(49.8	)
Interest expense, net		23,116		4.3				25,412		10.0
Other (income) expense, net		(1,300	)	(0.2	)			1,484		0.6
Income (loss) before income taxes		40,020		7.5				(153,690	)	(60.3	)
Income tax expense (benefit)		10,209		1.9				(23,631	)	(9.3	)
Net income (loss)		29,811		5.6				(130,059	)	(51.1	)
Less: Net (loss) attributable to noncontrolling interests		—		-				(44	)	-
Net income (loss) attributable to common shareholders of Party City Holdco Inc.	$	29,811		5.6		%	$	(130,015	)	(51.0	)	%
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic	$	0.27					$	(1.39	)
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted	$	0.26					$	(1.39	)

~~Revenues~~

Revenues

Total revenues for the second quarter of ~~2020~~2021 were ~~$254.7~~$535.7 million and were ~~$309.2~~$281.0 million, or ~~54.8%~~110.4%, ~~lower~~higher than the second quarter of ~~2019.~~2020. The following table sets forth the Company’s total revenues for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.


	Three Months Ended June 30,														Three Months Ended June 30,
	2020							2019							2021							2020
	Dollars in Thousands			Percentage of Total Revenues				Dollars in Thousands			Percentage of Total Revenues				Dollars in Thousands			Percentage of Total Revenues				Dollars in Thousands			Percentage of Total Revenues
Net Sales:
Wholesale	$	131,296			51.6		%	$	289,067			51.3		%	$	230,961			43.1		%	$	131,296			51.6		%
Eliminations		(62,387	)		(24.5	)			(150,522	)		(26.7	)			(139,027	)		(26.0	)			(62,387	)		(24.5	)
Net wholesale		68,909			27.1				138,545			24.6				91,934			17.2				68,909			27.1
Retail		184,737			72.5				423,157			75.0
Total net sales		253,646			99.6				561,702			99.6
Royalties and franchise fees		1,045			0.4				2,189			0.4
Retail*																443,812			82.8				185,782			72.9
Total revenues	$	254,691			100.0		%	$	563,891			100.0		%	$	535,746			100.0		%	$	254,691			100.0		%

*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.

Retail

Retail net sales during the second quarter of ~~2020~~2021 were ~~$184.7~~$ 443.8 million and were ~~$238.5~~$ 258.0 million, or ~~56.3%~~138.9%, ~~lower~~higher than during the second quarter of ~~2019.~~2020. Retail net sales at our ~~North American~~ Party City stores totaled ~~$147.7~~$417.6 million and were ~~$240.2~~$269.9 million, or ~~61.9% lower~~182.7% higher than in the second quarter of ~~2019 principally due to~~2020. Growth in same-store sales for the ~~temporary closure of all~~ Party City ~~stores in response to~~brand was partially offset the ~~COVID-19 pandemic starting on March 18, 2020. All stores safely reopened as~~divestiture of ~~June 22, 2020.~~international retail operations. In addition, ~~the decline in~~store sales ~~was also~~were impacted by ~~the sale of 65 Canadian Party City stores in October 2019, and the closure of 55 stores in conjunction with our 2019~~two store optimization program. These negative factors affecting sales were partially offset by the acquisition of three franchise and independent stores and the opening of one new store during the twelve months ended June 30, 2020. Global retail e-commerce sales totaled $36.7 millionclosures during the second quarter of ~~2020 and were $2.0 million, or 5.7% higher than during~~2021, as well as impact of closed stores in conjunction with the ~~corresponding quarter of 2019. Sales at other~~ store ~~formats totaled $0.3 million during the second quarter of 2020.~~optimization program.

Same-store sales for the Party City brand (including North American retail e-commerce sales) ~~decreased~~increased by ~~52.4%~~118.3% during the second quarter of ~~2020, due to the impact of the temporary closure of all Party City stores in response to the COVID-19 pandemic.~~

~~Our North American retail e-commerce sales, which include our Amazon marketplace sales, increased by 3.3%~~2021 compared to the ~~second quarter of 2019~~13 weeks ended June 27, 2020, principally due to growth in core sales particularly in the balloon, birthday, and ~~when adjusting for the impact of our “buy online, pick-up in store” program which includes our curbside pickup and delivery (such sales are included in our store sales), increased by 83.2%.~~entertaining categories.

~~Excluding the impact of e-commerce, same-store sales decreased by 68.1%.~~

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

Wholesale

Wholesale net sales during the second quarter of ~~2020~~2021 totaled ~~$68.9~~$91.9 million and were ~~$69.6~~$23.0 million, or ~~50.3%~~33.4%, ~~lower~~higher than the second quarter of ~~2019. Net~~2020. This increase in sales to domestic party goods retailers and distributors (including our franchisee network) totaled $24.6 million and were $31.7 million, or 56.3% lower than during 2019 principally due to lower distributor demand and closed franchise and independent party goods stores as a result of the COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $14.5 million during the second quarter of 2020 and were $3.9 million, or 21.2%, lower than during the corresponding quarter of 2019is principally due to the significant disruption in 2020 operations due to COVID-19 ~~pandemic. Our~~offset by the divestiture of a significant portion of our international operations in the first quarter of 2021. Excluding the impact of the divestiture, sales ~~(which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $29.8 million and were $34.0~~increased $45.3 million, or ~~53.3%, lower than in 2019. Foreign currency translation negatively impacted sales by approximately $1.1 million.~~97.3%.

Intercompany sales to our retail affiliates totaled ~~$62.4~~$139.0 million during the second quarter of ~~2020~~2021 and were ~~$88.1~~$76.6 million ~~lower~~higher than during the corresponding quarter of ~~2019.~~2020. Intercompany sales represented ~~47.5%~~60.2% of total wholesale sales during the second quarter of ~~2020~~2021 and were ~~58.6% lower than~~12.7% higher during the second quarter of ~~2019,~~2020, principally ~~reflecting~~due to increased sales to our Party City Corporate stores and channel mix changes with the ~~impact~~divestiture of the ~~Party City store closures related to the COVID-19 pandemic.~~international operations. 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~~25

Royalties and franchise fees for the second quarter of 2020 totaled $1.0 million and were $1.2 million lower than during the second quarter of 2019 primarily due to lower sales as a result of store closures resulting from the COVID-19 pandemic.

Gross Profit

The following table sets forth the Company’s gross profit for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Three Months Ended June 30,

2020

2019

Dollars in
Thousands

Percentage
of Net Sales

Dollars in
Thousands

Percentage
of Net Sales

Retail

$
28,857

15.6

%

$
172,051

40.7

%
Wholesale

(13,118
)

(19.0
)

36,595

26.4

Total Gross Profit

$
15,739

6.2

%

$
208,646

37.1

%


	Three Months Ended June 30,
	2021					2020
	Dollars in Thousands		Percentage of Net Sales			Dollars in Thousands			Percentage of Net Sales
Retail Gross Profit*	$	193,565		43.6	%	$	29,902			16.1		%
Wholesale Gross Profit		23,607		25.7			(13,118	)		(19.0	)
Total Gross Profit	$	217,172		40.5	%	$	16,784			6.6		%

*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.

The gross profit margin on net sales at retail during the second quarter of ~~2020~~2021 was ~~15.6%~~43.6 % or ~~2,510~~2,750 basis points ~~lower~~higher than during the corresponding quarter of ~~2019.~~2020. The ~~decrease~~increase was ~~mainly due to sales deleverage from the temporary closure of all~~primarily driven by leverage on occupancy expense and lower year over year markdowns in conjunction with the Company’s retail stores announced on March 18, 2020 in response to the COVID-19 pandemic. In addition, the increased costs of freight and helium contributed to the margin decline. The declines in margin were partially offset by margin increases due to favorable share of shelf gains.store optimization program. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of ~~33.5%~~30.7 % during the second quarter of ~~2020~~2021 was ~~6.4% higher~~2.8% lower as compared to the second quarter of ~~2019.~~2020. 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 ~~82.3%~~81.0% during the second quarter of 2021 or ~~4.7% higher~~1.3% lower than during the second quarter of ~~2019.~~2020.

The gross profit margin on net sales at ~~wholesale~~Wholesale during the second quarters of 2021 and 2020 was 25.7% and ~~2019 was~~ (19.0)% ~~and 26.4%~~, respectively. ~~The decrease was principally~~This improvement is primarily due to the ~~deleveraging of distribution and manufacturing costs from lower sales to closed franchise and independent party stores due to~~deleverage caused by the COVID-19 ~~pandemic~~shutdowns in the prior period, the divestiture of lower margin international operations, as well as ~~increased rent associated with~~favorable product mix.

Operating expenses

Operating expenses totaled $155.3 million or $11.7 million higher than the ~~sale leaseback transaction.~~second quarter of 2020 primarily due to higher retail operating expenses offset by decreased general and administrative expenses.

~~Operating expenses~~

Wholesale selling expenses were ~~$9.7~~$7.4 million during the second quarter of ~~2020~~2021 and were ~~$7.2~~$2.3 million lower than during the corresponding quarter of ~~2019,~~2020, ~~principally~~largely due to ~~lower payroll costs as well as lower travel, marketing, and commission expenses.~~the international divestiture. Wholesale selling expenses were ~~14.1%~~8.0% and ~~12.2%~~14.1% of net wholesale sales during the second quarters of 2021 and 2020, ~~and 2019, respectively.~~respectively, reflecting the leverage on higher sales.

Retail operating expenses during the second quarter of ~~2020~~2021 were ~~$65.2~~$97.2 million and were ~~$30.9~~$32.0 million ~~lower~~higher than the corresponding quarter of ~~2019. The decrease was mainly due to the COVID-19 pandemic impact on costs including employee~~2020, primarily driven by higher payroll, ~~from furloughs~~advertising spend and ~~lower marketing and credit card fees. In addition,~~bank charges. Retail operating expenses were ~~lower due to the sale of the 65 Canada Retail stores,~~21.9% and the closing of 55 US stores in conjunction with the store optimization program partially offset by higher costs associated with the acquisition of Livario and Webdots in November of 2019. Retail operating expenses were 35.3% and 22.7%35.1% of retail sales during the second quarters of 2021 and 2020, respectively, with the leverage attributable to higher sales and ~~2019, respectively.~~disciplined expense management.

~~Franchise expenses during the second quarter of 2020 and 2019 were $3.1 million and $3.2 million, respectively.~~

General and administrative expenses during the second ~~quarters~~quarter of ~~2020~~2021 totaled ~~$59.9~~$45.8 million and were ~~$18.4~~$18.2 million, or ~~44.4%~~28.4%, ~~higher~~lower than in the second quarter of ~~2019~~2020 principally due to ~~higher~~lower professional fees ~~stock compensation (see Note 10 – Capital Stock, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q), higher bad debt expense,~~ and ~~new executive leadership compensation partially offset by lower employee payroll from furloughs associated with~~ the ~~COVID-19 pandemic.~~international divestiture. General and administrative expenses as a percentage of total revenues were ~~23.5%~~8.5% and ~~7.4%~~25.1% during the second quarters of 2021 and 2020, ~~and 2019,~~ respectively.

Art and development costs were ~~$3.5~~$5.0 million and ~~$5.7~~$3.5 million during the second quarters of 2021 and 2020, ~~and 2019,~~ respectively.

~~Development stage expenses represent costs related to Kazzam.~~26

During June 2019, the Company reported a $58.4 million gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128.0 million. Simultaneous with the sale, the Company entered into twenty year leases for each of the facilities.

During the three months ended March 31, 2020, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of approximately 21 stores which are primarily located in close proximity to other Party City stores. An additional $1.2 million expense was recorded for the stores during the three months ended June 30, 2020. These closings should provide the Company with capital flexibility to expand into underserved markets. In addition, for the three months ended March 31, 2020 the Company estimated lease impairment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19.

Interest expense, net

Interest expense, net, totaled $23.1 million during the second quarter of 2021, compared to $25.4 million during the second quarter of ~~2020, compared to $30.2 million during the second quarter of 2019.~~2020. The decrease in interest ~~principally~~primarily reflects lower ~~average~~amounts of debt ~~following~~principal outstanding as a result of the debt ~~repayment~~refinancing in the ~~fourth~~third quarter of ~~2019.~~2020.

Other (income) expense, net

For the second quarters of 2021 and 2020, ~~and 2019,~~ other (income) expense, net, totaled $(1.3) million and $1.5 million, ~~and $3.3 million,~~ respectively.The change is ~~mostly~~primarily due to ~~termination~~higher income from equity method investments and recognition of ~~Punchbowl “put” and “call” options during the second quarter of 2019.~~a currency loss in 2020 versus a gain in 2021.

Income tax ~~benefit~~expense

The effective income tax rate for the three months ended June 30, ~~2020, 15.4%~~2021 of 25.5%, is different from the statutory rate of 21.0% primarily due ~~the non-deductible portions of the goodwill impairment charges noted above,~~to state taxes and ~~a rate benefit related to the carryback of a net operating loss to years when the statutory income tax rate was 35.0%.~~equity compensation.

Six Months Ended June 30, ~~2020~~2021 Compared To Six Months Ended June 30, ~~2019~~2020

The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the ~~six~~three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Six Months Ended June 30,

2020

2019

(Dollars in thousands)
Revenues:

Net sales

$
666,107

99.6

%

$
1,072,804

99.6

%
Royalties and franchise fees

2,627

0.4

4,203

0.4

Total revenues

668,734

100.0

1,077,007

100.0

Expenses:

Cost of sales

534,664

80.0

692,098

64.3

Wholesale selling expenses

25,165

3.8

34,845

3.2

Retail operating expenses

153,402

22.9

191,161

17.7

Franchise expenses

6,430

1.0

6,539

0.6

General and administrative expenses

119,927

17.9

83,435

7.7

Art and development costs

8,838

1.3

11,641

1.1

Development stage expenses

2,932

0.4

5,238

0.5

Gain on sale/leaseback transaction

—

0.0

(58,381
)

(5.4
)

Store impairment and restructuring charges

18,892

2.8

23,243

2.2

Goodwill and intangibles impairment

536,648

80.2

—

—

Total expenses

1,406,898

210.4

989,819

91.9

(Loss) income from operations

(738,164
)

(110.4
)

87,188

8.1

Interest expense, net

50,532

7.6

59,433

5.5

Other expense, net

7,160

1.1

4,596

0.4

(Loss) income before income taxes

(795,856
)

(119.0
)

23,159

2.2

Income tax (benefit) expense

(124,129
)

(18.6
)

5,443

0.5

Net (loss) income

(671,727
)

(100.4
)

17,716

1.6

Less: Net loss attributable to noncontrolling interests

(199
)

—

(140
)

—

Net (loss) income attributable to common shareholders of Party City Holdco Inc.

$
(671,528
)

(100.4
)
%

$
17,856

1.7

%
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic

$
(7.19
)

$
0.19

Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted

$
(7.19
)

$
0.19


	Six months ended June 30,
	2021						2020
	(Dollars in thousands)
Net sales	$	962,553		100.0		%		$	668,734		100.0		%
Cost of sales		593,095		61.6	��				534,664		80.0
Gross Profit		369,458		38.4					134,070		20.0
Wholesale selling expenses		16,474		1.7					25,165		3.8
Retail operating expenses		186,075		19.3					153,402		22.9
General and administrative expenses		91,833		9.5					129,289		19.3
Art and development costs		9,975		1.0					8,838		1.3
Store impairment and restructuring charges		—		-					18,892		2.8
Loss on disposal of assets in international operations		3,211		0.3					—		-
Goodwill and intangibles impairment		—		-					536,648		80.2
Income (loss) from operations		61,890		6.4					(738,164	)	(110.4	)
Interest expense, net		40,330		4.2					50,532		7.6
Other (income) expense, net		(873	)	(0.1	)				7,160		1.1
Income (loss) before income taxes		22,433		2.3					(795,856	)	(119.0	)
Income tax expense (benefit)		6,740		0.7					(124,129	)	(18.6	)
Net income (loss)		15,693		1.6					(671,727	)	(100.4	)
Less: Net (loss) attributable to noncontrolling interests		(54	)	-					(199	)	-
Net income (loss) attributable to common shareholders of Party City Holdco Inc.	$	15,747		1.6		%		$	(671,528	)	(100.4	)	%
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic	$	0.14						$	(7.19	)
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted	$	0.14						$	(7.19	)

Revenues

Total revenues for the first six months of ~~2020~~2021 were ~~$668.7~~$962.6 million and were ~~$408.3~~$293.9 million, or ~~37.9%~~44%, ~~lower~~higher than the ~~first~~second six months of ~~2019.~~2020. The following table sets forth the Company’s total revenues for the six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Six Months Ended June 30,

2020

2019

Dollars in
Thousands

Percentage of
Total Revenues

Dollars in
Thousands

Percentage of
Total Revenues
Net Sales:

Wholesale

$
346,094

51.8

%

$
579,368

53.8

%
Eliminations

(166,118
)

(24.8
)

(307,874
)

(28.6
)

Net wholesale

179,976

26.9

271,494

25.2

Retail

486,131

72.7

801,310

74.4

Total net sales

666,107

99.6

1,072,804

99.6

Royalties and franchise fees

2,627

0.4

4,203

0.4

Total revenues

$
668,734

100.0

%

$
1,077,007

100.0

%

~~Retail~~


	Six months ended June 30,
	2021							2020
	Dollars in Thousands			Percentage of Total Revenues					Dollars in Thousands			Percentage of Total Revenues
Net Sales:
Wholesale	$	443,098			46.0		%		$	346,094			51.8		%
Eliminations		(257,639	)		(26.8	)				(166,118	)		(24.8	)
Net wholesale		185,459			19.3					179,976			26.9
Retail*		777,094			80.7					488,758			73.1
Total revenues	$	962,553			100.0		%		$	668,734			100.0		%

*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.

Retail

Retail net sales during the first six months of ~~2020~~2021 were ~~$486.1~~$ 777.1 million and were ~~$315.2~~$ 288.3 million, or ~~39.3%~~59.0%, ~~lower~~higher than during the first six months of ~~2019.~~2020. Retail net sales at our ~~North American~~ Party City stores totaled ~~$407.6~~$728.2 million and were ~~$326.5~~$320.6 million, or ~~44.5% lower~~78.7% higher than in the first six months of ~~2019 principally due to~~2020. Growth in same-store sales for the ~~temporary closure of all~~ Party City ~~stores in response to~~brand was partially offset by the ~~COVID-19 pandemic starting on March 18, 2020, the sale~~timing of ~~65 Canadian Party City stores in October 2019,~~New Year’s Eve and the ~~closure~~divestiture of 55international retail operations. In addition, store sales were impacted by five new stores opened during the three months ended March 31, 2021, partially offset by two stores closed in the second quarter of 2021 along with impact of closed stores in conjunction with ~~our 2019~~the store optimization program. These negative factors affecting sales were partially offset by the acquisition of three franchise and independent stores and the opening of one new store during the twelve months ended June 30, 2020. Global retail e-commerce sales totaled $77.6 million during the first six months of 2020 and were $11.1 million, or 16.6% higher than the first six months of 2019. Sales at other store formats totaled $0.9 million during the first six months of 2020.

Same-store sales for the Party City brand (including North American retail e-commerce sales) ~~decreased~~increased by ~~35.6%~~73.4% during the first six months of 2021 compared to the 13 weeks ended April 4, 2020, principally due to growth in core sales particularly in the ~~impact of the temporary closure of all Party City stores in response to the COVID-19 pandemic.~~balloon, birthday, and entertaining categories.

Our North American retail e-commerce sales, which include our Amazon marketplace sales, decreased by 5.3% compared to the first six months of 2019 and, when adjusting for the impact of our “buy online, pick-up in store” program which includes our curbside pickup and delivery launched on March 25, 2020 (such sales are included in our store sales), increased by 42.4%.

~~Excluding the impact of e-commerce, same-store sales decreased by 44.4%.~~

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 six months of ~~2020~~2021 totaled ~~$180.0~~$185.5 million and were ~~$91.5~~$5.5 million, or ~~33.7%~~3.1%, ~~lower~~higher than the first six months of ~~2019. Net~~2020. This increase in sales to domestic party goods retailers and distributors (including our franchisee network) totaled $68.3 million and were $42.4 million, or 38.3%, lower than during 2019 principally due to lower distributor demand and closed franchise and independent party goods stores as a result of the COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $29.6 million during the first six months of 2020 and were $8.4 million, or 22.0%, lower than during the corresponding period of 2019is principally due to the disruption in 2020 operations due to the COVID-19 ~~pandemic. Our~~pandemic offset by the divestiture of a significant portion of our international operations. Excluding the impact of the divestiture, sales ~~(which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $82.1 million and were $40.8~~increased $46.7 million, or ~~33.2%, lower than in 2019. Foreign currency translation negatively impacted sales by approximately $2.2 million.~~37.1%

Intercompany sales to our retail affiliates totaled ~~$166.1~~$ 257.6 million during the first six months of ~~2020~~2021 and were ~~$141.8~~$91.5 million ~~lower~~higher than during the ~~first six~~corresponding months of ~~2019.~~2020. Intercompany sales represented ~~48.0%~~58.1% of total wholesale sales during the first six months of 2020 and were ~~46.0% lower~~10.1% higher than during the first six months of ~~2019,~~2020, principally ~~reflecting~~due to increased sales to our Party City Corporate stores and channel mix changes with the ~~impact~~divestiture of the ~~Party City store closures related to the COVID-19 pandemic.~~international operations. 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~~28

Royalties and franchise fees for the first six months of 2020 totaled $2.6 million and were $1.6 million lower than during the first six months of 2019 primarily due to lower sales as a result of store closures resulting from the COVID-19 pandemic.

Gross Profit

The following table sets forth the Company’s gross profit for the first six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Six Months Ended June 30,

2020

2019

Dollars in
Thousands

Percentage
of Net Sales

Dollars in
Thousands

Percentage
of Net Sales

Retail

$
123,218

25.3

%

$
308,069

38.4

%
Wholesale

8,225

4.6

72,637

26.8

Total Gross Profit

$
131,443

19.7

%

$
380,706

35.5

%


	Six months ended June 30,
	2021					2020
	Dollars in Thousands		Percentage of Net Sales			Dollars in Thousands		Percentage of Net Sales
Retail Gross Profit*	$	316,743		40.8	%	$	125,845		25.7	%
Wholesale Gross Profit		52,715		28.4			8,225		4.6
Total Gross Profit	$	369,458		38.4	%	$	134,070		20.0	%

*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.

The gross profit margin on net sales at retail during the first six months of ~~2020~~2021 was ~~25.3%~~40.8 % or ~~1,310~~1,510 basis points ~~lower~~higher than during the corresponding ~~six months~~quarter of ~~2019.~~2020. The ~~decrease~~increase was ~~mainly due to sales deleverage from the temporary closure of all the Company’s retail stores announced~~primarily driven by leverage on March 18, 2020 in response to the COVID-19 pandemic. In addition, the increased costs of freight and helium contributed to the margin decline. The declines in margin were partially offset by margin increases due to favorable share of shelf gainsoccupancy expense and lower year over year markdowns in conjunction with the Company’s ~~“store~~store optimization ~~program” (see “operating expenses” below for further discussion).~~program. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of ~~30.7%~~31.4 % during the first six months of ~~2020~~2021 was ~~3.4%~~0.7% higher as compared to the first six months of ~~2019.~~2020. 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 ~~81.7%~~81.2% during the ~~first six months of 2020~~quarter or ~~3.9% higher~~0.5% lower than during the first six months of ~~2019.~~2020.

The gross profit margin on net sales at ~~wholesale~~Wholesale during the first six months of 2021 and 2020 was 28.4% and ~~2019 was~~ 4.6% ~~and 26.8%~~, respectively. ~~The decrease was principally~~This improvement is primarily due to the ~~deleveraging of distribution and manufacturing costs from lower sales to closed franchise and independent party stores due to~~deleverage caused by the COVID-19 ~~pandemic as well as increased rent associated with~~shutdowns in the ~~sale leaseback transaction.~~prior period and the divestiture of lower margin international operations.

Operating expenses

~~Wholesale selling~~Operating expenses ~~were $25.2~~totaled $307.6 million during the first six months of ~~2020~~2021 and were ~~$9.6~~$564.6 million lower than the first six months of 2021 primarily due to goodwill and intangibles impairment.

Wholesale selling expenses were $16.5 million during the first six months of 2021 and were $8.7 million lower than during the corresponding ~~six months~~quarter of ~~2019~~2020, ~~principally~~largely due to ~~lower payroll costs as well as lower travel, marketing, and commission expenses.~~the international divestiture. Wholesale selling expenses were ~~14.0%~~8.9% and ~~12.8%~~14.0% of net wholesale sales during the first six months of 2021 and 2020, ~~and 2019, respectively.~~respectively, reflecting the leverage on the higher sales.

Retail operating expenses during the first six ~~months~~month of ~~2020~~2021 were ~~$153.4~~$186.1 million and were ~~$37.8~~$32.7 million ~~lower~~higher than the corresponding ~~six months~~quarter of 2019. The decrease was mainly due to the COVID-19 pandemic impact on costs including employee payroll from furloughs and lower marketing and credit card fees. In addition, retail operating expenses were lower due to the sale of the 65 Canada Retail stores, and the closing of 55 US stores in conjunction with the store optimization program partially offset2020, primarily driven by higher ~~costs associated with the acquisition of Livario~~payroll, advertising spend and ~~Webdots in December of 2019.~~bank charges. Retail operating expenses were ~~31.6%~~23.9% and ~~23.9%~~31.4% of retail sales during the first six months of 2021 and 2020, respectively, with the leverage attributable to higher sales and ~~2019, respectively.~~disciplined expense management.

~~Franchise expenses during the first six months of 2020 and 2019 were $6.4 million and $6.5 million, respectively.~~

General and administrative expenses during the first six months of ~~2020~~2021 totaled ~~$119.9~~$91.8 million and were ~~$36.5~~$37.5 million, or ~~43.7%~~29.0%, ~~higher~~lower than in the first six months of ~~2019 mainly~~2020 due to ~~higher professional fees,~~the international divestiture and lower legal, stock compensation ~~(see Note 10 – Capital Stock, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q), higher bad debt expense,~~ and ~~new executive leadership compensation partially offset by lower employee payroll from furloughs associated with the COVID-19 pandemic.~~depreciation costs. General and administrative expenses as a percentage of total revenues were ~~17.9%~~9.5% and ~~7.7%~~19.3% during the first six months of 2021 and 2020, ~~and 2019,~~ respectively.

Art and development costs were ~~$8.8~~$10.0 million and ~~$11.6~~$8.8 million during the first six months of 2021 and 2020, ~~and 2019,~~ respectively.

~~Development stage expenses represent costs related to Kazzam.~~29

During the first six months of 2020 and 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of approximately 21 stores which are primarily located in close proximity to other Party City stores. These closings should provide the Company with capital flexibility to expand into underserved markets. In addition, the Company estimated lease impairment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19.

Goodwill and intangibles impairment charges for the six months ended June 30, 2020 were $536.6 million. The non-cash pre-tax goodwill impairment charges were the result of a sustained decline in the Company’s market capitalization and significantly reduced customer demand for its products due to COVID-19. There were no goodwill impairment charges for the six months ended June 30, 2019. See Note 4 – Goodwill and Intangibles Impairment, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q for further discussion.

Interest expense, net

Interest expense, net, totaled $40.3 million during the first quarter of 2021, compared to $50.5 million during the first six months of ~~2020, compared to $59.4 million during the first six months of 2019.~~2020. The decrease in interest ~~principally~~primarily reflects lower ~~average~~amounts of debt ~~following~~principal outstanding as a result of the debt ~~repayment~~refinancing in the ~~fourth~~third quarter of ~~2019.~~2020.

Other (income) expense, net

For the first six months of 2021 and 2020, ~~and 2019,~~ other (income) expense, net, totaled $(0.9) million and $7.2 million, ~~and $4.6 million,~~ respectively.The change is primarily due to realized foreign currency gains in 2021 versus foreign currency losses ~~during the first six months of~~in 2020 ~~partially offset by termination of Punchbowl “put”~~ and ~~“call” options during the first six months of 2019.~~increased income from equity method investments.

Income tax ~~benefit~~expense

The effective income tax rate for the six months ended June 30, ~~2020, 15.6%~~2021, 30.1.%, is different from the statutory rate of 21.0% primarily due ~~the non-deductible portions of the goodwill impairment charges noted above,~~to state taxes, equity compensation, the effect of foreign losses with no associated tax benefit and ~~a rate benefit~~the additional loss related to the ~~carryback~~sale of a ~~net operating loss to years when~~substantial portion of the ~~statutory income tax rate was 35.0%.~~international operations recorded in the three months ended March 31, 2021.

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

The Company presents adjusted EBITDA, adjusted net income and adjusted net income per common share - diluted as supplemental measures of its operating performance. The Company defines EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization and defines adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of our core operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net income (loss) adjusted for, among other items, intangible asset amortization, non-cash purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, refinancing charges, 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 as supplemental 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 should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-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. The Company also utilized wholesale net sales excluding the impact of the international divestiture.

Adjusted EBITDA, adjusted net income, and adjusted net income per common share - diluted wholesale net sales excluding the impact of the divestiture, have limitations as analytical tools. Some of these limitations are:

•

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



they do not reflect 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;~~



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;~~



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

•

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



•

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



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

•

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

•

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

~~Because of these limitations,~~ adjusted EBITDA, adjusted net income and adjusted net income per common share ~~– diluted~~differently than the Company does, limiting its usefulness as a comparative measure.

Because of these limitations, these supplemental measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP ~~results and using adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted only on a supplemental basis.~~results. The reconciliations from net income (loss) to adjusted EBITDA and income (loss) before income taxes to adjusted net income (loss) for the periods presented are as follows:

* Prior period amounts have been reclassified to conform with current period presentation.

Three Months Ended June 30, 2020 EBITDA Adjustments

June 30, 2020
GAAP
Basis (as
reported)

Store
impairment
and
restructuring
charges (a)

Corporate
development
expenses (h)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units –
time-based
(f)(g)(i)(n)

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (l)

Foreign
currency
losses

Other

June 30,
2020
Non-GAAP
basis

Revenues:

Net sales

$
253,646

$
253,646

Royalties and franchise fees

1,045

1,045

Total revenues

254,691

254,691

Cost of sales

237,907

(597
)

(134
)

(4,437
)

(28,376
)

204,363

Wholesale selling expenses

9,707

(1,104
)

(509
)

8,094

Retail operating expenses

65,236

1,573

(342
)

(4,389
)

62,078

Franchise expenses

3,121

(343
)

2,778

General and administrative
expenses

59,931

(100
)

(188
)

(8,571
)

49

(1,260
)

(58
)

(10,583
)

39,220

Art and development costs

3,516

3,516

Development stage expenses

903

(903
)

—

Store impairment and restructuring
charges

1,164

(1,164
)

—

Total expenses

381,485

(1,761
)

(2,107
)

(188
)

(8,571
)

1,488

(5,697
)

(400
)

(44,200
)

—

—

320,049

Loss from operations

(126,794
)

(65,358
)
Interest expense, net

25,412

25,412

Other expense, net

1,484

(536
)

(12
)

(775
)

161

Loss before income taxes

(153,690
)

(90,931
)
Interest expense, net

25,412

25,412

Depreciation and amortization

22,766

22,766

EBITDA

(105,512
)

(42,753
)
Adjustments to EBITDA

62,759

(1,761
)

(2,643
)

(188
)

(8,571
)

1,488

(5,697
)

(400
)

(44,200
)

(12
)

(775
)

—

Adjusted EBITDA

$
(42,753
)

$
(1,761
)

$
(2,643
)

$
(188
)

$
(8,571
)

$
1,488

$
(5,697
)

$
(400
)

$
(44,200
)

$
(12
)

$
(775
)

$
(42,753
)

Three Months Ended June 30, 2019 EBITDA Adjustments

June 30, 2019
GAAP
Basis (as
reported)

Store
impairment
and
restructuring
charges (a)

Gain on sale/leaseback transaction
(o)

Corporate
development
expenses (h)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units –
time-based
(f)(g)(i)(m)

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

Non-Cash
Purchase
Accounting
Adjustments

Foreign
currency
gains

Other

June 30,
2019
Non-GAAP
basis

Revenues:

Net sales

$
561,702

$
561,702

Royalties and franchise fees

2,189

2,189

Total revenues

563,891

563,891

Cost of sales

353,056

(5,394
)

338

348,000

Wholesale selling expenses

16,884

16,884

Retail operating expenses

96,143

—

(393
)

95,750

Franchise expenses

3,236

3,236

General and administrative expenses

41,510

(869
)

(1,517
)

(3,933
)

(114
)

35,077

Art and development costs

5,712

5,712

Development stage expenses

3,012

(3,012
)

—

Gain on sale/leaseback transaction

(58,381
)

58,381

—

Store impairment and restructuring charges

5,234

(5,234
)

—

Total expenses

466,406

(10,628
)

58,381

(3,012
)

(869
)

(1,517
)

338

(3,933
)

(507
)

—

—

—

504,659

Income from operations

97,485

59,232

Interest expense, net

30,176

30,176

Other expense, net

3,342

(1,337
)

(1,756
)

(133
)

(40
)

76

Income before income taxes

63,967

28,980

Interest expense, net

30,176

30,176

Depreciation and amortization

21,884

21,884

EBITDA

116,027

81,040

Adjustments to EBITDA

(34,987
)

(10,628
)

58,381

(4,349
)

(869
)

(1,517
)

338

(3,933
)

(507
)

(1,756
)

(133
)

(40
)

—

Adjusted EBITDA

$
81,040

$
(10,628
)

$
58,381

$
(4,349
)

$
(869
)

$
(1,517
)

$
338

$
(3,933
)

$
(507
)

$
(1,756
)

$
(133
)

$
(40
)

$
81,040

Six Months Ended June 30, 2020 EBITDA Adjustments

June 30, 2020
GAAP
Basis (as
reported)

Goodwill
and
intangibles
impairment
(c)

Store
impairment
and
restructuring
charges (a)

Corporate
development
expenses (h)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units
(f)(g)(i)(n)

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (l)

Foreign
currency
losses

Other

June 30,
2020
Non-GAAP
basis

Revenues:

Net sales

$
666,107

$
666,107

Royalties and franchise fees

2,627

2,627

Total revenues

668,734

668,734

Cost of sales

534,664

(10,630
)

(134
)

(4,437
)

(41,180
)

(429
)

477,854

Wholesale selling expenses

25,165

(1,840
)

(623
)

22,702

Retail operating expenses

153,402

2,909

(1,508
)

(14,567
)

140,236

Franchise expenses

6,430

(672
)

5,758

General and administrative expenses

119,927

(200
)

(6,509
)

(9,546
)

97

(4,307
)

(127
)

(13,338
)

85,997

Art and development costs

8,838

8,838

Development stage expenses

2,932

(2,932
)

—

Store impairment and restructuring charges

18,892

(18,892
)

—

Goodwill and intangibles impairment

536,648

(536,648
)

—

Total expenses

1,406,898

(536,648
)

(29,522
)

(4,972
)

(6,509
)

(9,546
)

2,872

(8,744
)

(1,635
)

(70,380
)

—

(429
)

741,385

Loss from operations

(738,164
)

(72,651
)
Interest expense, net

50,532

50,532

Other expense, net

7,160

(640
)

(1,033
)

(4,267
)

(2,474
)

(1,254
)
Loss before income taxes

(795,856
)

(121,929
)
Interest expense, net

50,532

50,532

Depreciation and amortization

40,518

40,518

EBITDA

(704,806
)

(30,879
)
Adjustments to EBITDA

673,927

(536,648
)

(29,522
)

(5,612
)

(6,509
)

(10,579
)

2,872

(8,744
)

(1,635
)

(70,380
)

(4,267
)

(2,903
)

—

Adjusted EBITDA

$
(30,879
)

$
(536,648
)

$
(29,522
)

$
(5,612
)

$
(6,509
)

$
(10,579
)

$
2,872

$
(8,744
)

$
(1,635
)

$
(70,380
)

$
(4,267
)

$
(2,903
)

$
(30,879
)

Six Months Ended June 30, 2019 EBITDA Adjustments

June 30, 2019
GAAP
Basis (as
reported)

Store
impairment
and
restructuring
charges (a)

Gain on sale/leaseback transaction
(o)

Corporate
development
expenses (h)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units
(f)(g)(i)(m)

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

Non-Cash
Purchase
Accounting
Adjustments

Foreign
currency
gains

Other

June 30,
2019
Non-GAAP
basis

Revenues:

Net sales

$
1,072,804

$
1,072,804

Royalties and franchise fees

4,203

4,203

Total revenues

1,077,007

1,077,007

Cost of sales

692,098

(23,023
)

1,488

670,563

Wholesale selling expenses

34,845

34,845

Retail operating expenses

191,161

(31
)

(872
)

190,258

Franchise expenses

6,539

6,539

General and administrative expenses

83,435

(1,601
)

(2,408
)

(5,290
)

(226
)

73,910

Art and development costs

11,641

11,641

Development stage expenses

5,238

(5,238
)

—

Gain on sale/leaseback transaction

(58,381
)

58,381

—

Store impairment and restructuring charges

23,243

(23,243
)

—

Total expenses

989,819

(46,266
)

58,381

(5,238
)

(1,601
)

(2,408
)

1,488

(5,321
)

(1,098
)

—

—

—

987,756

Income from operations

87,188

89,251

Interest expense, net

59,433

59,433

Other expense, net

4,596

(1,956
)

(2,757
)

160

(89
)

(46
)
Income before income taxes

23,159

29,864

Interest expense, net

59,433

59,433

Depreciation and amortization

43,225

43,225

EBITDA

125,817

132,522

Adjustments to EBITDA

6,705

(46,266
)

58,381

(7,194
)

(1,601
)

(2,408
)

1,488

(5,321
)

(1,098
)

(2,757
)

160

(89
)

—

Adjusted EBITDA

$
132,522

$
(46,266
)

$
58,381

$
(7,194
)

$
(1,601
)

$
(2,408
)

$
1,488

$
(5,321
)

$
(1,098
)

$
(2,757
)

$
160

$
(89
)

$
132,522

AsThe Company performed a comprehensive review of ~~June 30, 2020,~~its store locations aimed at improving the ~~Company’s indebtedness principally consisted of: (i) a senior secured term loan facility~~overall productivity of such locations (“~~Term Loan Credit Agreement”~~store optimization program”)~~, (ii) $350 million~~. After careful consideration and evaluation of ~~6.125% Senior Notes (the “2023 Notes”) and (iii) $500 million~~the store locations, the Company made the decision to accelerate the optimization of ~~6.625% Senior Notes (the “2026 Notes” and, together~~its store portfolio with the ~~2023 Notes, the “Existing Notes”). Additionally, the Company had a $640 million asset-based revolving credit facility (“ABL Facility”) that it draws down~~closure of stores, which are primarily located in close proximity to other Party City stores. For further detail, refer to Note 3 – Store Impairment and Restructuring Charges of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on ~~as necessary (see the consolidated statement of cash flows in Item 1).~~

We expect that cash generated from operating activities and availability under our credit agreements will be our principal sources of liquidity. Based on our current level of operations, we believe that these sources will be adequate to meet our liquidity needs for at least the next twelve months. We cannot provide assurance, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the ABL Facility ~~and the Term Loan Credit Agreement~~ in amounts sufficient to enable us to repay our indebtedness or to fund our other liquidity needs. The Company had approximately $170.2 million of availability under the ABL Facility and approximately $14.6 million of availability under the Anagram ABL Facility as of June 30, 2021.

~~As disclosed in~~Per Note ~~20 – Subsequent Events,~~15, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, ~~on July~~as of June 30, ~~2020, (i) the Company exchanged $327,076,000.00 of the 2023 Notes and $392,746,000.00 of the 2026 Notes (the “2026 Notes”) issued by PCHI, in each case tendered in~~2021, the Company’s offers to exchange pursuant to the terms described in a confidential offering memorandum, for (A) $156,669,177.00 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,686,977.00 of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings, LLC, a Delaware limited liability company and wholly owned direct subsidiary of PCHI (the “Anagram Holdings”), and Anagram International, Inc., a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings (together with Anagram Holdings, the “Anagram Issuers”); and (C) 15,942,551 shares of the Company’s common stock, $0.01 par value per share; and (ii) the Anagram Issuers issued $110,000,000.00 in the aggregate of 15.00% PIK/Cashindebtedness principally consisted of: (i) 8.750% Senior Secured First Lien Notes due ~~2025 (the “First Lien Anagram Notes”) and PCHI issued an additional $5,000,000 of~~2026, (ii) 6.125% Senior Notes, (iii) 6.625% Senior Notes, (iv) First Lien Party City Notes, (v) First Lien Anagram Notes, and (vi) Second Lien Anagram Notes. Additionally, the Company had an asset-based revolving credit facility (“ABL Facility”) that it draws down on as necessary and Anagram had a separate asset-based revolving credit facility.

During February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”). The 8.750% Senior Notes will 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.

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:

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

Prior to April 2019, the Company had a $540,000 asset-based revolving credit facility (with a seasonal increase to $640,000 during a certain period of each calendar year) (the “ABL Facility”), which matures during August 2023 (subject to a springing maturity at an earlier date if the maturity date of certain of the Company’s other debt has not been extended or refinanced). It provides for (a) revolving loans, subject to a borrowing base, and (b) letters of credit, in an aggregate face amount at any time outstanding not to exceed $50,000. During April 2019, the Company amended the ABL Facility. Such amendment removed the seasonal component and made the ABL Facility a $640,000 facility with no seasonal modification component. In connection with ~~a rights offering and a private placement, as applicable. In addition, in connection with these~~the refinancing transactions as follows, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to ~~$44,000,000.00,~~$44,000 in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of its subsidiaries as an unrestricted subsidiary under the ABL Facility and the Term Loan Credit Agreement. Additionally, in February 2021 in conjunction with the transaction discussed above, the Company amended the ABL Facility by reducing the commitments to $475,000 and extending the maturity to February 2026, or earlier as provided for in the agreement.

In accordance with the 8.75% Senior Notes, 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 and six months ended June 30, 2021, Anagram reported:

On May 7, 2021, Anagram, 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.

In addition to paying interest on outstanding principal, Anagram is required to pay a commitment fee of 0.5% to1% per annum in respect of unutilized commitments. Anagram must also pay customary letter of credit fees.

Net cash provided by operating activities totaled $13.8 million during the six months ended June 30, 2021. Net cash used in operating activities totaled $48.8 million during the six months ended June 30, 2020. The increase in cash provided by operating activities is primarily attributable to the recognition of net income in the current years as compared with a net loss in the prior year, partially offset by the change in working capital (accounts receivable, inventory, prepaid expenses and ~~$105.9~~other current assets, and accounts payable).

Net cash used in investing activities totaled $19.9 million during the six months ended June 30, 2020 and 2019, respectively. The variance principally reflects decrease in accounts receivable due to decreased sales as well as reduced payments from lower inventory levels partially offset by increase in prepaid expenses and other current assets. Changes in operating assets and liabilities during the first six months of 2020 resulted in cash provided of $25.0 million and during the first six months of 2019 resulted in the cash used of $100.3 million.

~~Net cash used in investing activities totaled $18.3 million during the six months ended June 30, 2020,~~2021, as compared to ~~$82.2~~$18.3 million ~~provided by~~used in investing activities during the six months ended June 30, ~~2019.~~2020. The increase in cash used in investing activities is primarily due to higher capital expenditures offset by the proceeds from the sale of international operations. Capital expenditures during the six months ended June 30, 2021 and 2020 were $40.5 million ($30.4 million for Retail and ~~2019 were~~$10.1 million for Wholesale) and $18.3 million, ~~and $31.1 million,~~ respectively. ~~Retail capital expenditures totaled $10.0 million during 2020. Wholesale capital expenditures during 2020 totaled $8.4 million.~~

Net cash ~~provided by~~used in financing activities was ~~$190.0~~$60.0 million during the six months ended June 30, ~~2020~~2021 and ~~$9.5~~$190.0 million was provided during the six months ended June 30, ~~2019.~~2020. The variance was principally due to ~~a $269.9 million draw down~~increased borrowings under the ABL Facility ~~$119.6~~in the prior year.

Cash interest paid of $16.6 million as disclosed in the Condensed Consolidated Statements of ~~which were invested~~Cash Flows provides the amount of cash paid in ~~US Treasury funds at~~relation to GAAP interest expense for the six months ended June 30, ~~2020.~~

As2021. In addition, cash payments made in relation to contractual coupon interest amounts included in the carrying value of the debt accounted for as a troubled debt restructuring were $8.8 million for the six months ended June 30, ~~2020, the Company had approximately $136.1 million of availability under the ABL Facility.~~2021.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the condensed consolidated financial statements included herein.

We believe our application of accounting policies, and the estimates inherently required by these policies, are reasonable. These accounting policies and estimates are constantly re-evaluated and adjustments are made when facts and circumstances dictate a change. Historically, we have found the application of accounting policies to be reasonable, and actual results generally do not differ materially from those determined using necessary estimates.

We review the recoverability of our long-lived assets, including finite-lived intangible assets, whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. For purposes of recognizing and measuring impairment, we evaluate long-lived assets/asset groups, other than goodwill, based upon the lowest level of independent cash flows ascertainable to evaluate impairment. If an impairment indicator exists, we compare the undiscounted future cash flows of the asset/asset group to the carrying value of the asset/asset group. If the sum of the undiscounted future cash flows is less than the carrying value of the asset/asset group, we would calculate discounted future cash flows based on market participant assumptions. If the sum of discounted cash flows is less than the carrying value of the asset/asset group, we would recognize an impairment loss. The impairment related to long-lived assets is measured as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). When fair values are not readily available, we estimate fair values using discounted expected future cash flows. Such estimates of fair value require significant judgment, and actual fair value could differ due to changes in the expectations of cash flows or other assumptions, including discount rates.

In the evaluation of the fair value and future benefits of finite long-lived assets attached to retail stores, we perform our cash flow analysis generally on a store-by-store basis. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates.

Goodwill isand other intangibles that have indefinite lives are reviewed for potential impairment on an annual basis or more frequently if circumstances indicate a possible impairment. For purposes of testing ~~goodwill~~ for impairment, reporting units are determined by identifying individual reportable operating segments within our organization which constitute a business for which discrete financial information is available and is reviewed by management. Components within a segment are aggregated to the extent that they have similar economic characteristics. Based on this evaluation, we have determined that our reportable operating segments, ~~wholesale~~Wholesale and ~~retail,~~Retail, represent our reporting units for the purposes of our goodwill impairment test.

If it is concluded that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we estimate the fair value of the reporting unit using a combination of a market approach and an income approach. If such carrying value exceeds the fair value, an impairment loss will be recognized in an amount equal to such excess. The fair value of a reporting unit refers to the amount at which the unit as a whole could be sold in a current transaction between willing parties. The determination of such fair value is subjective, and actual fair value could differ due to changes in the expectations of cash flows or other assumptions, including discount rates.

During the first quarter of 2020, the Company identified impairment indicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed interim impairment tests on the goodwill at its retail and wholesale reporting units. As a result, the Company recorded a $536.6 million

goodwill, intangibles and long-lived assets impairment charge. See Note 4 – Goodwill, Intangibles and ~~Intangibles~~Long-Lived Assets Impairment, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q for further discussion. Should actual results differ from certain key assumptions used in the interim impairment test, including revenue and EBITDA growth, which are both impacted by economic conditions, or should other key assumptions change, including discount rates and market multiples, in subsequent periods the Company could record additional impairment charges for the goodwill of such reporting units.

Other than as described above under “Liquidity”, there were no material changes to our future minimum contractual obligations as of December 31, 2019 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

We had no off-balance sheet arrangements during the three months ended June 30, ~~2020 and~~2021, the year ended December 31, ~~2019.~~2020 and the three months ended June 30, 2020.

Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween, and Christmas, the inventory balances of ~~our~~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, result in slightly higher accounts receivable balances during the third quarter.

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. Halloween business represents approximately 20% of our total domestic retail 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.

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 ~~12, 2020 and in the “Risk Factors” section of this Quarterly Report on Form 10-Q.~~11, 2021. 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:~~

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.

There have been no material changes in our market risks since December 31, ~~2019~~2020 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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 Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Act”)) as of June 30, ~~2020.~~2021. 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 in Rules 13a-15(f) and 15d-15(f) under the Act) during the three ~~and six~~ months ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Information in response to this Item is incorporated herein by reference from Note 1211 – Commitments and Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

"With respect to Risks Related to Our Indebtedness, per Note 15, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, as of June 30, 2021, during February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”). The 8.750% Senior Notes will 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. Our indebtedness has decreased as a result of that transaction.

Under the heading "Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities Exchange Commission on March ~~12, 2020, includes~~11, 2021, the Company identified increases in transportation costs as a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K. The effects of the events and circumstances described in the following risk factor that may negatively affect our operating results. During the quarter ended June 30, 2021, the Company experienced contraction in freight capacity from suppliers to our distribution centers at a time of increasing consumer demand, which has resulted in less reliable availability for shipping and increased costs across our supply chain. While mitigation strategies and actions have ~~the additional effect of heightening many of the risks noted in our Annual Report~~been taken a negative impact on ~~Form 10-K.~~ operating results could still occur.

Otherwise, ~~except as presented below,~~ there have been no material changes to the risk factors disclosed inunder the ~~“Risk Factors” section of~~heading "Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended ~~February 1, 2020, as filed with the Securities Exchange Commission on March 27,~~December 31, 2020.

~~Our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected by the outbreak of COVID-19, a novel coronavirus.~~38

In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. Although the Company’s e-commerce site, www.partycity.com, remains fully operational and the number of stores offering curbside pickup continues to expand, quarantines, stay-at-home orders and related measures have significantly reduced consumer spending as well as customer demand for our products. In addition, these restrictions and other dislocations caused by the outbreak have disrupted our planning, branding and administrative functions, as well as that of our suppliers, transporters and customers, which will make it more difficult for our business to recover even after we are able to reopen. As a result, our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected. Further, the disruption to the global economy and to our business, along with the decline in our stock price, may negatively impact the carrying value of certain assets, including inventories, accounts receivables, intangibles, and goodwill. The full extent to which COVID-19 and the measures to contain it will impact our business, operations financial condition and liquidity will depend on the severity and duration of the COVID-19 outbreak and other future developments related to the response to the virus all of which are highly uncertain. As a result, we cannot predict the ultimate impact of COVID-19 on the Company and its operational and financial performance.

Our unrestricted subsidiaries under the Term Loan Credit Agreement, the ABL Facility credit agreement and the indenture governing the First Lien Party City Notes are not subject to the covenants under such agreements and do not guarantee or pledge assets to secure the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes or any future indebtedness not incurred by such unrestricted subsidiaries. As of the date of this report on Form 10-Q, the Anagram Issuers and their subsidiaries were unrestricted subsidiaries. Subject to compliance with the covenants contained in the Term Loan Credit Agreement, the ABL Facility credit agreement and the indenture governing the First Lien Party City Notes, we will be permitted to designate further subsidiaries as unrestricted subsidiaries. The creditors of the Anagram Issuers and their subsidiaries, including under the First Lien Anagram Notes and the Second Lien Anagram Notes will generally be entitled to payment of their claims from the assets of the Anagram Issuers and their subsidiaries before those assets would be available for distribution to us. In addition, the indentures governing the First Lien Anagram Notes and the Second Lien Anagram Notes limit the Anagram Issuers and their subsidiaries’ ability to make loans or other payments to fund payments in respect of the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes and the indenture governing the First Lien Anagram Notes requires the maintenance of certain minimum liquidity. As a result, the cash flow or assets of the Anagram Issuers and their subsidiaries may not be available to pay any of our debt other than debt incurred by the Anagram Issuers and their subsidiaries.

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


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)


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

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


		Page

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 30, 2021, December 31, 2020 and ~~December 31, 2019~~June 30, 2020		3

Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the Three ~~Months Ended June 30, 2020~~ and ~~June 30, 2019~~		4

~~Condensed Consolidated Statements of Operations and Comprehensive Loss for~~ the Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020		54

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months ~~ended~~Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020		65

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020		76

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020		87

Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2321

Item 3. Quantitative and Qualitative Disclosures about Market Risk		4437

Item 4. Controls and Procedures		4437

PART II

Item 1. Legal Proceedings		4538

Item 1A. Risk Factors		4538

Item 6. Exhibits		4639

Signature		4740


	June 30, 2020			December 31, 2019			June 30, 2021			December 31, 2020			June 30, 2020
	(Note 2) (Unaudited)			(Note 2)			(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	154,133		$	34,917		$	84,452		$	119,532		$	154,133
Accounts receivable, net		85,081			149,109			86,745			90,879			85,081
Inventories, net		635,014			658,419			426,128			412,285			635,014
Prepaid expenses and other current assets		94,710			51,685			68,363			45,905			94,710
Income tax receivable								55,421			57,549			0
Assets held for sale, net								0			83,110			0
Total current assets		968,938			894,130			721,109			809,260			968,938
Property, plant and equipment, net		223,433			243,572			218,532			209,412			223,433
Operating lease asset		755,288			802,634			684,802			700,087			755,288
Goodwill		666,084			1,072,330			660,597			661,251			666,084
Trade names		394,203			530,320			383,761			384,428			394,203
Other intangible assets, net		39,402			45,060			27,825			32,134			39,402
Other assets, net		9,435			7,273			26,193			9,883			9,435
Total assets	$	3,056,783		$	3,595,319		$	2,722,819		$	2,806,455		$	3,056,783
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	325,754		$	128,806		$	99,933		$	175,707		$	325,754
Accounts payable		144,849			152,300			129,802			118,928			144,849
Accrued expenses		179,159			150,921			190,347			160,605			179,159
Liabilities held for sale								0			68,492			0
Current portion of operating lease liability		202,971			155,471			136,749			176,045			202,971
Income taxes payable		—			35,905			2,537			524			0
Current portion of long-term obligations		13,810			71,524			1,265			13,576			13,810
Total current liabilities		866,543			694,927			560,633			713,877			866,543
Long-term obligations, excluding current portion		1,557,576			1,503,987			1,358,916			1,329,808			1,557,576
Long-term portion of operating lease liability		685,290			720,735			625,157			654,729			685,290
Deferred income tax liabilities, net		67,458			126,081			37,052			34,705			67,458
Other long-term liabilities		16,932			16,517			33,288			22,815			16,932
Total liabilities		3,193,799			3,062,247			2,615,046			2,755,934			3,193,799
Redeemable securities		—			3,351
Commitments and contingencies
Stockholders’ equity:
Common stock (94,602,386 and 94,461,576 shares outstanding and 121,819,456 and 121,662,540 shares issued at June 30, 2020 and December 31, 2019, respectively)		1,211			1,211
Common stock (111,476,496, 110,781,613 and 94,602,386 shares outstanding and 122,790,983, 122,061,711 and 121,819,456 shares issued at June 30, 2021, December 31, 2020, and June 30, 2020 respectively)								1,383			1,373			1,211
Additional paid-in capital		941,745			928,573			978,167			971,972			941,745
Accumulated deficit		(708,747	)		(37,219	)		(549,693	)		(565,457	)		(708,747	)
Accumulated other comprehensive loss		(43,849	)		(35,734	)
Accumulated other comprehensive income (loss)								6,096			(29,916	)		(43,849	)
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury		190,360			856,831			435,953			377,972			190,360
Less: Common stock held in treasury, at cost (27,217,070 and 27,200,964 shares at June 30, 2020 and December 31, 2019, respectively)		(327,170	)		(327,086	)
Less: Common stock held in treasury, at cost (11,314,487, 11,280,098 and 27,217,070 shares at June 30, 2021, December 31, 2020, and June 30, 2020, respectively)								(327,394	)		(327,182	)		(327,170	)
Total Party City Holdco Inc. stockholders’ equity		(136,810	)		529,745			108,559			50,790			(136,810	)
Noncontrolling interests		(206	)		(24	)		(786	)		(269	)		(206	)
Total stockholders’ equity		(137,016	)		529,721			107,773			50,521			(137,016	)
Total liabilities, redeemable securities and stockholders’ equity	$	3,056,783		$	3,595,319
Total liabilities and stockholders’ equity							$	2,722,819		$	2,806,455		$	3,056,783


	Six Months Ended June 30,
	2021			2020
Cash flows provided by (used in) operating activities:
Net income (loss)	$	15,693		$	(671,727	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense		34,860			40,518
Amortization of deferred financing costs and original issuance discounts		1,937			2,401
Provision for doubtful accounts		1,171			4,443
Deferred income tax expense (benefit)		2,622			(58,440	)
Change in operating lease liability/asset		(52,315	)		44,803
Undistributed (income) loss in equity method investments		(211	)		415
Loss on disposal of assets		109			93
Loss on disposal of assets in international operations		3,211			—
Non-cash adjustment for store impairment and restructuring charges		—			16,458
Goodwill, intangibles and long-lived assets impairment		—			536,648
Non-employee equity-based compensation**		—			1,033
Stock option expense – time – based		217			560
Stock option expense – performance – based		—			7,847
Restricted stock unit expense – time-based		767			1,139
Restricted stock unit – performance-based		1,789			—
Directors – non-cash compensation		114			75
Net loss on debt repayment		226			—
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(2,395	)		56,315
(Increase) decrease in inventories		(15,191	)		20,055
(Increase) in prepaid expenses and other current assets		(31,055	)		(47,700	)
Increase (decrease) in accounts payable, accrued expenses and income taxes payable		52,228			(3,717	)
Net cash provided by (used in) operating activities		13,777			(48,781	)
Cash flows (used in) investing activities:
Capital expenditures		(40,452	)		(18,332	)
Proceeds from disposal of property and equipment		—			7
Proceeds from sale of international operations, net of cash disposed		20,556			—
Net cash (used in) investing activities		(19,896	)		(18,325	)
Cash flows (used in) provided by financing activities:
Repayment of loans, notes payable and long-term obligations		(836,435	)		(79,763	)
Proceeds from loans, notes payable and long-term obligations		794,750			269,874
Treasury stock purchases		(212	)		(85	)
Exercise of stock options		3,322			—
Debt issuance costs		(21,437	)		—
Net cash (used in) provided by financing activities		(60,012	)		190,026
Effect of exchange rate changes on cash and cash equivalents		274			(3,945	)
Net (decrease) increase in cash and cash equivalents and restricted cash		(65,857	)		118,975
Change in cash classified within current assets held for sale		31,628			—


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


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


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging Growth Company	☐


	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 March 31, 2021	$	1,383	$	976,037	$	(579,486	)	$	5,134	$	403,068	$	(327,388	)	$	75,680		$	(786	)	$	74,894
Net income		—		—		29,811			—		29,811		—			29,811			0			29,811
Stock option expense – time – based		—		104		—			—		104		—			104			—			104
Restricted stock units – time-based		—		415		—			—		415		—			415			—			415
Restricted stock unit expense – performance-based		—		1,081		—			—		1,081		—			1,081			—			1,081
Director – non-cash compensation		—		57		—			—		57		—			57			0			57
Treasury Stock purchases		—		—		—			—		—		(6	)		(6	)		—			(6	)
Exercise of stock options		—		467		—			—		467		—			467			—			467
Foreign currency adjustments		—		6		(18	)		962		950		—			950			—			950
Balance at June 30, 2021	$	1,383	$	978,167	$	(549,693	)	$	6,096	$	435,953	$	(327,394	)	$	108,559		$	(786	)	$	107,773

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury			Common Stock Held In Treasury			Total Party City Holdco Inc. Stockholders’ Equity			Non- Controlling Interests			Total Stockholders’ Equity
Balance at March 31, 2019	$	1,210	$	925,233	$	465,056	$	(45,558	)	$	1,345,941		$	(327,086	)	$	1,018,855		$	300		$	1,019,155
Net income (loss)		—		—		48,074		—			48,074			—			48,074			(69	)		48,005
Stock option expense		—		371		—		—			371			—			371			—			371
Restricted stock units – time-based		—		541		—		—			541			—			541			—			541
Restricted stock units – performance-based		—		476		—		—			476			—			476			—			476
Director – non-cash compensation		—		88		—		—			88			—			88			—			88
Warrant expense		—		129		—		—			129			—			129			—			129
Foreign currency adjustments		—		—		—		556			556			—			556			(20	)		536
Impact of foreign exchange contracts, net		—		—		—		(214	)		(214	)		—			(214	)		—			(214	)
Balance at June 30, 2019	$	1,210	$	926,838	$	513,130	$	(45,216	)	$	1,395,962		$	(327,086	)	$	1,068,876		$	211		$	1,069,087


Cash and cash equivalents and restricted cash at beginning of period		119,681		35,176
Cash and cash equivalents and restricted cash at end of period*	$	85,452	$	154,151
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense	$	16,594	$	43,402
Cash paid during the period for income taxes, net of refunds	$	3,411	$	11,854

	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Loss			Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury			Common Stock Held In Treasury			Total Party City Holdco Inc. Stockholders’ Equity			Non- Controlling Interests			Total Stockholders’ Equity
Balance at December 31, 2018	$	1,208	$	922,476	$	495,777		$	(49,201	)	$	1,370,260		$	(326,930	)	$	1,043,330		$	291		$	1,043,621
Cumulative effect of change in accounting principle, net (see Note 2)		—		662		(503	)		—			159			—			159			—			159
Balance at December 31, 2018, as adjusted	$	1,208	$	923,138	$	495,274		$	(49,201	)	$	1,370,419		$	(326,930	)	$	1,043,489		$	291		$	1,043,780
Net income (loss)		—		—		17,856			—			17,856			—			17,856			(140	)		17,716
Stock option expense		—		741		—			—			741			—			741			—			741
Restricted stock units – time-based		—		933		—			—			933			—			933			—			933
Restricted stock units – performance-based		—		476		—			—			476			—			476			—			476
Director – non-cash compensation		—		165		—			—			165			—			165			—			165
Warrant expense		—		258		—			—			258			—			258			—			258
Exercise of stock options		2		1,086		—			—			1,088			—			1,088			—			1,088
Acquired non-controlling interest		—		41		—			—			41			—			41			71			112
Treasury Stock purchases		—		—		—			—			—			(156	)		(156	)		—			(156	)
Foreign currency adjustments		—		—		—			4,712			4,712			—			4,712			(11	)		4,701
Impact of foreign exchange contracts, net		—		—		—			(727	)		(727	)		—			(727	)		—			(727	)
Balance at June 30, 2019	$	1,210	$	926,838	$	513,130		$	(45,216	)	$	1,395,962		$	(327,086	)	$	1,068,876		$	211		$	1,069,087

	Three Months Ended June 30, 2019
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at March 31, 2019	$	(45,900	)	$	342		$	(45,558	)
Other comprehensive income (loss) before reclassifications		556			(3	)		553
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax		—			(211	)		(211	)
Net current-period other comprehensive income (loss)		556			(214	)		342
Balance at June 30, 2019	$	(45,344	)	$	128		$	(45,216	)

	Six Months Ended June 30, 2019
	Foreign Currency Adjustments			Impact of Foreign Exchange Contracts, Net of Taxes			Total, Net of Taxes
Balance at December 31, 2018	$	(50,056	)	$	855		$	(49,201	)
Other comprehensive income before reclassifications, net of income tax		4,712			60			4,772
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax		—			(787	)		(787	)
Net current-period other comprehensive income (loss)		4,712			(727	)		3,985
Balance at June 30, 2019	$	(45,344	)	$	128		$	(45,216	)

	June 30, 2020
	Carrying Amount		Fair Value		June 30, 2021
Term Loan Credit Agreement	$	713,531	$	334,218
					Gross Carrying Amount		Fair Value
8.75% Senior Secured First Lien Notes – due 2026					$	750,000	$	802,500
6.125% Senior Notes – due 2023		347,427		73,500		22,924		20,202
6.625% Senior Notes – due 2026		495,297		102,500		92,254		78,762
First Lien Party City Notes – due 2025						202,588		193,725
First Lien Anagram Notes – due 2025						151,313		173,632
Second Lien Anagram Notes – due 2026						148,114		148,114

				Three Months Ended June 30, 2020 EBITDA Adjustments
	June 30, 2020 GAAP Basis (as reported)				Store impairment and restructuring charges (a)			Corporate development expenses (h)			Legal			Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time-based (f)(g)(i)(n)			Deferred Rent (d)			Other restructuring, retention and severance (b)			Closed store expense (e)			COVID- 19 (l)			Foreign currency losses			Other			June 30, 2020 Non-GAAP basis
Revenues:
Net sales	$	253,646																																	$	253,646
Royalties and franchise fees		1,045																																		1,045
Total revenues		254,691																																		254,691
Cost of sales		237,907				(597	)											(134	)		(4,437	)					(28,376	)								204,363
Wholesale selling expenses		9,707							(1,104	)																	(509	)								8,094
Retail operating expenses		65,236																1,573						(342	)		(4,389	)								62,078
Franchise expenses		3,121																									(343	)								2,778
General and administrative expenses		59,931							(100	)		(188	)		(8,571	)		49			(1,260	)		(58	)		(10,583	)								39,220
Art and development costs		3,516																																		3,516
Development stage expenses		903							(903	)																										—
Store impairment and restructuring charges		1,164				(1,164	)																													—
Total expenses		381,485				(1,761	)		(2,107	)		(188	)		(8,571	)		1,488			(5,697	)		(400	)		(44,200	)		—			—			320,049
Loss from operations		(126,794	)																																	(65,358	)
Interest expense, net		25,412																																		25,412
Other expense, net		1,484							(536	)																				(12	)		(775	)		161
Loss before income taxes		(153,690	)																																	(90,931	)
Interest expense, net		25,412																																		25,412
Depreciation and amortization		22,766																																		22,766
EBITDA		(105,512	)																																	(42,753	)
Adjustments to EBITDA		62,759				(1,761	)		(2,643	)		(188	)		(8,571	)		1,488			(5,697	)		(400	)		(44,200	)		(12	)		(775	)		—
Adjusted EBITDA	$	(42,753	)		$	(1,761	)	$	(2,643	)	$	(188	)	$	(8,571	)	$	1,488		$	(5,697	)	$	(400	)	$	(44,200	)	$	(12	)	$	(775	)	$	(42,753	)

				Three Months Ended June 30, 2019 EBITDA Adjustments
	June 30, 2019 GAAP Basis (as reported)			Store impairment and restructuring charges (a)			Gain on sale/leaseback transaction (o)		Corporate development expenses (h)			Legal			Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time-based (f)(g)(i)(m)			Deferred Rent (d)		Other restructuring, retention and severance (b)			Closed store expense (e)			Non-Cash Purchase Accounting Adjustments			Foreign currency gains			Other			June 30, 2019 Non-GAAP basis
Revenues:
Net sales	$	561,702																																	$	561,702
Royalties and franchise fees		2,189																																		2,189
Total revenues		563,891																																		563,891
Cost of sales		353,056			(5,394	)													338																	348,000
Wholesale selling expenses		16,884																																		16,884
Retail operating expenses		96,143																			—			(393	)											95,750
Franchise expenses		3,236																																		3,236
General and administrative expenses		41,510											(869	)		(1,517	)				(3,933	)		(114	)											35,077
Art and development costs		5,712																																		5,712
Development stage expenses		3,012								(3,012	)																									—
Gain on sale/leaseback transaction		(58,381	)					58,381																												—
Store impairment and restructuring charges		5,234			(5,234	)																														—
Total expenses		466,406			(10,628	)		58,381		(3,012	)		(869	)		(1,517	)		338		(3,933	)		(507	)		—			—			—			504,659
Income from operations		97,485																																		59,232
Interest expense, net		30,176																																		30,176
Other expense, net		3,342								(1,337	)																(1,756	)		(133	)		(40	)		76
Income before income taxes		63,967																																		28,980
Interest expense, net		30,176																																		30,176
Depreciation and amortization		21,884																																		21,884
EBITDA		116,027																																		81,040
Adjustments to EBITDA		(34,987	)		(10,628	)		58,381		(4,349	)		(869	)		(1,517	)		338		(3,933	)		(507	)		(1,756	)		(133	)		(40	)		—
Adjusted EBITDA	$	81,040		$	(10,628	)	$	58,381	$	(4,349	)	$	(869	)	$	(1,517	)	$	338	$	(3,933	)	$	(507	)	$	(1,756	)	$	(133	)	$	(40	)	$	81,040

				Six Months Ended June 30, 2020 EBITDA Adjustments
	June 30, 2020 GAAP Basis (as reported)			Goodwill and intangibles impairment (c)			Store impairment and restructuring charges (a)			Corporate development expenses (h)			Legal			Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units (f)(g)(i)(n)			Deferred Rent (d)			Other restructuring, retention and severance (b)			Closed store expense (e)			COVID- 19 (l)			Foreign currency losses			Other			June 30, 2020 Non-GAAP basis
Revenues:
Net sales	$	666,107																																			$	666,107
Royalties and franchise fees		2,627																																				2,627
Total revenues		668,734																																				668,734
Cost of sales		534,664						(10,630	)											(134	)		(4,437	)					(41,180	)					(429	)		477,854
Wholesale selling expenses		25,165									(1,840	)																	(623	)								22,702
Retail operating expenses		153,402																		2,909						(1,508	)		(14,567	)								140,236
Franchise expenses		6,430																											(672	)								5,758
General and administrative expenses		119,927									(200	)		(6,509	)		(9,546	)		97			(4,307	)		(127	)		(13,338	)								85,997
Art and development costs		8,838																																				8,838
Development stage expenses		2,932									(2,932	)																										—
Store impairment and restructuring charges		18,892						(18,892	)																													—
Goodwill and intangibles impairment		536,648			(536,648	)																																—
Total expenses		1,406,898			(536,648	)		(29,522	)		(4,972	)		(6,509	)		(9,546	)		2,872			(8,744	)		(1,635	)		(70,380	)		—			(429	)		741,385
Loss from operations		(738,164	)																																			(72,651	)
Interest expense, net		50,532																																				50,532
Other expense, net		7,160									(640	)					(1,033	)														(4,267	)		(2,474	)		(1,254	)
Loss before income taxes		(795,856	)																																			(121,929	)
Interest expense, net		50,532																																				50,532
Depreciation and amortization		40,518																																				40,518
EBITDA		(704,806	)																																			(30,879	)
Adjustments to EBITDA		673,927			(536,648	)		(29,522	)		(5,612	)		(6,509	)		(10,579	)		2,872			(8,744	)		(1,635	)		(70,380	)		(4,267	)		(2,903	)		—
Adjusted EBITDA	$	(30,879	)	$	(536,648	)	$	(29,522	)	$	(5,612	)	$	(6,509	)	$	(10,579	)	$	2,872		$	(8,744	)	$	(1,635	)	$	(70,380	)	$	(4,267	)	$	(2,903	)	$	(30,879	)


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 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 Form 8-K dated June 7, 2019)

~~4.1~~		Indenture, dated as of July 30, 2020, among Party City Holdings Inc., as issuer, the guarantors party thereto and Ankura Trust Company, LLC, as trustee and collateral trustee, relating to Senior Secured First Lien Floating Rate Notes due 2025 (incorporated by reference to Exhibit 4.1 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020)

~~4.2~~ 31.1*		~~Form of Senior Secured First Lien Floating Rate Notes due 2025 (included in Exhibit 4.1 hereto)~~

~~4.3~~		Indenture, dated as of July 30, 2020, among Anagram Holdings LLC, as issuer, Anagram International, Inc., as co-issuer, the guarantors party thereto and Ankura Trust Company, LLC, as trustee and collateral trustee, relating to 15.00% PIK/Cash Senior Secured First Lien Notes due 2025 (incorporated by reference to Exhibit 4.3 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020)

~~4.4~~		~~Form of 15.00% PIK/Cash Senior Secured First Lien Notes due 2025 (included in Exhibit 4.3 hereto)~~

~~4.5~~		Indenture, dated as of July 30, 2020, among Anagram Holdings LLC, as issuer, Anagram International, Inc., as co-issuer, the guarantors party thereto and Ankura Trust Company, LLC, as trustee and collateral trustee, relating to 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (incorporated by reference to Exhibit 4.5 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020

~~4.6~~		~~Form of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (included in Exhibit 4.5 hereto)~~

~~4.7~~		Third Supplemental Indenture, dated as of July 30, 2020, among Party City Holdings Inc., the guarantors party thereto and Wilmington Trust National Association, as trustee, relating to 6.125% Senior Notes due 2023 (incorporated by reference to Exhibit 4.7 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020)

~~4.8~~		Second Supplemental Indenture, dated as of July 30, 2020, among Party City Holdings Inc., the guarantors party thereto and Wilmington Trust National Association, as trustee, relating to 6.625% Senior Notes due 2026 (incorporated by reference to Exhibit 4.8 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020)

~~10.1~~		~~Registration Rights Agreement, dated as of July 30, 2020, among Party City Holdco Inc. and the other parties signatory thereto~~ ~~(incorporated by reference to Exhibit 10.1 to Party City Holdco Inc.’s Form 8-K dated August 3, 2020)~~

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

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

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

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

101.INS*		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*		Inline XBRL Taxonomy Extension Schema 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 contained in Exhibit 101)


			PARTY CITY HOLDCO INC.

	By:		/s/ Todd Vogensen
			Todd Vogensen
			Chief Financial Officer (Principal Financial Officer)