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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2021

OR

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

 

For the transition period from                  to                 

Commission file number 001-37344

 

 

Party City Holdco Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

46-0539758

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

80 Grasslands Road Elmsford, NY

 

10523

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:

(914345-2020

 

 

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

 

Title of each class 

 

Trading

Symbol(s) 

 

Name of each exchange on which registered 

 

 

 

 

 

Common Stock, Par Value: $0.01/share

 

PRTY

 

New York Stock Exchange

 

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

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 April 28, 2021, 111,296,696 shares of the Registrant’s common stock were outstanding.

 

 

 

 


 

PARTY CITY HOLDCO INC.

Form 10-Q

March 31, 2021

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

 

 

 

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2021, December 31, 2020 and March 31, 2020

 

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and March 31, 2020

 

4

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and March 31, 2020

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020  

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

17

 

 

 

Item  3. Quantitative and Qualitative Disclosures about Market Risk

 

28

 

 

 

Item 4. Controls and Procedures

 

28

 

 

 

PART II

 

 

 

 

 

Item 1. Legal Proceedings

 

29

 

 

 

Item 1A. Risk Factors

 

29

 

 

 

Item 6. Exhibits

 

30

 

 

 

Signature

 

31

 

2


 

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

2020

 

 

 

(Note 2)

(Unaudited)

 

 

(Note 2)

 

 

(Note 2)

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,806

 

 

$

119,532

 

 

$

194,433

 

Accounts receivable, net

 

 

81,658

 

 

 

90,879

 

 

 

116,223

 

Inventories, net

 

 

428,316

 

 

 

412,285

 

 

 

629,875

 

Prepaid expenses and other current assets

 

 

47,803

 

 

 

45,905

 

 

 

76,698

 

Income tax receivable

 

 

68,632

 

 

 

57,549

 

 

 

 

Assets held for sale, net

 

 

 

 

 

83,110

 

 

 

 

Total current assets

 

 

710,215

 

 

 

809,260

 

 

 

1,017,229

 

Property, plant and equipment, net

 

 

214,698

 

 

 

209,412

 

 

 

235,577

 

Operating lease asset

 

 

687,214

 

 

 

700,087

 

 

 

773,775

 

Goodwill

 

 

659,865

 

 

 

661,251

 

 

 

665,129

 

Trade names

 

 

383,733

 

 

 

384,428

 

 

 

394,221

 

Other intangible assets, net

 

 

29,912

 

 

 

32,134

 

 

 

41,960

 

Other assets, net

 

 

9,832

 

 

 

9,883

 

 

 

6,904

 

Total assets

 

$

2,695,469

 

 

$

2,806,455

 

 

$

3,134,795

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Loans and notes payable

 

$

142,859

 

 

$

175,707

 

 

$

381,422

 

Accounts payable

 

 

127,812

 

 

 

118,928

 

 

 

96,383

 

Accrued expenses

 

 

146,742

 

 

 

160,605

 

 

 

154,847

 

Liabilities held for sale

 

 

 

 

 

68,492

 

 

 

 

Current portion of operating lease liability

 

 

150,860

 

 

 

176,045

 

 

 

153,614

 

Income taxes payable

 

 

 

 

 

524

 

 

 

 

Current portion of long-term obligations

 

 

1,359

 

 

 

13,576

 

 

 

98,588

 

Total current liabilities

 

 

569,632

 

 

 

713,877

 

 

 

884,854

 

Long-term obligations, excluding current portion

 

 

1,358,495

 

 

 

1,329,808

 

 

 

1,474,854

 

Long-term portion of operating lease liability

 

 

628,217

 

 

 

654,729

 

 

 

707,734

 

Deferred income tax liabilities, net

 

 

31,036

 

 

 

34,705

 

 

 

70,943

 

Other long-term liabilities

 

 

33,195

 

 

 

22,815

 

 

 

16,036

 

Total liabilities

 

 

2,620,575

 

 

 

2,755,934

 

 

 

3,154,421

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock (111,258,890, 110,781,613 and 94,491,352 shares outstanding and 122,573,377, 122,061,711 and 121,708,422 shares issued at March 31, 2021, December 31, 2020, March 31, 2020 respectively)

 

 

1,383

 

 

 

1,373

 

 

 

1,211

 

Additional paid-in capital

 

 

976,037

 

 

 

971,972

 

 

 

933,174

 

Accumulated deficit

 

 

(579,486

)

 

 

(565,457

)

 

 

(578,732

)

Accumulated other comprehensive income (loss)

 

 

5,134

 

 

 

(29,916

)

 

 

(47,947

)

Total Party City Holdco Inc. stockholders’ equity before common stock held in

   treasury

 

 

403,068

 

 

 

377,972

 

 

 

307,706

 

Less: Common stock held in treasury, at cost (11,314,487, 11,280,098 and 27,217,070 shares at March 31, 2021, December 31, 2020, March 31, 2020, respectively)

 

 

(327,388

)

 

 

(327,182

)

 

 

(327,170

)

Total Party City Holdco Inc. stockholders’ equity

 

 

75,680

 

 

 

50,790

 

 

 

(19,464

)

Noncontrolling interests

 

 

(786

)

 

 

(269

)

 

 

(162

)

Total stockholders’ equity

 

 

74,894

 

 

 

50,521

 

 

 

(19,626

)

Total liabilities and stockholders’ equity

 

$

2,695,469

 

 

$

2,806,455

 

 

$

3,134,795

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Net sales*

 

$

426,807

 

 

$

414,043

 

Cost of sales

 

 

274,521

 

 

 

296,757

 

Gross Profit

 

 

152,286

 

 

 

117,286

 

Wholesale selling expenses

 

 

9,116

 

 

 

15,458

 

Retail operating expenses

 

 

88,896

 

 

 

88,166

 

General and administrative expenses

 

 

46,038

 

 

 

65,334

 

Art and development costs

 

 

4,971

 

 

 

5,322

 

Store impairment and restructuring charges

 

 

 

 

 

17,728

 

Loss on disposal of assets in international operations

 

 

3,211

 

 

 

 

Goodwill, intangibles and long-lived assets impairment

 

 

 

 

 

536,648

 

Income (loss) from operations

 

 

54

 

 

 

(611,370

)

Interest expense, net

 

 

17,214

 

 

 

25,120

 

Other expense, net

 

 

427

 

 

 

5,676

 

(Loss) before income taxes

 

 

(17,587

)

 

 

(642,166

)

Income tax (benefit)

 

 

(3,469

)

 

 

(100,498

)

Net (loss)

 

 

(14,118

)

 

 

(541,668

)

Less: Net (loss) attributable to noncontrolling interests

 

 

(54

)

 

 

(155

)

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

 

$

(14,064

)

 

$

(541,513

)

Net (loss) per share attributable to common shareholders of Party City Holdco

   Inc.–Basic

 

$

(0.13

)

 

$

(5.80

)

Net (loss) per share attributable to common shareholders of Party City Holdco

   Inc.–Diluted

 

$

(0.13

)

 

$

(5.80

)

Weighted-average number of common shares-Basic

 

 

110,917,349

 

 

 

93,395,609

 

Weighted-average number of common shares-Diluted

 

 

110,917,349

 

 

 

93,395,609

 

Dividends declared per share

 

$

 

 

$

 

Comprehensive income (loss)

 

$

20,937

 

 

$

(553,881

)

Less: Comprehensive (loss) attributable to noncontrolling interests

 

 

(84

)

 

 

(155

)

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

 

$

21,021

 

 

$

(553,726

)

 

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

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


 

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive Income

(Loss)

 

 

Total Party City

Holdco Inc.

Stockholders’

Equity Before

Common Stock

Held In Treasury

 

 

Common

Stock Held

In Treasury

 

 

Total Party City

Holdco Inc.

Stockholders’

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2020

 

$

1,373

 

 

$

971,972

 

 

$

(565,457

)

 

$

(29,916

)

 

$

377,972

 

 

$

(327,182

)

 

$

50,790

 

 

$

(269

)

 

$

50,521

 

Net loss

 

 

 

 

 

 

 

 

(14,064

)

 

 

 

 

 

(14,064

)

 

 

 

 

 

(14,064

)

 

 

(54

)

 

 

(14,118

)

Stock option expense – time – based

 

 

 

 

 

113

 

 

 

 

 

 

 

 

 

113

 

 

 

 

 

 

113

 

 

 

 

 

 

113

 

Restricted stock units – time – based

 

 

 

 

 

352

 

 

 

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

Restricted stock unit expense – performance-based

 

 

 

 

 

708

 

 

 

 

 

 

 

 

 

708

 

 

 

 

 

 

708

 

 

 

 

 

 

708

 

Director – non-cash compensation

 

 

 

 

 

57

 

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

57

 

 

 

 

 

 

57

 

Warrant exercise (see Note 17 –

   Kazzam, LLC)

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disposed non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(487

)

 

 

(487

)

Treasury stock purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(206

)

 

 

(206

)

 

 

 

 

 

(206

)

Exercise of stock options

 

 

6

 

 

 

2,849

 

 

 

 

 

 

 

 

 

2,855

 

 

 

 

 

 

2,855

 

 

 

 

 

 

2,855

 

Foreign currency adjustments

 

 

 

 

 

(10

)

 

 

35

 

 

 

36,398

 

 

 

36,423

 

 

 

 

 

 

36,423

 

 

 

24

 

 

 

36,447

 

Impact of foreign exchange

   contracts, net

 

 

 

 

 

 

 

 

 

 

 

(1,348

)

 

 

(1,348

)

 

 

 

 

 

(1,348

)

 

 

 

 

 

(1,348

)

Balance at March 31, 2021

 

$

1,383

 

 

$

976,037

 

 

$

(579,486

)

 

$

5,134

 

 

$

403,068

 

 

$

(327,388

)

 

$

75,680

 

 

$

(786

)

 

$

74,894

 

 

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Accumulated

(Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total Party City

Holdco Inc.

Stockholders’

Equity Before

Common Stock

Held In Treasury

 

 

Common

Stock Held

In Treasury

 

 

Total Party City

Holdco Inc.

Stockholders’

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2019

 

$

1,211

 

 

$

928,573

 

 

$

(37,219

)

 

$

(35,734

)

 

$

856,831

 

 

$

(327,086

)

 

$

529,745

 

 

$

(24

)

 

$

529,721

 

Net (loss)

 

 

 

 

 

 

 

 

(541,513

)

 

 

 

 

 

(541,513

)

 

 

 

 

 

(541,513

)

 

 

(155

)

 

 

(541,668

)

Stock option expense

 

 

 

 

 

354

 

 

 

 

 

 

 

 

 

354

 

 

 

 

 

 

354

 

 

 

 

 

 

354

 

Restricted stock units – time-based

 

 

 

 

 

621

 

 

 

 

 

 

 

 

 

621

 

 

 

 

 

 

621

 

 

 

 

 

 

621

 

Director – non-cash compensation

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

Warrant expense

 

 

 

 

 

1,033

 

 

 

 

 

 

 

 

 

1,033

 

 

 

 

 

 

1,033

 

 

 

 

 

 

1,033

 

Acquired non-controlling interest

 

 

 

 

 

2,518

 

 

 

 

 

 

 

 

 

2,518

 

 

 

 

 

 

2,518

 

 

 

17

 

 

 

2,535

 

Treasury Stock purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84

)

 

 

(84

)

 

 

 

 

 

(84

)

Foreign currency adjustments

 

 

 

 

 

 

 

 

 

 

 

(12,201

)

 

 

(12,201

)

 

 

 

 

 

(12,201

)

 

 

 

 

 

(12,201

)

Impact of foreign exchange

   contracts, net

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Balance at March 31, 2020

 

$

1,211

 

 

$

933,174

 

 

$

(578,732

)

 

$

(47,947

)

 

$

307,706

 

 

$

(327,170

)

 

$

(19,464

)

 

$

(162

)

 

$

(19,626

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows used in operating activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(14,118

)

 

$

(541,668

)

Adjustments to reconcile net (loss) to net cash (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

17,944

 

 

 

17,752

 

Amortization of deferred financing costs and original issuance discounts

 

 

863

 

 

 

1,202

 

Provision for doubtful accounts

 

 

696

 

 

 

1,119

 

Deferred income tax benefit

 

 

(3,386

)

 

 

(54,991

)

Change in operating lease liability/asset

 

 

(37,556

)

 

 

(389

)

Undistributed loss (income) in equity method investments

 

 

336

 

 

 

(144

)

Loss on disposal of assets

 

 

110

 

 

 

40

 

Loss on disposal of assets in international operations

 

 

3,211

 

 

 

 

Non-cash adjustment for store impairment and restructuring charges

 

 

 

 

 

16,277

 

Goodwill, intangibles and long-lived assets impairment

 

 

 

 

 

536,648

 

Non-employee equity-based compensation**

 

 

 

 

 

1,033

 

Stock option expense – time – based

 

 

113

 

 

 

354

 

Restricted stock unit expense – time-based

 

 

352

 

 

 

621

 

Restricted stock unit – performance-based

 

 

708

 

 

 

 

Directors – non-cash compensation

 

 

57

 

 

 

75

 

Net loss on debt repayment

 

 

226

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

2,952

 

 

 

27,635

 

(Increase) decrease in inventories

 

 

(17,565

)

 

 

23,205

 

(Increase) in prepaid expenses and other current assets

 

 

(8,768

)

 

 

(26,661

)

Increase (decrease) in accounts payable, accrued expenses and income taxes

   payable

 

 

5,014

 

 

 

(76,138

)

Net cash (used in) operating activities

 

 

(48,811

)

 

 

(74,030

)

Cash flows (used in) investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(22,184

)

 

 

(10,726

)

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

 

 

(1,628

)

 

 

(10,719

)

Cash flows (used in) provided by financing activities:

 

 

 

 

 

 

 

 

Repayment of loans, notes payable and long-term obligations

 

 

(792,849

)

 

 

(3,932

)

Proceeds from loans, notes payable and long-term obligations

 

 

794,750

 

 

 

253,030

 

Treasury stock purchases

 

 

(206

)

 

 

(85

)

Exercise of stock options

 

 

2,855

 

 

 

 

Debt issuance costs

 

 

(21,437

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(16,887

)

 

 

249,013

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(177

)

 

 

(4,863

)

Net (decrease) increase in cash and cash equivalents and restricted cash

 

 

(67,503

)

 

 

159,401

 

Change in cash classified within current assets held for sale

 

 

31,628

 

 

 

 

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*

 

$

83,806

 

 

$

194,577

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

20,309

 

 

$

35,927

 

Cash paid during the period for income taxes, net of refunds

 

$

127

 

 

$

11,368

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

*Includes $144 of restricted cash for the three months ended March 31, 2020. There was no restricted cash as of March 31, 2021. The Company records restricted cash in prepaid expenses and other current assets as presented in the consolidated balance sheets at December 31, 2020 and March 31, 2020.

**See Note 17 – Kazzam, LLC.

6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share)

Note 1 – Description of Business

Party City Holdco Inc. (the “Company” or “Party City Holdco”) is 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.

The Company’s retail operations include 833 specialty retail party supply stores (including franchise stores) throughout the United States and Mexico operating under the names Party City and Halloween City, and e-commerce websites, including through the domain name PartyCity.com.

The Company owns 100% of PC Nextco Holdings, LLC (“PC Nextco”), which owns 100% of PC Intermediate Holdings, Inc. (“PC Intermediate”). PC Intermediate owns 100% of Party City Holdings Inc. (“PCHI”), which owns most of the Company’s Operating subsidiaries.

 

Note 2 – Basis of Presentation and Recently Issued Accounting Pronouncements

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its majority-owned and controlled entities. All intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.

The Company’s retail operations define a fiscal year (“Fiscal Year”) as the 52-week period or 53-week period ended on the Saturday nearest December 31st of each year and define fiscal quarters (“Fiscal Quarter”) as the four interim 13-week periods following the end of the previous Fiscal Year, except in the case of a 53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The condensed consolidated financial statements of the Company combine the Fiscal Quarters of our retail operations with the calendar quarters of our wholesale operations, as the differences are not significant.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, which provides guidance providing optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. Additionally, in January 2021, the FASB issued ASU 2021-01, which allows entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates. The Company is currently evaluating the impact of this guidance on our consolidated financial statements.

 

7


 

Note 3 – Store Impairment and Restructuring Charges

The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”). 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 stores, which were primarily located in close proximity to other Party City stores. In 2019, 55 stores were identified for closure, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In 2020, 21 stores identified for closure in the first quarter of 2020 were closed in the third quarter. These closings provided the Company with capital flexibility to expand into underserved markets. In addition, the Company evaluated the recoverability of long lived assets at the open stores and recorded an impairment charge associated with the operating lease asset and property, plant and equipment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19. In conjunction with the store optimization program and store impairment, during the three ended March 31, 2020, the Company recorded the following charges:   

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

Inventory reserves

 

$

11,696

 

Operating lease asset impairment

 

 

14,212

 

Property, plant and equipment impairment

 

 

2,065

 

Labor and other costs incurred closing stores

 

 

1,451

 

Total

 

$

29,424

 

 

The charges were for common area maintenance, insurance and taxes that were paid subsequently to such closures in accordance with the stores’ lease agreements. However, such amounts were immaterial.

The fair values of the operating lease assets and property, plant and equipment were determined based on estimated future discounted cash flows for such assets using market participant assumptions, including data on the ability to sub-lease the stores.

The charge for inventory reserves represented inventory that was disposed of below cost. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive loss. The other charges were recorded in store impairment and restructuring charges in the Company’s statement of operations and comprehensive loss.

Note 4 – Goodwill, Intangibles and Long-Lived Assets Impairment

The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1 or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of goodwill and indefinite lived intangible assets. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.

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. The interim impairment tests were performed using an income approach. The Company recognized non-cash pre-tax goodwill impairment charges at March 31, 2020 of $253,110 and $148,326 against the goodwill associated with its retail and wholesale reporting units, respectively.

In addition, during the three months ended March 31, 2020, the Company recorded an impairment charge of $131,287 and $3,925 on its Party City and Halloween City tradenames, respectively.

During the three months ended March 31, 2021, there were no impairment charges associated with the Company’s goodwill or other intangible balances.

   

8


 

Note 5 – Disposition of Assets

In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations. The final consideration for the sale amounted to $54.6 million. During the fourth quarter of 2020, the Company recorded a loss reserve of $73,948 in connection with this sale, and during the first quarter of 2021, the Company recorded an additional loss of $3,211, related to changes in working capital accounts through the transaction close date, which is reported  in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

Note 6 – Inventories

Inventories consisted of the following:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

2020

 

Finished goods

 

$

386,108

 

 

$

367,275

 

 

$

583,662

 

Raw materials

 

 

23,618

 

 

 

27,111

 

 

 

30,795

 

Work in process

 

 

18,589

 

 

 

17,899

 

 

 

15,418

 

 

 

$

428,316

 

 

$

412,285

 

 

$

629,875

 

 

Inventories 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.

 

Note 7 – 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 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 March 31, 2021 of 19.7% is different from the statutory rate of 21.0% primarily due to state taxes, equity compensation and the effect of foreign losses with no associated tax benefit. The Company also recorded a $3,453 increase to uncertain tax positions related to the January 2021 sale of a substantial portion of its international operations.

9


Note 8 – Changes in Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive loss consisted of the following:

 

 

 

Three Months Ended March 31, 2021

 

 

 

Foreign

Currency

Adjustments

 

 

Impact of

Foreign

Exchange

Contracts,

Net of Taxes

 

 

Total,

Net of Taxes

 

Balance at December 31, 2020

 

$

(31,264

)

 

$

1,348

 

 

$

(29,916

)

Other comprehensive (loss) income before reclassifications,

   net of tax

 

 

(191

)

 

 

77

 

 

 

(114

)

Release of cumulative foreign currency translation adjustment to net loss as a result of disposition of international operations

 

 

36,589

 

 

 

(1,422

)

 

 

35,167

 

Amounts reclassified from accumulated other comprehensive

   loss to the condensed consolidated statement of operations

   and comprehensive loss, net of income tax

 

 

 

 

 

(3

)

 

 

(3

)

Net current-period other comprehensive income

 

 

36,398

 

 

 

(1,348

)

 

 

35,050

 

Balance at March 31, 2021

 

$

5,134

 

 

$

 

 

$

5,134

 

 

 

 

Three Months Ended March 31, 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

 

 

(12,201

)

 

 

11

 

 

 

(12,190

)

Amounts reclassified from accumulated other comprehensive

   loss to the condensed consolidated statement of

   operations and comprehensive loss, net of income tax

 

 

 

 

 

(23

)

 

 

(23

)

Net current-period other comprehensive (loss)

 

 

(12,201

)

 

 

(12

)

 

 

(12,213

)

Balance at March 31, 2020

 

$

(49,635

)

 

$

1,688

 

 

$

(47,947

)

 

 

 

Note 9 – Capital Stock

At March 31, 2021, the Company’s authorized capital stock consisted of 300,000,000 shares of $0.01 par value common stock and 15,000,000 shares of $0.01 par value preferred stock.

10


Note 10 – Segment Information

Industry Segments

The Company has two identifiable business segments. The Wholesale segment designs, manufactures, contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties 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 Company’s industry segment data for the three months ended March 31, 2021 and March 31, 2020 was as follows:

 

 

 

Wholesale

 

 

Retail

 

 

Consolidated

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Net sales*

 

$

212,137

 

 

$

333,282

 

 

$

545,419

 

Eliminations

 

 

(118,612

)

 

 

 

 

 

(118,612

)

Net revenues

 

$

93,525

 

 

$

333,282

 

 

$

426,807

 

Gross Profit

 

$

29,108

 

 

$

123,178

 

 

$

152,286

 

Income from operations

 

$

(592

)

 

$

646

 

 

$

54

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

17,214

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

427

 

Loss before income taxes

 

 

 

 

 

 

 

 

 

$

(17,587

)

 

 

 

Wholesale

 

 

Retail

 

 

Consolidated

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Net sales*

 

$

214,798

 

 

$

302,976

 

 

$

517,774

 

Eliminations

 

 

(103,731

)

 

 

 

 

 

(103,731

)

Net revenues

 

$

111,067

 

 

$

302,976

 

 

$

414,043

 

Gross Profit

 

$

21,343

 

 

$

95,943

 

 

$

117,286

 

Loss from operations

 

$

(163,548

)

 

$

(447,822

)

 

$

(611,370

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

25,120

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

5,676

 

Loss before income taxes

 

 

 

 

 

 

 

 

 

$

(642,166

)

 

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

 

In 2019, the Company initiated a store optimization program under which the Company identified approximately 55 Party City stores to be 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 for closure and were closed throughout 2020. In conjunction with the program, during the three months ended March 31, 2020 the Company’s Retail segment recorded $29,424 of store impairment and restructuring charges. See Note 4 – Goodwill, Intangibles and 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 Note 5 – Disposition of Assets for further detail.

Note 11 – Commitments and Contingencies

The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations.

11


Note 12 – Derivative Financial Instruments

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

Foreign Exchange Risk Management

A portion of the Company’s cash flows is derived from transactions denominated in foreign currencies. In 2020, to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, the Company entered into foreign exchange contracts with major international financial institutions. These forward contracts, typically matured within one year and were designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For contracts that qualified for hedge accounting, the terms of the foreign exchange contracts were such that cash flows from the contracts were highly effective in offsetting the expected cash flows from the underlying forecasted transactions.

The foreign currency exchange contracts were reflected in the condensed consolidated balance sheets at fair value. At December 31, 2020, the Company had foreign currency exchange contracts that qualified for hedge accounting. No components of these agreements were excluded in the measurement of hedge effectiveness. As these hedges were 100% effective, there was no current impact on earnings due to hedge ineffectiveness. The Company did not have any foreign currency exchange contracts at March 31, 2021.

 

Note 13 – Fair Value Measurements

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:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

During 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. As part of Ampology’s compensation for designing, developing and launching the exchange platform, Ampology received an ownership interest in Kazzam. The interest had been recorded as redeemable securities in the mezzanine of the Company’s consolidated balance sheet as Ampology had the right to cause the Company to purchase the interest. The liability was adjusted to the greater of the current fair value or the original fair value at the time at which the ownership interest was issued (adjusted for any subsequent changes in the ownership interest percentage). On March 23, 2020, the Company purchased all of Ampology’s interest in Kazzam. Refer to Note 17 – Kazzam, LLC for further detail.

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 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 March 31, 2021 because of the short-term maturities of the instruments and/or their variable rates of interest.

12


The carrying amounts and fair values of borrowings under the Term Loan Credit Agreement and the Company’s senior notes as of March 31, 2021 are as follows:

 

 

 

March 31, 2021

 

 

 

Carrying

Amount

 

 

Fair

Value

 

8.75% Senior Secured First Lien Notes – due 2026

 

$

750,000

 

 

$

770,625

 

6.125% Senior Notes – due 2023

 

 

22,924

 

 

 

20,173

 

6.625% Senior Notes – due 2026

 

 

92,254

 

 

 

82,106

 

First Lien Party City Notes – due 2025

 

 

202,657

 

 

 

183,405

 

First Lien Anagram Notes – due 2025

 

 

151,482

 

 

 

175,719

 

Second Lien Anagram Notes – due 2026

 

 

148,159

 

 

 

147,418

 

 

The fair values represent Level 2 fair value measurements as the debt instruments trade in inactive markets. The carrying amounts for other long-term debt approximated fair value at March 31, 2021 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.

Note 14 – 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 March 31,

 

 

 

2021

 

 

2020

 

Net (loss) attributable to common shareholders of

   Party City Holdco Inc.

 

$

(14,064

)

 

$

(541,513

)

Weighted average shares - Basic

 

 

110,917,349

 

 

 

93,395,609

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

Restricted stock units

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

Weighted average shares - Diluted

 

 

110,917,349

 

 

 

93,395,609

 

Net (loss) per share attributable to common

   shareholders of Party City Holdco Inc. - Basic

 

$

(0.13

)

 

$

(5.80

)

Net (loss) per share attributable to common

   shareholders of Party City Holdco Inc. - Diluted

 

$

(0.13

)

 

$

(5.80

)

 

During the three months ended March 31,2021, 2,808,395 stock options, 657,920 restricted stock units and 2,853,716 performance 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 months ended March 31, 2020, 3,450,209 stock options, 1,000,000 warrants 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.

13


Note 15 – Current and Long-Term Obligations

Long-term obligations at March 31, 2021, December 31, 2020 and March 31, 2020 consisted of the following:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

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

 

 

$

716,195

 

8.75% Senior Secured First Lien Notes – due 2026

 

 

750,000

 

 

 

750,000

 

 

 

(19,492

)

 

 

730,508

 

 

 

 

 

 

 

6.125% Senior Notes – due 2023

 

 

22,924

 

 

 

22,924

 

 

 

(132

)

 

 

22,792

 

 

 

22,779

 

 

 

347,221

 

6.625% Senior Notes – due 2026

 

 

92,254

 

 

 

92,254

 

 

 

(771

)

 

 

91,483

 

 

 

106,315

 

 

 

495,104

 

First Lien Party City Notes – due 2025

 

 

161,669

 

 

 

202,657

 

 

 

 

 

 

202,657

 

 

 

206,775

 

 

 

 

First Lien Anagram Notes – due 2025

 

 

112,979

 

 

 

151,482

 

 

 

(914

)

 

 

150,568

 

 

 

151,335

 

 

 

 

Second Lien Anagram Notes – due 2026

 

 

86,981

 

 

 

148,159

 

 

 

 

 

 

148,159

 

 

 

152,032

 

 

 

 

Finance lease obligations

 

 

13,687

 

 

 

13,687

 

 

 

 

 

 

13,687

 

 

 

13,983

 

 

 

14,922

 

Total long-term obligations

 

 

1,240,494

 

 

 

1,381,163

 

 

 

(21,309

)

 

 

1,359,854

 

 

 

1,343,384

 

 

 

1,573,442

 

Less: current portion

 

 

(1,359

)

 

 

(1,359

)

 

 

 

 

 

(1,359

)

 

 

(13,576

)

 

 

(98,588

)

Long-term obligations, excluding current portion

 

$

1,239,135

 

 

$

1,379,804

 

 

$

(21,309

)

 

$

1,358,495

 

 

$

1,329,808

 

 

$

1,474,854

 

 

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 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 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 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 $129.3 million, $176.5 million and $71.3 million of availability under the ABL Facility as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. At March 31, 2020, $150.0 million was invested in US Treasury funds with maturities of less than three months.

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 prepay the outstanding balance of $694,220 under its existing Term Loan Credit Agreement. The prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement.

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

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

14


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, a wholly owned subsidiary of the Company, entered into a $15 million asset-based revolving credit facility (“ABL Facility”), which matures during May 2024. It provides for (a) revolving loans, subject to a borrowing base described below, and (b) under the 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 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 ABL Facility generally provides for the following pricing options: All revolving loans will bear interest, at the Company'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, the Company is required to pay a commitment fee of 0.5% to1% per annum in respect of unutilized commitments. The Company must also pay customary letter of credit fees.

 

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

15


Note 16 – Revenue from Contracts with Customers

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Retail Net Sales:

 

 

 

 

 

 

 

 

North American Party City Stores

 

$

330,045

 

 

$

289,631

 

Other*

 

 

3,237

 

 

 

13,345

 

Total Retail Net Sales

 

$

333,282

 

 

$

302,976

 

Wholesale Net Sales:

 

 

 

 

 

 

 

 

Domestic

 

$

55,357

 

 

$

58,754

 

International

 

 

38,168

 

 

 

52,313

 

Total Wholesale Net Sales

 

$

93,525

 

 

$

111,067

 

Total Consolidated Revenue

 

$

426,807

 

 

$

414,043

 

*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 March 31, 2021, December 31, 2020 and March 31, 2020, the allowance for credit losses was $7,499, $7,232 and $5,342, respectively.

 

Note 17 – 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% 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 was recorded within the consolidated statement of stockholders’ equity.

During the first quarter of 2021, Ampology exercised a warrant in a cashless redemption transaction which is reflected in the consolidated statement of stockholders’ equity for the three months ended March 31, 2021.

 

16


 

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. The Company’s retail operations include 833 specialty retail party supply stores (including franchise stores) throughout the United States and Mexico operating under the names Party City and Halloween City, and e-commerce websites, including through the domain name 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  retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores.

How We Assess the Performance of Our Company

In assessing the performance of our company, we consider a variety of performance and financial measures for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses. We also review other metrics such as 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 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 three months ended March 31, 2021, 81.5% of the product that was sold by our retail segment was supplied by our wholesale segment and 33.0% 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 and the Retail segment 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 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.

17


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 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 and outbound freight to get goods to our wholesale customers. At retail, cost of sales reflects the direct cost of goods purchased from third parties and the production or purchase costs of goods acquired from our wholesale 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.

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 (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.

18


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

Three Months Ended March 31, 2021 Compared To Three Months Ended March 31, 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 March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

(Dollars in thousands)

Net sales

 

$

426,807

 

 

 

100.0

 

%

 

$

414,043

 

 

 

100.0

 

%

Cost of sales

 

 

274,521

 

 

 

64.3

 

 

 

 

296,757

 

 

 

71.7

 

 

Gross Profit

 

 

152,286

 

 

 

35.7

 

 

 

 

117,286

 

 

 

28.3

 

 

Wholesale selling expenses

 

 

9,116

 

 

 

2.1

 

 

 

 

15,458

 

 

 

3.7

 

 

Retail operating expenses

 

 

88,896

 

 

 

20.8

 

 

 

 

88,166

 

 

 

21.3

 

 

General and administrative expenses

 

 

46,038

 

 

 

10.8

 

 

 

 

65,334

 

 

 

15.8

 

 

Art and development costs

 

 

4,971

 

 

 

1.2

 

 

 

 

5,322

 

 

 

1.3

 

 

Store impairment and restructuring charges

 

 

 

 

 

-

 

 

 

 

17,728

 

 

 

4.3

 

 

Loss on disposal of assets in international operations

 

 

3,211

 

 

 

0.8

 

 

 

 

 

 

 

-

 

 

Goodwill and intangibles impairment

 

 

 

 

 

-

 

 

 

 

536,648

 

 

 

129.6

 

 

Income (loss) from operations

 

 

54

 

 

 

-

 

 

 

 

(611,370

)

 

 

(147.7

)

 

Interest expense, net

 

 

17,214

 

 

 

4.0

 

 

 

 

25,120

 

 

 

6.1

 

 

Other expense, net

 

 

427

 

 

 

0.1

 

 

 

 

5,676

 

 

 

1.4

 

 

(Loss) before income taxes

 

 

(17,587

)

 

 

(4.1

)

 

 

 

(642,166

)

 

 

(155.1

)

 

Income tax benefit

 

 

(3,469

)

 

 

(0.8

)

 

 

 

(100,498

)

 

 

(24.3

)

 

Net (loss)

 

 

(14,118

)

 

 

(3.3

)

 

 

 

(541,668

)

 

 

(130.8

)

 

Less: Net (loss) attributable to noncontrolling interests

 

 

(54

)

 

 

-

 

 

 

 

(155

)

 

 

-

 

 

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

 

 

(14,064

)

 

 

(3.3

)

%

 

 

(541,513

)

 

 

(130.8

)

%

Net (loss) per share attributable to common shareholders of Party City Holdco

   Inc.–Basic

 

 

(0.13

)

 

 

 

 

 

 

 

(5.80

)

 

 

 

 

 

Net (loss) per share attributable to common shareholders of Party City Holdco

   Inc.–Diluted

 

 

(0.13

)

 

 

 

 

 

 

 

(5.80

)

 

 

 

 

 

 

 

19


 

Revenues

Total revenues for the first quarter of 2021 were $426.8 million and were $12.8 million, or 3.09%, higher than the first quarter of 2020. The following table sets forth the Company’s total revenues for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

 

2021

 

 

 

2020

 

 

Dollars in

Thousands

 

 

Percentage of

Total Revenues

 

Dollars in

Thousands

 

 

Percentage of

Total Revenues

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

$

212,137

 

 

 

49.7

 

%

 

$

214,798

 

 

 

51.9

 

%

Eliminations

 

 

(118,612

)

 

 

(27.8

)

 

 

 

(103,731

)

 

 

(25.1

)

 

Net wholesale

 

 

93,525

 

 

 

21.9

 

 

 

 

111,067

 

 

 

26.8

 

 

Retail*

 

 

333,282

 

 

 

78.1

 

 

 

 

302,976

 

 

 

73.2

 

 

Total revenues

 

$

426,807

 

 

 

100.0

 

%

 

$

414,043

 

 

 

100.0

 

%

 

*Retail revenues include royalties and franchise fees

Retail

Retail net sales during the first quarter of 2021 were $ 333.3 million and were $ 30.3 million, or 10.0%, higher than during the first quarter of 2020. Retail net sales at our Party City stores totaled $310.6 million and were $50.7 million, or 19.5% higher than in the first quarter of 2020. Growth in same-store sales for the Party City brand was partially offset by the timing of New Year’s Eve and the divestiture of international retail. In addition, store sales were impacted by five new stores opened during the three months ended March 31, 2021, partially offset by impact of closed stores in conjunction with the store optimization program.

Same-store sales for the Party City brand (including North American retail e-commerce sales) increased by 35.9% during the first quarter of 2021 compared to the 13 weeks ended April 4, 2020, principally due to growth in core sales particularly in the balloon, birthday, and entertaining categories.

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 quarter of 2021 totaled $93.5 million and were $17.6 million, or 15.8%, lower than the first quarter of 2020. This decline is principally due to the divestiture of a significant portion of our international operations. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $32.8 million and were $10.9 million, or 25.0% lower than during 2020 principally due to ongoing headwinds from the pandemic and the impact of the discontinuation of the gift line. Results also reflect closures and acquisitions of 13 Party City franchise stores. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $22.6 million during the first quarter of 2021 and were $7.5 million, or 49.7%, higher than during the corresponding quarter of 2020 principally due to growth in the distributor channel. Our international sales were lower than in 2020 primarily due to the international divestiture.

Intercompany sales to our retail affiliates totaled $118.6 million during the first quarter of 2021 and were $14.9 million higher than during the corresponding quarter of 2020. Intercompany sales represented 55.9% of total wholesale sales during the first quarter of 2020 and were 14.3% higher than during the first quarter of 2020, principally due to increased sales to our Party City Corporate stores, driven by customer demand of balloons as well as lapping the negative impact of the COVID-19 pandemic in March of 2020. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

20


Gross Profit

The following table sets forth the Company’s gross profit for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

 

2021

 

 

 

2020

 

 

Dollars in Thousands

 

 

Percentage of Net Sales

 

 

 

Dollars in Thousands

 

 

Percentage of Net Sales

 

 

Retail Gross Profit

 

$

123,178

 

 

 

37.0

 

%

 

$

95,943

 

 

 

31.7

 

%

Wholesale Gross Profit

 

 

29,108

 

 

 

31.1

 

 

 

 

21,343

 

 

 

19.2

 

 

Total Gross Profit

 

$

152,286

 

 

 

35.7

 

%

 

$

117,286

 

 

 

28.3

 

%

 

The gross profit margin on net sales at retail during the first quarter of 2021 was 37.0 % or 530 basis points higher than during the corresponding quarter of 2020. The increase was primarily driven by leverage on occupancy expense, favorable share of shelf gains, and lower year over year markdowns in conjunction with the Company’s store optimization program, partially offset by increased costs of delivery and helium. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of 33.0 % during the first quarter of 2021 was 4.0% higher as compared to the first quarter of 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 81.5% during the quarter or 0.2% higher than during the first quarter of 2020.

The gross profit margin on net sales at wholesale during the first quarters of 2021 and 2020 was 31.1% and 19.2%, respectively. This improvement is primarily due to the divestiture of lower margin international operations, weaker margins in 2020 due to COVID-19 shutdowns as well as favorable product mix with increased sales of metallic balloons. 

Operating expenses

Operating expenses totaled $152.2 million or $576.5 million lower than the first quarter of 2020 primarily due to goodwill and intangibles impairment.

Wholesale selling expenses were $9.1 million during the first quarter of 2021 and were $6.4 million lower than during the corresponding quarter of 2020, largely due to the international divestiture, as well as lower payroll and commission expenses. Wholesale selling expenses were 9.7% and 13.9% of net wholesale sales during the first quarters of 2021 and 2020, respectively.

Retail operating expenses during the first quarter of 2021 were $88.9 million and were $0.7 million higher than the corresponding quarter of 2020, primarily driven by higher advertising spend. Retail operating expenses were 26.7% and 29.1% of retail sales during the first quarters of 2021 and 2020, respectively, with the leverage attributable to higher sales and disciplined expense management.

General and administrative expenses during the first quarter of 2021 totaled $46.0 million and were $19.3 million, or 29.6%, lower than in the first quarter of 2020 principally due to lower legal and employee payroll costs. General and administrative expenses as a percentage of total revenues were 10.8% and 15.8% during the first quarters of 2021 and 2020, respectively.

Art and development costs were $5.0 million and $5.3 million during the first quarters of 2021 and 2020, respectively.

Interest expense, net

Interest expense, net, totaled $17.2 million during the first quarter of 2021, compared to $25.1 million during the first quarter of 2020. The decrease in interest primarily reflects lower amounts of debt principal outstanding as a result of the debt refinancing in the third quarter of 2020.

Other expense, net

For the first quarters of 2021 and 2020, other expense, net, totaled $0.4 million and $5.7 million, respectively. Prior year currency loss in 2020 decreased versus 2021. The decrease is offset by loss on disposition of assets and write-offs of deferred financing costs. Refer to Note 5 – Disposition of Assets and Note 15 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q 2021.

21


Income tax benefit

The effective income tax rate for the three months ended March 31, 2021, 19.7%, is different from the statutory rate primarily due to state taxes, equity compensation, and the effect of foreign losses with no associated tax benefit. The Company also recorded a $3,453 increase to uncertain tax positions related to the January 2021 sale of a substantial portion of its international operations.

 

 

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.

Adjusted EBITDA, adjusted net income, and adjusted net income per common share - diluted 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 changes in, or cash requirements for, the Company’s working capital needs;

 

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

 

although depreciation and amortization 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

 

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.

22


Because of these limitations, adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. 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. 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:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Net (loss)

 

$

(14,118

)

 

$

(541,668

)

Interest expense, net

 

 

17,214

 

 

 

25,120

 

Income tax (benefit)

 

 

(3,469

)

 

 

(100,498

)

Depreciation and amortization

 

 

17,944

 

 

 

17,752

 

EBITDA

 

 

17,571

 

 

 

(599,294

)

Store impairment and restructuring charges (a)

 

 

 

 

 

27,761

 

Early lease terminations

 

 

3,138

 

 

 

 

Other restructuring, retention and severance (b)

 

 

2,051

 

 

 

3,047

 

Goodwill, intangibles and long-lived assets impairment (c)

 

 

 

 

 

536,648

 

Deferred rent (d)

 

 

1,526

 

 

 

(1,384

)

Closed store expense (e)

 

 

1,593

 

 

 

1,235

 

Foreign currency losses/(gains), net

 

 

(539

)

 

 

4,255

 

Stock option expense – time-based

 

 

113

 

 

 

354

 

Restricted stock unit and restricted cash awards expense – performance-based

 

 

817

 

 

 

 

Restricted stock units – time-based

 

 

352

 

 

 

621

 

Non-employee equity-based compensation (f)

 

 

 

 

 

1,033

 

Undistributed loss (income) in equity method

   investments

 

 

336

 

 

 

(144

)

Corporate development expenses (g)

 

 

 

 

 

2,969

 

Non-recurring legal settlements/costs

 

 

 

 

 

6,321

 

COVID - 19 (l)

 

 

615

 

 

 

26,180

 

Loss on disposal of assets

 

 

3,211

 

 

 

 

Net loss on debt repayment

 

 

226

 

 

 

 

Other

 

 

1,409

 

 

 

2,272

 

Adjusted EBITDA

 

$

32,419

 

 

$

11,874

 

 

23


 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

(Loss) before income taxes

 

$

(17,587

)

 

$

(642,166

)

Intangible asset amortization

 

 

2,477

 

 

 

2,866

 

Amortization of deferred financing costs and original

   issuance discounts

 

 

863

 

 

 

1,202

 

Store impairment and restructuring charges (a)

 

 

 

 

 

27,973

 

Other restructuring charges (b)

 

 

1,936

 

 

 

922

 

Goodwill, intangibles and long-lived assets impairment (c)

 

 

 

 

 

536,648

 

Non-employee equity-based compensation (f)

 

 

 

 

 

1,033

 

Non-recurring legal settlements/costs

 

 

 

 

 

6,321

 

Stock option expense – time-based

 

 

113

 

 

 

354

 

Restricted stock unit expense – performance-based

 

 

817

 

 

 

 

COVID - 19 (l)

 

 

615

 

 

 

26,180

 

Loss on disposal of assets

 

 

3,211

 

 

 

 

Inventory disposals

 

 

764

 

 

 

 

Adjusted (loss) before income taxes

 

 

(6,791

)

 

 

(38,667

)

Adjusted income tax (benefit) (h)

 

 

(1,382

)

 

 

(12,284

)

Adjusted net (loss)

 

$

(5,409

)

 

$

(26,383

)

Adjusted net (loss) per common share – diluted

 

$

(0.05

)

 

$

(0.28

)

Weighted-average number of common shares-diluted

 

 

110,917,349

 

 

 

93,395,609

 

 

 

(a)

The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”). 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 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 Form 10-Q 2021.

 

(b)

Amounts expensed principally relate to severance due to organizational changes.

 

(c)

As a result of a sustained decline in market capitalization, the Company recognized a non-cash pre-tax goodwill and intangibles impairment charge at March 31, 2020.

 

(d)

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

 

(e)

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

 

(f)

The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 17 – Kazzam, LLC  in Item 1 for further discussion.

 

(g)

Primarily represents costs for Kazzam (see Note 17 – Kazzam, LLC  in Item 1 for further discussion).

 

(h)

Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.

 

(l)

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

Liquidity

We expect that cash generated from operating activities and availability under our credit agreements will be our principal sources of liquidity. Based on our current level of operations, we believe 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 in amounts sufficient to enable us to repay our indebtedness or to fund our other liquidity needs. The Company had approximately $129.3 million of availability under the ABL Facility as of March 31, 2021.

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 March 31, 2021, the Company’s indebtedness principally consisted of: (i) 8.750% Senior Secured First Lien Notes due 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.

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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.

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.

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 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 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 quarter ended March 31, 2021, Anagram reported:

 

Revenue of $54,743 including net sales to Party City affiliates of approximately $22,712

 

Operating income of $12,623

 

Adjusted EBITDA of $14,057

 

Total assets of $185,707, including affiliate accounts receivable of $9,824

 

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Cash Flow

Net cash used in operating activities totaled $48.8 million and $74.0 million during the three months ended March 31, 2021 and 2020, respectively. The decrease in cash used in operating activities is primarily attributable to improved working capital (accounts receivable, inventory, prepaid expenses and other current assets, and accounts payable), primarily reflecting a reduction in accounts payable in the prior year.

Net cash used in investing activities totaled $1.6 million during the three months ended March 31, 2021, as compared to $10.7 million used in investing activities during the three months ended March 31, 2020. The decrease 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 three months ended March 31, 2021 and 2020 were $22.2 million ($15.9 million for retail and $6.3 million for wholesale) and $10.7 million, respectively.

Net cash used in financing activities was $16.9 million during the three months ended March 31, 2021 and $249.0 million was provided during the three months ended March 31, 2020. The variance was principally due to increased borrowings under the ABL Facility in the prior year.

Critical Accounting Estimates

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

Long-Lived and Intangible Assets (including Goodwill)

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 and 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 for impairment, reporting units are determined by identifying individual 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 operating segments, wholesale and 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.

26


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 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.

Off-Balance Sheet Arrangements

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

Seasonality

Wholesale Operations

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

Retail Operations

Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent, 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.

Cautionary Note Regarding Forward-Looking Statements

From time to time, including in this filing and, in particular, the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we make “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current expectations and are based upon data available to us at the time the statements were made. An example of a forward-looking statement is our belief that our cash generated from operating activities and availability under our credit facilities will be adequate to meet our liquidity needs for at least the next 12 months. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. These risks, as well as other risks and uncertainties, are detailed in the section titled “Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on March 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.

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.

27


Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Act”)) as of March 31, 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 months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28


PART II-OTHER INFORMATION

Information in response to this Item is incorporated herein by reference from Note 11 – Commitments and Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

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 March 31, 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.

Otherwise, there have been no material changes to the risk factors disclosed under the heading "Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities Exchange Commission on March 11, 2021.

29


Item 6. Exhibits

 

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 February 19, 2021, among Party City Holdings Inc., as issuer, the guarantors party thereto, PC Intermediate Holdings, Inc. and Ankura Trust Company, LLC, as trustee and collateral trustee (incorporated by reference to Exhibit 4.1 to Party City Holdco Inc.’s Form 8-K dated February 19, 2021)

 

 

 

 4.2

 

Form of 8.750% Senior Secured First Lien Notes due 2026 (attached as an exhibit to Exhibit 4.1) (incorporated by reference to Exhibit 4.2 to Party City Holdco Inc.’s Form 8-K dated February 19, 2021)

 

 

 

10.1

 

Fifth Amendment to the ABL Credit Agreement, dated as of February 19, 2021, among PC Intermediate Holdings, Inc., Party City Holdings Inc., Party City Corporation, the subsidiaries of the borrowers from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the financial institutions party thereto (incorporated by reference to Exhibit 10.1 to Party City Holdco Inc.’s Form 8-K dated February 19, 2021)

 

 

 

 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)

 

 

Management contract of compensatory plan or arrangement

*

Filed herewith.

30


 

SIGNATURE

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.

 

 

 

 

PARTY CITY HOLDCO INC.

 

 

 

 

 

By:

 

/s/ Todd Vogensen

 

 

 

Todd Vogensen

 

 

 

Chief Financial Officer

(Principal Financial Officer)

 

Date: May 10, 2021

 

31