PARTY CITY HOLDCO INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

Company 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. With hundreds of retail stores filled with thousands of
products across the United States, we make it easy for our customers to find the
perfect party supplies, balloons and costumes for their celebration. Our retail
operations include approximately 830 specialty retail party supply stores, which
includes franchise stores throughout North America operating under the names
Party City and Halloween City, and e-commerce websites, which offer rapid,
contactless, and same day shipping options (including in store and at curb
side), principally 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.

Segments

Our retail segment generates revenue primarily through the sale of our party
supplies, which are sold under the Amscan and Anagram brand names and Costumes
USA brand names through Party City, Halloween City and PartyCity.com. During
2021, 81.1% of the product that was sold by our retail segment was supplied by
our wholesale segment and 26.7% 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.

COVID-19 Update. Our retail and wholesale business is centered around social
gatherings to celebrate everyday and seasonal events. Larger gatherings
generally result in greater breadth of product purchases and increased average
order value in basket. COVID-19 and the evolving measures taken to respond
continue to impact the global economy and consumer spending and disrupt global
supply chains in various industries. The economy has experienced variability due
to geography, climate, local and state variant transmission levels, vaccination
adoption and regulatory restrictions. This in turn changes consumer behavior and
our results. For example, our wholesale business in Canada was significantly
affected in 2021 due to extended government-mandated lockdowns, where a
significant third-party customer base is located. In spite of these challenges,
consumers found different ways to celebrate, and we evolved our offering and
go-to-market approach to meet our customers' needs, enabling them to celebrate
life's important milestone in a safe manner. Improving customer engagement
across our marketing

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our messaging, product and merchandising approach, and digital experiences with our brand have become essential to increasing relevance.

Entering 2021, our focus on our core North American party platform resulted in
our strategic goal of operating a more effective and customer-led vertical
model. This included ongoing improvements to our integrated supply chain,
expanded capacity in some of our manufacturing plants and driving new
efficiencies in transportation, distribution, and inventory levels. Our
logistics team has taken prudent action to ensure the highest possible in-stock
rates in a challenging supply chain environment. We applied mitigation
activities to address in-stock product availability and delivery and incurred
additional transportation and distribution costs in order to ensure we could
generally satisfy customer demand. The unique supply chain challenges have
resulted in limited benefits from existing contract protections, and therefore
we believe all retailers continue to be impacted by these increased costs. We
continue to evaluate multiple sources of supply for products in the highest
demand, particularly as we focus on quality and innovation within the supply
chain, and we have begun to adjust our order timeline throughout the supply
chain and continue to find transportation alternatives to mitigate what we
expect will be continuing volatility. We also continue to increase capacity in
our U.S. manufacturing plants, including Anagram.

We have been able to maintain a reasonable level of staffing in our operations,
despite challenges presented by COVID-19 and overall labor shortages in our
markets. However, we have been adversely impacted by additional wage pressure in
2021, in addition to continuing impact of state law minimum wage legislation in
recent years.

Overall, our pricing power in both the retail and wholesale markets has allowed
us to meaningfully mitigate rising costs with appropriate price adjustments,
which partially offset the forgoing cost headwinds. We have data at both the
category and SKU level that allows us to make strategic pricing decisions that
optimize profit and minimize impact to the consumer and our customers. As the
category-defining brand, we have the pricing power to effectively mitigate the
impact of rising input costs.


2021 Overview. 2021 was an important year of transformation as we advanced the
fundamental building blocks of our strategy across product innovation, in-store
experience, being celebration occasion obsessed and focusing on our North
American vertical model. Despite the continued challenging and volatile economic
backdrop, the business performed well as the consumer returned to social
gatherings, celebrations and parties, while we continued to implement
significant operational and capital structure improvements. We delivered a
another strong year of financial and operational results with total sales up
7.7% year over year.

Throughout the year, we continued to remodel or open NXTGEN stores and enhanced
the in-store experience for our customers with an increased focus on product
quality and innovation. With our transformation initiatives increasing brand
relevancy with our consumers, same-store sales growth led to gross margin
improvement. We also finalized the sale of our international wholesale
operations providing us opportunity to increase our focus on our North American
vertical model. Lastly, we strengthened our financial position and liquidity by
refinancing our term loan at the beginning of the year.


How we assess the performance of our business

In assessing the performance of our company, we consider a variety of
performance and financial measures for our two reportable segments, Retail and
Wholesale. These key measures include revenues and gross profit and comparable
retail same-store sales. We also review other metrics such as adjusted net
income (loss), adjusted net income (loss) per common share - diluted, and
adjusted EBITDA.

Revenues. Revenue from retail store operations is recognized at the point of
sale as control of the product is transferred to the customer at such time.
Retail e-commerce sales are recognized when the consumer receives the product as
control transfers upon delivery. We estimate future retail sales returns and
record a provision in the period in which the related sales are recorded based
on historical information. Retail sales are reported net of taxes collected.

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

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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.

Comparable Retail Same-Store Sales. 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.

Intercompany sales and cost of 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 rent, travel and other operating costs.
Certain selling expenses, such as sales-based bonuses and commissions, vary in
proportion to sales, while other costs vary based on other factors, such as our
marketing efforts, or are largely fixed and do not necessarily increase as sales
volumes increase.

Retail operating expenses. Retail operating expenses include all costs associated with operating retail stores, excluding occupancy costs included in cost of sales. Costs include store payroll and benefits, advertising, supplies, and credit card fees. Retail costs vary widely, 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.

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Art and development costs. Art and development costs include costs associated with artistic production, creative development, and product management. Costs include salaries and benefits of affected workforce. These expenses generally do not vary in proportion to net sales.

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

Adjusted Net Income (Loss). Adjusted net income (loss) represents our net income
(loss), adjusted for, among other items, intangible asset amortization, non-cash
purchase accounting adjustments, amortization of deferred financing costs and
original issue discounts, refinancing charges, equity-based 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 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.

The Company presents the measures of adjusted EBITDA, adjusted net income (loss)
and adjusted net income (loss) per common share - Diluted as supplemental
non-GAAP measures of its operating performance. You are encouraged to evaluate
these adjustments and the reasons the Company considers them appropriate for
supplemental analysis. In evaluating the measures, you should be aware that in
the future the Company may incur expenses that are the same as, or similar to,
some of the adjustments in this presentation. The Company's presentation of
adjusted EBITDA, adjusted net income and adjusted net income per common
share-diluted 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. 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. Because of these limitations, adjusted EBITDA, adjusted net income, and
adjusted net income per common share-diluted should not be considered in
isolation or as substitutes for performance measures calculated in accordance
with GAAP. The Company compensates for these limitations by relying primarily on
its GAAP results and using the metrics only on a supplemental basis and
reconciliations from GAAP to non-GAAP measures are provided. Some of the
limitations of non-GAAP measures are:

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

they do not reflect variations or cash requirements for the Company’s working capital requirements;

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

although depreciation and amortization are non-cash charges, depreciated assets will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirement for such replacements;

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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 that 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 earnings and adjusted net earnings per common share differently from the Company, which limits its usefulness as a comparative measure.

Operating results

The following tables set forth selected historical consolidated financial data
for the periods and as of the dates indicated below. The tables include our
operating results and operating results as a percentage of total revenues for
the years ended December 31, 2021 and 2020.

For a detailed discussion of our consolidated results of operations for the year
ended December 31, 2020 compared to the year ended December 31, 2019, see Part
II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operation" under "Results of Operations" in our annual report on Form
10-K for the year ended December 31, 2020.


                                                           Fiscal Year Ended December 31,
                                                       2021                              2020
                                                    (Dollars in thousands, except per share data)
Net sales                                   $   2,171,060         100.0   %   $ 1,850,690       100.0   %
Cost of sales                                   1,403,004          64.6         1,369,935        74.0
Gross profit                                      768,056          35.4           480,755        26.0
Wholesale selling expenses                         30,762           1.4            50,121         2.7
Retail operating expenses                         432,531          19.9           387,398        20.9
General and administrative expenses               186,698           8.6           225,322        12.2
Art and development costs                          21,174           1.0            17,638         1.0
Store impairment and restructuring
charges                                                 -             -            22,449         1.2
Loss on disposal of assets in
international operations                            3,211           0.1            73,948         4.0
Goodwill, intangibles and long-lived
assets impairment                                   9,048           0.4           581,380        31.4
Income (loss) from operations                      84,632           3.9          (877,501 )     (47.4 )
Interest expense, net                              87,226           4.0            77,043         4.2
Other (income) expense, net                          (614 )           -             3,715         0.2
Gain on debt repayment/refinancing                 (1,106 )        (0.1 )        (273,149 )     (14.8 )
Loss before income taxes                             (874 )           -          (685,110 )     (37.0 )
Income tax expense (benefit)                        5,708           0.3          (156,653 )      (8.5 )
Net loss                                           (6,582 )        (0.3 ) %      (528,457 )     (28.6 ) %
Less: Net loss attributable to
noncontrolling interests                              (54 )           -              (219 )         -
Net loss attributable to common
shareholders of
  Party City Holdco Inc.                    $      (6,528 )        (0.3 ) %   $  (528,238 )     (28.5 ) %
Net loss per share attributable to common
shareholders of Party City Holdco
Inc.-basic                                  $       (0.06 )                   $     (5.24 )
Net loss per share attributable to common
shareholders of Party City Holdco
Inc.-diluted                                $       (0.06 )                   $     (5.24 )




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                                                 Fiscal Year Ended December 31,
                                                     2021                2020
Statement of Cash Flow Data:
Net cash provided by (used in)
Operating activities                           $         51,935      $      77,200
Investing activities                                    (65,395 )          (54,271 )
Financing activities                                    (89,125 )           93,704
Per Share Data:
Basic                                          $          (0.06 )    $       (5.24 )
Diluted                                        $          (0.06 )    $       (5.24 )
Weighted Average
Outstanding basic                                   110,980,934        100,804,944
Diluted                                             110,980,934        100,804,944
Cash dividend per common share                                -                  -
Other Financial Data:
Adjusted EBITDA                                $        266,294      $      95,534
Adjusted net income                            $         78,251      $     (49,230 )
Adjusted net income per common share-diluted   $           0.68      $       (0.45 )
Number of company-owned Party City stores                   759             

746

Capital expenditures                           $         79,222      $      

51 128

Party City brand comp sales                                34.2    %         (16.5 ) %
Wholesale Share of shelf (a)                               81.1    %          82.1   %
Balance Sheet Data (at end of period):
Cash and cash equivalents                      $         47,914      $     119,532
Working capital                                         128,424             95,383
Total assets                                          2,711,900          2,806,455
Total debt                                            1,436,743          1,519,091
Redeemable common securities                                  -                  -
Total equity                                             82,714             50,521


(a)
Represents the percentage of product costs included in cost of goods sold by our
Party City stores and North American retail e - commerce operations which relate
to products supplied by our wholesale operations.


                                                           Fiscal Year Ended December 31,
                                                               2021                2020
Net loss                                               $      (6,582 )       $ (528,457 )
Interest expense, net                                         87,226             77,043
Income taxes                                                   5,708           (156,653 )
Depreciation and amortization                                 65,611             76,506
EBITDA                                                       151,963           (531,561 )
Store impairment and restructuring charges                         -             39,323   (a)
Inventory restructuring and early lease terminations           7,157    (b)
Goodwill, intangibles, long-lived assets impairment           11,974    (c)     581,380   (c)
Other restructuring, retention and severance                   2,346        

12 104

Deferred rent                                                  3,325    (d)      (3,147 ) (d)
Corporate development expenses                                     -              7,197   (e)
Foreign currency losses (gains)                               (1,090 )           (1,058 )
Closed store expense                                           4,743    (f)       3,858   (f)
Stock option expense                                             397    (g)       8,643   (g)
Non-employee equity based compensation                             -              1,033   (h)
Restricted stock units expense-time based                      2,557    (i)       2,071   (i)
Restricted stock units expense-performance based               3,773    (i)       1,460   (i)
Undistributed loss (income) in equity method
  investments                                                   (220 )      

Non-recurring legal settlements/costs                              -        

7,843

(Gain) on debt repayment/refinancing                          (1,106 )  (j)    (273,149 ) (j)
Loss on disposal of property, plant and equipment              2,784                  -
Loss on sale of business                                       3,211    (k)      73,948   (k)
Inventory disposal reserve                                    68,707    (l)      88,358   (l)
COVID - 19                                                     1,270    (m)      73,843   (m)
Other                                                          4,502              3,388
Adjusted EBITDA                                        $     266,294         $   95,534




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                                                        Fiscal Year Ended December 31,
                                                            2021                2020
Loss before income taxes                           $         (874 )       $  (685,110 )
Intangible asset amortization                               9,075              11,362
Amortization of deferred financing costs and
original issuance discounts                                 4,516           

4,198

Store impairment and restructuring charges                      -              30,813   (a)
Goodwill and intangibles impairment                        11,974    (c)      581,380   (c)
Stock option expense                                          397    (g)        8,643   (g)
Restricted stock units expense-performance based            3,773    (i)        1,460   (i)
Non-employee equity based compensation                          -               1,033   (h)
Other restructuring charges                                 1,967           

10,139

Non-recurring legal settlements                                 -           

7,094

(Gain) on debt refinancing                                      -            (273,149 )
(Gain) on sale of Canada retail assets                          -                   -
Loss on sale of assets                                      2,642
Inventory disposal reserve                                 69,632    (l)       88,358   (l)
Loss on sale of business                                    3,211    (k)       73,948   (k)
COVID - 19                                                  1,270    (m)       73,661   (m)
Adjusted income (loss) before income taxes                107,583             (66,170 )
Adjusted income tax expense (benefit)                      29,332    (n)      (16,940 ) (n)
Adjusted net income (loss)                         $       78,251         $   (49,225 )
Adjusted net income (loss) per common
share-diluted                                      $         0.68         $     (0.49 )



(a)
During the years ended December 31, 2020 and 2019, the Company performed a
comprehensive review of its store locations aimed at improving the overall
productivity of such locations ("store optimization program") and, after careful
consideration and evaluation of the store locations, the Company made the
decision to accelerate the optimization of its store portfolio. In January 2020,
20 stores were closed. In the first quarter of 2020, 21 additional stores
identified for closure and 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. Refer to Note 3 - Store Impairment and
Restructuring Charges, of Item 8, "Financial Statements and Supplementary Data"
in this Annual Report on Form 10-K for further detail.

(b)

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

(vs)

In December 2021, the Company announced the closure of a manufacturing facility
in New Mexico that will cease operations in February 2022. As a result, the
Company recorded charges consisting primarily of equipment and inventory
impairments, severance and other costs (see Note 6, Disposition of Assets and
Assets and Liabilities Held for Sale of Item 8, "Financial Statements and
Supplementary Data" in this Annual Report on Form 10-K for further discussion).
During the year ended December 31, 2020, as a result of a sustained decline in
market capitalization, the Company recognized non-cash pre-tax goodwill and
intangibles impairment charges. (see Note 4, Goodwill, of Item 8, "Financial
Statements and Supplementary Data" in this Annual Report on Form 10-K).

(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 for such items.

(e)

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

(F)

Mainly charges incurred related to the closure of underperforming stores.

(g)

Represents non-cash charges related to stock options.

(h)

Amounts for 2020 principally represents shares of Kazzam awarded to Ampology as
compensation for Ampology's services. See Note 25, Kazzam LLC., of Item 8,
"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K
for further discussion.

(I)

Non-cash charges for service-vested restricted stock units and service- and performance-vested performance restricted stock units.

(j)

The Company recognized net gain on debt repayment in 2021. In 2020, the Company
recognized a gain on debt refinancing transactions as described in Note 12 -
Long-Term Obligations of Item 8, "Financial Statements and Supplementary Data"
in this Annual Report on Form 10-K.

(k)

The Company sold a substantial portion of its international operations. Related
to the sale, the Company recorded a loss reserve in 2020 and an additional loss
in 2021. (see Note 6, Disposition of Assets and Assets and Liabilities Held for
Sale of Item 8, "Financial Statements and Supplementary Data" in this Annual
Report on Form 10-K for further discussion).

(I)

As indicated in Note 7 - Inventories, Net, of Item 8, "Financial Statements and
Supplementary Data," in this Annual Report on Form 10-K, the Company continued
to make progress in improving inventory levels across its stores and
distribution network. Consistent with the strategy of rationalizing in-store SKU
count and improving working capital velocity, the Company has

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updated its seasonal assortment strategy to target higher in-season sell-through
of merchandise and reduce annual inventory carry-over. As a result, for
inventory not required for future seasons, the Company recorded a reserve for
future disposals in 2021 and disposed of and recorded a reserve for future
disposals in 2020.

(m)

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.

(not)

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.

Revenue

Total revenue for 2021 was $2,171.1 millionan augmentation of $320.4 millioni.e. 17.3% more than in 2020. The following table presents the Company’s total revenues for the years ended December 31, 2021 and 2020.

                                                       Fiscal Year Ended December 31,
                                        2021                                               2020
                           Dollars in          Percentage of Total       Dollars in          Percentage of Total
                            Thousands               Revenues              Thousands               Revenues
Net Sales:
Wholesale                 $     990,636                45.6      %      $     940,228                50.8      %
Eliminations                   (589,562 )             (27.2 )                (471,863 )             (25.5 )
Net wholesale                   401,074                18.5                   468,365                25.3
Retail                        1,769,986                81.5                 1,382,325                74.7
Total revenues            $   2,171,060               100.0      %      $   1,850,690               100.0      %




Retail

Retail net sales during 2021 were $1,770.0 million, an increase $387.7 million,
or 28.0%, compared to 2020. Retail net sales at our Party City stores totaled
$1,734.3 million and were $359.6 million, or 26.2%, higher than 2020. Growth in
same-store sales for the Party City brand, and higher Halloween City store count
and sales this year was partially offset by the divestiture of international
retail operations. In addition, store sales were impacted by store openings and
franchise acquisitions during the year 2021. Same-store sales for the Party City
brand increased by 37.6% during 2021. Sales at our temporary Halloween stores
(principally Halloween City) totaled $35.7 million and were $28.1 million higher
than 2020 due to increased demand and store count.

Wholesale

Wholesale net sales during 2021 totaled $401.1 million and were $67.3 million,
or 14.4 %, lower than 2020. The total wholesale net sales decrease is primarily
due to the divestiture of a significant portion of our international operations
offset by increased sales across our wholesale customer base. Net sales to
domestic party goods retailers and distributors (including our franchisee
network) totaled $171.8 million and were $6.0 million, or 3.6%, higher than
during 2020. Wholesale net sales excluding divested international operations
were $387.0 and $308.9 in 2021 and 2020, representing a year over year sale
increase of 25.3%.

Net sales of metallic balloons to domestic distributors and retailers (including
our franchisee network) totaled $91.9 million during 2021 and were $18.8
million, or 25.7%, higher than during 2020 primarily due to higher post-COVID
demand.

Intercompany sales to our retail affiliates totaled $589.6 million during
2021and were $117.7 million higher than during the prior year. The increase in
2021 intercompany sales principally reflects a higher store count compared to
2020 and an increase in purchases due to higher demand, partially offset by the
impact of divestiture of international affiliates. The intercompany sales of our
wholesale segment were eliminated against the intercompany purchases of our
retail segment in the consolidated financial statements. Intercompany sales
represented 59.5% of total wholesale sales during 2021, compared to 50.2% during
2020.

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Gross profit

The following table shows the Company’s gross profit for the years ended
December 31, 2021 and December 31, 2020.

                                                          Fiscal Year Ended December 31,
                                                    2021                                  2020
                                      Dollars in        Percentage          Dollars in        Percentage
                                      Thousands        of Net Sales         Thousands        of Net Sales
Retail Gross Profit                  $    694,557               39.2   %   $    406,499               29.4   %
Wholesale Gross Profit                     73,499               18.3             74,256               15.9
Total Gross Profit                   $    768,056               35.4   %   $    480,755               26.0   %



The gross profit margin on net sales at retail during 2021 was 39.2% or 980
basis points higher than 29.1% during 2020. The increase is primarily
attributable to stronger in store sales, leverage on occupancy expense and lower
year over year inventory write-offs and markdowns in conjunction with the
Company's 2020 store optimization program. The manufacturing share of shelf at
retail (i.e., the percentage of our retail product cost of sales manufactured by
our wholesale segment) increased to 26.7% during 2021 from 26.0% in 2020, driven
by the increased balloon production in our wholesale business. 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 81.1% during 2021 compared to 82.1% during 2020.

The gross profit on net sales at wholesale during 2021 and 2020 was 18.3% and
15.9%, respectively. This improvement is primarily due to the deleverage caused
by the COVID-19 shutdowns in the prior period, the divestiture of lower margin
international operations partially offset by a portion of the inventory disposal
reserve in 2021, and higher freight, material and labor costs.

As indicated in Note 7 - Inventories, Net, of Item 8, "Financial Statements and
Supplementary Data," in this Annual Report on Form 10-K, the Company continued
to make progress in improving inventory levels across its stores and
distribution network. Consistent with the strategy of rationalizing in-store SKU
count and improving working capital velocity, the Company has updated its
seasonal assortment strategy to target higher in-season sell-through of
merchandise and reduce annual inventory carry-over. As a result, for inventory
not required for future seasons, the Company recorded a reserve for future
disposals in 2021 and a reserve for future disposals and disposed of inventory
in 2020. Such amounts are included in cost of sales.

Operating Expenses

Wholesale selling expenses totaled $30.8 million during 2021 compared to $50.1
million during 2020. The decrease of $19.4 million, or 38.7%, is primarily due
to the international divestiture.

Retail operating expenses during 2021 were $432.5 million and were $45.1
million, or 11.7%, higher than in 2020, primarily driven by higher payroll and
bank charges related to higher sales, partially offset by the international
divestiture. Retail operating expenses were 24.4% and 28.0% of net retail sales
during 2021 and 2020, respectively.

General and administrative expenses in 2021 totaled $186.7 million and were
$38.6 million, or 17.1%, a decrease from 2020. The decrease is due to international divestiture and lower legal and professional fees, partially offset by higher payroll expenses. General and administrative expenses as a percentage of total revenue were 8.6% and 12.2% in 2021 and 2020, respectively.

Art and development costs were $21.2 million and $17.6 million during 2021 and
2020, respectively, consistent at 1.0% of total revenue. The increase in 2021
was mainly due to higher payroll costs, consulting fees and merchandise sample
costs.

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Interest expense, net

Interest expense, net, totaled $87.2 million in 2021, compared to $77.0 million during 2020. The increase primarily reflects the higher cost of debt resulting from refinancing in the first quarter of 2021, partially offset by lower average principal debt amounts outstanding in 2021 compared to the prior year.

Other (income) expenses, net

Other (income) expenses, net, totaled ($0.6) million in 2021 and $3.7 million
during 2020.

Capital loss on disposal of assets in international operations

In January 2021, the Company closed the previously disclosed sale of a
substantial portion of its international operations. The announced sale had a
total transaction value of approximately $50.6 million. As of December 31, 2020,
the assets and liabilities of the international operations are considered held
for sale. As a result, the company recorded a loss reserve of $73,948. Refer to
Note 6 - Disposition of Assets and Assets and Liabilities Held for Sale of Item
8, "Financial Statements and Supplementary Data" in this Annual Report on Form
10-K.

Gain on repayment/refinancing of debt

In 2020, the Company recognized a gain of $273.1 million on debt refinancing
transactions. Refer to Note 12 - Long-Term Obligations, of Item 8, "Financial
Statements and Supplementary Data" in this Annual Report on Form 10-K for
further detail.

income tax expense

The effective income tax rate for the year ended December 31, 2021, is
significantly influenced by the relative impact of permanent differences and tax
accruals on the lower pretax earnings for the year. The effective income tax
rate of (653.1)%, is different from the statutory rate, 21%, primarily due to
state income tax and uncertain tax positions. See Note 17, Income Tax, of Item
8, "Financial Statements and Supplementary Data" in this Annual Report on Form
10-K for further discussion.

Impairment of goodwill and intangible assets

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 September 30, 2020 the
Company has determined that the fair value of certain indefinite-lived
intangible assets is lower than the related book values. Additionally, for
certain long-lived assets it is more likely than not that those long-lived
assets will be disposed significantly before the end of their previously
estimated useful lives. As a result, impairment charges of $11,032, $2,423 and
$31,277 were recorded in the third quarter on its business indefinite-lived
trade name intangibles, finite-lived intangibles and tangible assets,
respectively. During the twelve months ended December 31, 2021, there was no
goodwill or intangibles impairment.

Liquidity and capital resources and significant cash requirements

We have proactively managed our liquidity profile throughout the fiscal year and
expect to continue to do so going forward. We expect to rely on cash on hand,
cash generated by operations and borrowings available under our credit
agreements to meet our working capital needs and will be our principal sources
of liquidity. Based on our current level of operations, we believe that these
sources will be adequate to meet our liquidity needs for at least the next 12
months. We are currently not aware of any other trends or demands, commitments,
events or uncertainties

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that will result in or that are reasonably likely to result in our liquidity
increasing or decreasing in any material way that will impact our capital needs
during or beyond the next 12 months. We cannot assure you, however, that our
business will generate sufficient cash flow from operations or that future
borrowings will be available to us under the Company's credit facilities and in
amounts sufficient to enable us to repay our indebtedness or to fund our other
liquidity needs.

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

However, if the duration of the COVID-19 pandemic continues longer than we
expect or the severity worsens, we may need to access other sources of
financing, including incurring additional indebtedness, selling our assets and
raising additional equity capital. These alternatives may not be available to us
on satisfactory terms or at all, which could have a material adverse effect on
our business.

Sources of Cash


Based on our current operations and planned strategic initiatives (including new
store and NXTGEN remodel growth plans and other capital expenditures), we expect
to satisfy our short-term and long-term cash requirements through a combination
of our existing cash and cash equivalents position, funds generated from
operating activities, and the borrowing capacity available under our credit
agreements. If cash generated from our operations and borrowings under our
credit agreements are not sufficient or available to meet our liquidity
requirements, then we will be required to obtain additional equity or debt
financing in the future. There can be no assurance equity or debt financing will
be available to us when we need it or, if available, the terms will be
satisfactory to us and not dilutive to our then-current stockholders.
Additionally, we may seek to take advantage of market opportunities to refinance
our existing debt instruments with new debt instruments at interest rates,
maturities and terms we deem attractive. We may also, from time to time, in our
sole discretion, purchase or retire all or a portion of our existing debt
instruments through privately negotiated or open market transactions.



From December 31, 2021we had cash and cash equivalents of $47.9 million and the loans available from $206.9 million.



Material Cash Commitments

Debt Obligations, Finance Leases and Interest Payments. As of December 31, 2021,
we had $84.1 million in loans and notes payable, $1.4 million current long-term
obligations and $1,351 million in long-term obligations outstanding,
respectively.

As indicated in Item 1A. Risks Related to Our Indebtedness, repayment of the
Company debt is dependent on our subsidiaries ability to make cash available.
for additional information regarding the company's debt. Refer to Part II, Item
8, "Financial Statements and Supplementary Data - Note 11, Loans and Notes
Payable and Note 12, Long-Term Obligations in this Annual Report on Form 10-K.
As noted, the Company must make payments related to interest payments, principal
and fees and the facilities contain debt covenants that the must be met.

Leases. As of December 31, 2021, we had an operating lease liability of $772.3
million. We have numerous non-cancelable operating leases for retail store
sites, as well as leases for offices, distribution facilities and manufacturing
facilities. These leases generally contain renewal options and require us to pay
real estate taxes, utilities and related insurance costs. Additionally, we had
approximately $110 million of future payment obligations related to an executed
lease agreement for which the related lease has not commenced as of December 31,
2021. See

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see Note 20 – Leases, in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for more information regarding the Company’s operating leases as well as lease payment due dates.

Capital expenditure. Cash commitments are described in the following section on cash flow data.

8.75% Senior Secured Bonds – Due 2026 (“8.75% Senior Secured Bonds”)

In accordance with the 8.75% Senior Notes, as disclosed in the notes previously
referenced, the Company is required to provide quarterly and annual disclosure
of certain financial metrics for Anagram Holdings, LLC and its subsidiary
("Anagram"). For the quarters ended December 31, 2021 and 2020, Anagram
reported:

Income from $53.2 million and $50.6 millionincluding net sales to Party City affiliates of approximately $18.0 million and $23.6 million

Operating result of $8.5 million and $10.9 million

Adjusted EBITDA of $10.1 million and $13.0 million

AT December 31, 2021total assets of $201.9 million and no affiliated accounts receivable

AT December 31, 2020total assets of $176.2 millionincluding debtors of affiliates of $3.7 million

For the years ended December 31, 2021 and 2020, Anagram reported:

Income from $224.3 million and $157.1 millionincluding net sales to Party City affiliates of approximately $82.1 million and $68.5 million

Operating result of $46.4 million and $12.1 million

Adjusted EBITDA of $52.3 million and $33.1 million

AT December 31, 2021total assets of $201.9 million and no affiliated accounts receivable

AT December 31, 2020total assets of $176.2 millionincluding debtors of affiliates of $3.7 million

Cash Flow Data – Year Ended December 31, 2021compared to the year ended December 31, 2020

Net cash provided by operating activities totaled $51.9 million during 2021,
versus net cash provided by operating activities totaled $77.2 million during
2020. The year over year operating cash decrease was predominantly driven by a
change in inventory and a repayment of lease costs deferred from 2020, partially
offset by higher levels of operating income. Although the Company reduced
inventory by disposal reserves taken at the end of 2021, that reduction was more
than offset by higher in-transit inventory and inflationary pressure included in
the inventory value. The resulting impact on accounts payable as result of
higher in-transit inventory led to an increase in accounts payable.

Net cash used in investing activities totaled $65.4 million during 2021, as
compared to $54.3 million used in 2020. Capital expenditures during 2021 and
2020 were $79.2 million and $51.1 million, respectively. Retail capital
expenditures totaled $56.6 million during 2021 and were related to store
remodeling, initiatives in technology and investments in our NXTGEN store
conversions. Wholesale capital expenditures during 2021 totaled $22.6 million
and primarily related to printing plates and dyes, as well as machinery and
equipment at the Company's manufacturing operations and main distribution
center. The increase in capital expenditures was offset by the net proceeds from
the sale of international operations.

Net cash used in financing activities was $89.1 million during 2021. Net cash
provided by financing activities was $93.7 million during 2020. The variance was
principally due to higher borrowings under the ABL Facility in 2020 and the
impact of the debt refinancing transactions as discussed in Note 12 - Long-Term
Obligations of Item 8, "Financial Statements and Supplementary Data" and
Company's "Risks Related to Our Indebtedness" in Item 1A of this Annual Report.

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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 consolidated
financial statements included herein.

We believe our application of accounting policies, and the estimates inherently
required, are reasonable. These estimates are constantly re-evaluated and
adjustments are made when facts and circumstances dictate. 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.

For further details, refer to Note 2 – Summary of Significant Accounting Policies in Section 8, “Financial Statements and Supplementary Data” of this Annual Report.

Revenue Recognition

Revenue Transactions - Retail

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. The Company has history with which to estimate
future retail sales returns and it uses the expected value method to estimate
such activity.

The transaction price for the majority of the Company's retail sales is based on
either: the item's stated price or the stated price adjusted for the impact of a
coupon which can only be applied to such transaction. To the extent that the
Company charges customers for freight costs on e-commerce sales, the Company
records such amounts in revenue. The Company excludes all sales taxes and
value-added taxes from revenue.

Revenue Transactions – Wholesale

For most of the Company’s wholesale sales, control passes when the Company ships the product. Wholesale returns are not meaningful as the Company generally only accepts the return of goods that were shipped to the customer in error or damaged upon receipt by the customer. The Company has a history enabling it to estimate future returns on sales.

In most cases, the determination of the transaction price is fixed based on the
contract and/or purchase order. To the extent that the Company charges customers
for freight costs, the Company records such amounts in revenue. The Company
excludes all sales taxes and value-added taxes from revenue. For the majority of
these sales payment is due within 30 to 120 days from the transfer of control of
the product and substantially all of the sales are collected within a year from
such transfer.

Judgments

Although most of the Company's revenue transactions consist of fixed transaction
prices and the transfer of control at either the point of sale (for retail) or
when the product is shipped (for wholesale), certain transactions involve a
limited number of judgments. For transactions for which control transfers to the
customer when the freight carrier delivers the product to the customer, the
Company estimates the date of such receipt based on historical shipping times.
Additionally, the Company utilizes historical data to estimate sales returns.
Due to its extensive operating history, the Company has sufficient history with
which to estimate such amounts.

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Inventories

Inventories are valued at the lower of cost and net realizable value. In evaluating the final realization of inventory, we are required to make judgments regarding, among other things, future demand and market conditions, current inventory levels and the impact of possible design discontinuation. some products. We primarily determine the cost of inventory using the weighted average method.

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

Long-lived and intangible assets (including Good will)

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 is reviewed for potential impairment on an annual basis or more
frequently if circumstances indicate a possible impairment. The Company
performed its annual impairment test on its wholesale and retail reporting
units, respectively. In the analysis performed for the wholesale reporting unit,
there was approximately 25% excess fair value over carrying value. Should actual
results differ from certain key assumptions used in impairment tests, 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 an impairment charge
for goodwill.

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For purposes of testing goodwill 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 an operating 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.

Income taxes

Temporary differences arising from differing treatment of income and expense
items for tax and financial reporting purposes result in deferred tax assets and
liabilities that are recorded on the balance sheet. These balances, as well as
income tax expense, are determined through management's estimations,
interpretation of tax law for multiple jurisdictions and tax planning. However,
inherent in the measurement of deferred balances are certain judgments and
interpretations of enacted tax laws and published guidance with respect to
applicability to our operations. If our actual results differ from estimated
results due to changes in tax laws or tax planning, our effective tax rate and
tax balances could be affected. As such, these estimates may require adjustment
in the future as additional facts become known or as circumstances change. A
valuation allowance is established against deferred tax assets when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.

During the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. Accounting
Standards Codification Topic 740 prescribes a comprehensive model of how a
company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take
on a tax return. In accordance with these requirements, we recognize a tax
benefit when a tax position is more-likely-than-not to be sustained upon
examination, based solely on its technical merits. We measure the recognized tax
benefit as the largest amount of tax benefit that has greater than a 50%
likelihood of being realized upon the ultimate settlement with a taxing
authority. We reverse previously recognized tax benefits if we determine that
the tax position no longer meets the more-likely-than-not threshold of being
sustained. We accrue interest and penalties related to unrecognized tax benefits
in income tax expense.

Recently issued accounting pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies in Section 8, “Financial Statements and Supplementary Data” of this Annual Report.

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Joseph K. Bennett