Quarterly Report for Quarter Ending March 31, 2023 (Form 10-Q)

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Note 1 - Description of Business

Party City Holdco Inc. (the "Company", "PCHI", "we", or "our") is a leading party goods company by revenue in North America. With hundreds of retail stores filled with thousands of products across North America and e-commerce websites, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and costumes for their celebration aided by the support of our party experts both in-store and online. Our retail operations as of August 31, 2024 includes 748specialtyretail party supply stores (including franchise stores) throughout North America and e-commerce websites which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name partycity.com.

In addition to our retail operations, we are also a global designer, and distributor of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, and e-commerce merchandisers.

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

Chapter 11 Cases

On January 17, 2023 (the "PCHI Petition Date"), the Company and certain of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court") seeking relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The Company's foreign subsidiaries, and Anagram Holdings, LLC and its subsidiaries ("Anagram") were not included in the Chapter 11 Cases and continued to operate in the ordinary course of business throughout the duration of the Chapter 11 Cases. On January 18, 2023, the Bankruptcy Court granted the Debtors' motion to jointly administer the Chapter 11 Cases for procedural purposes only under the caption In re: Party City Holdco Inc., et. al. (Case No. 23-90005). To ensure its ability to continue operating in the ordinary course of business, the Debtors also filed with the Bankruptcy Court a variety of motions seeking "first-day" relief, which were approved by the Bankruptcy Court and permitted the Debtors to operate in the ordinary course during the Chapter 11 Cases and included the interim approval of a debtor-in-possession term loan facility (the "DIP Facility") as described herein. The Debtors continued to operate their business and manage their properties as "debtors-in-possession" in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court throughout the duration of the Chapter 11 Cases.

On the PCHI Petition Date, the Debtors entered into a Restructuring Support Agreement (along with subsequent amendments made throughout the Chapter 11 Cases, the "RSA") with certain holders (collectively, the "Initial Consenting Noteholders") of the Secured Floating Rate 2025 Notes (as defined herein) and the Secured Fixed Rate 2026 Notes (as defined herein). Capitalized terms used in this footnote but not otherwise defined herein shall have the meaning given to such terms in the RSA. The RSA contemplates a restructuring (the "Restructuring") of the Debtors pursuant to a joint plan of reorganization (the "Plan," as further described herein). Among other things, the RSA provided for:

On January 18, 2023, the Bankruptcy Court approved the Debtors' proposed $150million senior secured super priority priming DIP Facility on an interim basis. On January 19, 2023, certain of the Debtors entered into the credit agreement governing the DIP Facility along with certain financial institutions party thereto as lenders and Ankura Trust Company, LLC (the "DIP Credit Agreement"), as the administrative agent and collateral agent, and the closing of the DIP Facility occurred on the same day.

An initial draw of $75million under the DIP Facility was made on January 19, 2023, and the proceeds were used in accordance with the DIP Facility budget to, among other things, (i) pay the administrative costs and expenses of the Chapter 11 Cases and the DIP Facility and (ii) fund general corporate purposes. A second draw of $75million was made following the Bankruptcy Court's entry of the order approving the DIP Facility on a final basis on March 3, 2023. The second draw of borrowings for $75million were used for the same purposes as the first draw.

The DIP Facility was secured by perfected senior security interests and liens having the priorities set forth in the DIP Credit Agreement on substantially all assets of the Debtors.

The DIP Facility terminated on October 12, 2023 as part of our emergence from the Chapter 11 Cases, as discussed in more detail below.

The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's following debt obligations: i) its asset-based revolving credit facility (the "Prepetition ABL Facility"); ii) its asset-based first-in, last-out revolving tranche (the "FILO Facility"); iii) its senior secured first lien floating rate notes due 2025 (the "Secured Floating Rate 2025 Notes"); iv) its 8.750% senior secured first lien notes due 2026 (the "Secured Fixed Rate 2026 Notes"); v) its 6.125% senior notes due 2023; and vi) its 6.625% senior notes due 2026. Any efforts to enforce payment obligations on the Debtors' debt agreements were automatically stayed as a result of the filing of the Chapter 11 Cases and the holders' rights of enforcement in respect of the Debtors' debt agreements were subject to the applicable provisions of the Bankruptcy Code.

On April 4, 2023, the Company filed the initial version of its Plan and a related proposed form of Disclosure Statement (the "Disclosure Statement") with the Bankruptcy Court. The Plan was since amended four times, with the last amendment of the Plan filed on August 31, 2023. The Plan intended to implement the previously disclosed Restructuring contemplated by the RSA. The Plan and the related Disclosure Statement describe, among other things, the Plan; the Restructuring contemplated by the RSA; the events leading to the Chapter 11 Cases; certain events that have occurred or are anticipated to occur during the Chapter 11 Cases, including the anticipated solicitation of votes to approve the Plan from certain of the Debtors' creditors and certain other aspects of the Restructuring.

Subsequent Event - Emergence from Chapter 11 Cases

On September 6, 2023, the Bankruptcy Court entered an order confirming the Plan (the "Confirmation Order") confirming the restructuring of the Debtors pursuant to a joint plan of reorganization (the "Plan").

On October 12, 2023(the "Effective Date" or "Emergence Date"), the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. The emergence events discussed below occurred subsequent to the March 31, 2023 date of the Condensed Consolidated Balance Sheets presented in this report and are, therefore, not reflected in the financial statements presented in this report.

On the Effective Date, in connection with the effectiveness of, and pursuant to the terms of, the Plan and the Confirmation Order, the Company's common stock outstanding immediately before the Effective Date was canceled and is of no further force or effect, and the new organizational documents of the Company became effective, authorizing the issuance of shares of common stock representing 100% of the equity interests in the Company (the "New PCHI Shares"). In accordance with the foregoing, on the Effective Date, the Company, as reorganized on the Effective Date in accordance with the Plan, issued 13,374,519New PCHI Shares and the 12.00% Senior Secured Second Lien PIK Toggle Notes (the "Second Lien Notes" and together with the New PCHI Shares, the "New Securities"). The New Securities issued pursuant to the Plan, including the New Securities issued upon the exercise of the Subscription Rights (as defined in the backstop commitment agreement (as amended, supplemented, or modified from time to time, together with all exhibits and schedules thereto, the "Backstop Agreement") with the commitment parties thereto (collectively, the "Commitment Parties")) in connection with the rights offering (the "Rights Offering"), consisting of a purchase price of $75million aggregate principal amount (a portion of the $232.4million aggregate principal amount of the Company's Second Lien Notes) and 3,634,614New PCHI Shares), all New Securities issued to the Commitment Parties in respect of their commitments under the Backstop Agreement and in connection with the Rights Offering was issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") provided by section 1145 of the Bankruptcy Code and, to the extent such exemption was unavailable, was issued in reliance on the exemption provided by section 4(a)(2) under the Securities Act or another applicable exemption.

Equity Interests

On the Effective Date, all interests in the Company that existed immediately prior to the Effective Date were cancelled, and the Company issued or caused to be issued the New PCHI Shares in accordance with the terms of the Plan. Pursuant to the Plan, each holder of an Allowed Secured Notes Claim (as defined in the Plan) received, among other things, its pro rata share of 100% of the New PCHI Shares, subject to dilution by the New PCHI Shares issued as DIP Reorganized Securities (as defined in the Plan), the New PCHI Shares issued in connection with the Rights Offering (including in partial satisfaction of the Backstop Commitment Premium (as defined in the Plan)), and the MIP Equity Pool (as defined in the Plan). 100% of the New PCHI Shares is less than 1% of all shares issued at emergence post-dilution. See "Unregistered Sales of Equity Securities" section later in this footnote.

Claims Treatment Under the Plan

In accordance with the Plan, holders of claims against and interests in the Debtors received (or shall receive, as soon as reasonably practicable following the date such holder's claim or interest becomes an Allowed Claim or Interest (each as defined in the Plan)) the following treatment (capitalized terms used but not defined in this section have the meanings ascribed to them in the Plan):

Debt Securities and Agreements

Except for the purpose of evidencing a right to a distribution under the Plan or as otherwise provided in the Plan, on the Effective Date, the obligations of the Debtors under the Prepetition ABL Facility, the Secured Notes Indentures (as defined in the Plan), the Unsecured Notes Indentures (as defined the Plan), stock certificates, book entries, and any other certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors giving rise to any claim or interest (except such certificates, notes or other instruments or documents evidencing indebtedness or obligations of, or interests in, the Debtors that are specifically reinstated pursuant to the Plan) were cancelled, and the duties and obligations of all parties thereto were deemed satisfied in full, canceled, released, discharged, and of no force or effect.

New ABL Credit Agreement

On the Effective Date, pursuant to the terms of the Plan, the Company and certain of its subsidiaries entered into an ABL credit agreement (the "New ABL Credit Agreement"), by and among the Company, as a parent guarantor, Party City Holdings Inc., a Delaware corporation, as the parent borrower (the "Parent Borrower"), Party City Corporation, a Delaware corporation, and each other subsidiary of the Borrowers party thereto as a subsidiary borrower from time to time (collectively with the Parent Borrower, the "Borrowers"), PC Intermediate Holdings, Inc. a Delaware corporation, as a parent guarantor ("Holdings"), the other subsidiaries of the Borrowers party thereto from time to time as subsidiary guarantors, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (in such capacities, the "New ABL Agent"). The New ABL Credit Agreement provides for a $545million senior secured asset-based revolving loan facility (with a $60million sublimit for the issuance of letters of credit thereunder) (the "New ABL Revolving Facility" and the loans outstanding thereunder, the "New ABL Revolving Loans") and a $17.1million senior secured asset-based first-in last-out loan facility (the "New FILO Facility" and the loans outstanding thereunder, the "New FILO Loans"; the New FILO Facility together with the New ABL Revolving Facility, the "New ABL Facility"). The New ABL Facility is scheduled to mature on October 12, 2028.

All obligations of the Borrowers under the New ABL Credit Agreement, certain banking services obligations, and certain hedging obligations are unconditionally guaranteed, on a joint and several basis, by the Borrowers, Holdings, the Company, and the material domestic direct and indirect restricted subsidiaries of the Company, subject to certain exceptions and limitations described in the New ABL Credit Agreement (each a "New Loan Party" and collectively, the "New Loan Parties"). All such obligations, including the guarantees of the New ABL Facility, are secured by (i) first priority liens on substantially all assets of the New Loan Parties, and (ii) the equity interests in the New Loan Parties other than the Company, in each case, subject to certain exceptions and limitations described in the New ABL Credit Agreement.

The New ABL Revolving Loans and the New FILO Loans bear interest at a rate per annum equal to the applicable margin plus, at the Borrowers' option, either: (i) an adjusted term SOFR rate, subject to a floor of 0.00% or (ii) a base rate, subject to a floor of 0.00%, determined as the greatest of (x) the prime loan rate as published in The Wall Street Journal, (y) the federal funds effective rate plus 0.50%, and (z) adjusted term SOFR rate for a one-month tenor plus 1.00%. The margin applicable to the loans bearing interest based on the adjusted term SOFR rate equals to: (i) with respect to the New ABL Revolving Loans, 4.00% and (ii) with respect to the New FILO Loans, 6.00%. The margin applicable to the loans bearing interest based on the base rate equals to: (i) with respect to the New ABL Revolving Loans, 3.00% and (ii) with respect to the New FILO Loans, 5.00%. The Borrowers are required to pay interest on overdue principal or interest at the rate equal to 2.00% per annum in excess of the applicable interest rate under the New ABL Facility to the extent lawful.

Outstanding loans under the New ABL Credit Agreement are subject to an intercreditor agreement by and among the New ABL Agent, as the First Priority Representative for the First Priority Secured Parties and Wilmington Savings Fund Society, FSB, as the Second Priority Representative for the Second Priority Secured Parties (in each case, as defined therein) (the "Intercreditor Agreement"). The Intercreditor Agreement provides, among other things, that the liens securing the obligations under the Second Lien Notes rank junior in priority to the liens securing the obligations under the New ABL Credit Agreement.

The Borrowers are required to pay a quarterly commitment fee to each ABL Revolving Lender (as defined in the New ABL Credit Agreement), which accrues at a rate per annum equal to 0.50% on the average daily unused portion of such ABL Revolving Lender's commitments under the New ABL Revolving Facility. The Borrowers are also required to pay participation fees and fronting fees with respect to letters of credit participation and issuance.

Borrowings under the New ABL Credit Agreement may be used to (i) refinance indebtedness under the prepetition asset-based revolving credit facility and (ii) finance the working capital needs and other general corporate purposes of the Parent Borrower and its subsidiaries. Availability of borrowings of New ABL Revolving Loans under the New ABL Credit Agreement is subject to the satisfaction of certain conditions, including, after giving effect to any such borrowings, aggregate credit exposure of lenders under the New ABL Credit Agreement not exceeding the lesser of the aggregate unblocked commitments and the borrowing base at such time. Borrowings of the New FILO Loans are only available on the Effective Date and if repaid or prepaid may not be reborrowed.

Under the New ABL Credit Agreement, the borrowing base at any time equals (a) a percentage of eligible inventory, plus (b) a percentage of eligible trade receivables, plus (c) a percentage of eligible credit card receivables, less (d) certain reserves.

Mandatory prepayment of loans under the New ABL Credit Agreement is required if the aggregate credit exposure of lenders under the New ABL Credit Agreement exceeds the borrowing base at such time. Such a mandatory prepayment would be applied to eliminate the availability shortfall as follows: first, to prepay the New ABL Revolving Loans or cash collateralize, backstop or replace letters of credit under the New ABL Facility; and second, to prepay the New FILO Loans. The loans under the New ABL Facility may be voluntarily prepaid without premium or penalty, other than customary breakage costs. Voluntary prepayments of loans under the New ABL Credit Agreement are applied to satisfy New FILO Loan obligations only after other outstanding loan obligations and letter of credit reimbursement obligations under the New ABL Credit Agreement are satisfied. Voluntary prepayments of New FILO Loans are additionally subject to the satisfaction of the Payment Conditions discussed below.

The New ABL Credit Agreement requires the Borrowers to maintain, at all times, Excess Unadjusted Availability (as defined in the New ABL Credit Agreement) of at least the greater of (i) 10.0% of the Total Line Cap (as defined in the New ABL Credit Agreement) and (ii) $46million.

The New ABL Credit Agreement contains negative covenants that limit, among other things, the Borrowers' ability and the ability of their restricted subsidiaries to: (i) incur, assume, or guarantee additional indebtedness; (ii) create, incur, or assume liens; (iii) make investments; (iv) merge or consolidate with or into any other person or undergo certain other fundamental changes; (v) transfer or sell assets; (vi) pay dividends or distributions on capital stock or redeem or repurchase capital stock; (vii) enter into transactions with certain affiliates; (viii) repay or redeem certain indebtedness; (ix) sell stock of its subsidiaries; or (x) enter into certain burdensome agreements. These negative covenants are subject to a number of important limitations and exceptions. The Borrowers and their restricted subsidiaries can make certain acquisitions, restrictive payments, payments of certain indebtedness and investments if, after giving pro forma effect to such transactions, the "Payment Conditions" (as defined in the New ABL Credit Agreement) are met, which include, among other things: (i) 90-Day Excess Availability and Excess Availability (each as defined in the New ABL Credit Agreement) are equal to or greater than the greater of (x) 25.0% of the Total Line Cap and (y) $120million and (ii) the Fixed Charge Coverage Ratio (as defined in the New ABL Credit Agreement) is at least 1.00to 1.00.

Additionally, the New ABL Credit Agreement contains other covenants, representations and warranties, and events of default that are customary for a financing of this type. Events of default include, among other things, nonpayment of principal or interest, breach of covenants, breach of representations and warranties, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a collateral document to create an effective security interest in collateral, bankruptcy and insolvency events, cross-default to other material indebtedness, and a change of control. The occurrence of any event of default under the ABL Credit Agreement would permit all obligations under the New ABL Facility to be declared due and payable immediately and all commitments thereunder to be terminated.

Management believes that the Company will be able to continue its operations and meet its obligations over the next twelve months based on cash and cash equivalents, future cash flows expected to be generated from operations and borrowing capacity under the New ABL Credit Agreement. As part of this assessment management has considered current macroeconomic conditions and their potential impact on the Company's operations and will continue to maintain compliance with all covenants.

Second Lien Notes

On the Effective Date, PCHI issued $232.4million in aggregate principal amount of Second Lien Notes. The Second Lien Notes are scheduled to mature on January 11, 2029. Interest on the Second Lien Notes accrues at a rate of 12.00% per annum, payable, at the Company's option, either in cash or by increasing the amount of the Second Lien Notes outstanding, on February 15, May 15, August 15, and November 15 of each year, commencing February 15, 2024.

The Second Lien Notes were issued pursuant to an indenture (the "Second Lien Notes Indenture"), by and among the Company, the guarantors party thereto, and Wilmington Savings Fund Society, FSB, as trustee, collateral agent, paying agent, and registrar.

The Second Lien Notes are jointly and severally irrevocably and unconditionally guaranteed on a senior secured basis by certain subsidiaries of the Company, including all "New Loan Parties" (other than the Company) under the New ABL Credit Agreement. The Second Lien Notes and such guarantees are secured by second priority liens on the assets subject to liens securing the New ABL Facility, including the equity interests of each guarantor of the Second Lien Notes, all assets owned by the Company as of the Effective Date or acquired thereafter, certain assets related thereto, and substantially all other assets of the Company and such guarantors, in each case, subject to certain exceptions and limitations. The outstanding Second Lien Notes are subject to the Intercreditor Agreement. The following is a brief description of the material provisions of the Second Lien Notes Indenture and the Second Lien Notes.

On or after April 11, 2025, the Company may redeem all of the Second Lien Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may also redeem the Second Lien Notes, in whole or in part, at any time and from time to time prior to April 11, 2025 at a redemption price equal to 100% of the principal amount, plus the Applicable Premium (as defined in the Second Lien Notes Indenture), plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, if a Change of Control (as defined in the Second Lien Notes Indenture) occurs, then, within 60 days of such Change of Control, the Company must offer to purchase all outstanding Second Lien Notes at a redemption price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of purchase.

The Second Lien Notes Indenture contains covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to: (i) incur, assume, or guarantee additional indebtedness; (ii) pay dividends or distributions on capital stock or redeem or repurchase capital stock; (iii) make investments; (iv) repay or redeem junior debt; (v) sell stock of its subsidiaries; (vi) transfer or sell assets; (vii) create, incur, or assume liens; or (viii) enter into transactions with certain affiliates. These covenants are subject to a number of important limitations and exceptions.

The Second Lien Notes Indenture also provides for certain customary events of default, including, among other things, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a security document to create an effective security interest in collateral, bankruptcy and insolvency events, and cross acceleration, which would permit the principal, premium, if any, interest, and other monetary obligations on all the then outstanding Second Lien Notes to be declared due and payable immediately.

Registration Rights Agreement

Onthe Effective Date, the Company entered into a registration rights agreement (the "Registration Rights Agreement") with certain parties who received New PCHI Shares under the Plan ("RRA Shareholders"). Pursuant to the Registration Rights Agreement, following the completion of an initial public offering (as defined in the Registration Rights Agreement, an "IPO"), the Company will file a shelf registration statement promptly, no later than a date that is 30 days following the later of the IPO and the date of the expiration of the lockup agreement with the underwriters in such IPO. However, the Company is not required to file the shelf registration statement unless RRA Shareholders request the inclusion of Registrable Securities (as defined in the Registration Rights Agreement) constituting at least 25% of all Registrable Securities.

The RRA Shareholders also have demand registration rights, provided that such RRA Shareholders request the inclusion of Registrable Securities constituting at least 25% of all Registrable Securities or the gross proceeds of the offering are expected to be at least $50million, and customary piggyback registration rights.

The Company will generally pay all registration expenses in connection with its obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective. The registration rights granted in the Registration Rights Agreement are subject to customary indemnification and contribution provisions, as well as customary restrictions such as blackout periods.

Stockholders' Agreement

On the Effective Date, the Company entered into a stockholders agreement (the "Stockholders Agreement") with holders of common stock of the Company (the "Stockholders"), pursuant to which each of the Stockholders agreed to certain restrictions on the transfer of the common stock of the Company and the Company agreed (i) to provide to certain Stockholders the right to designate directors of the board, subject to certain limitations, (ii) to certain limitations and obligations on its operations without Stockholder approval and (iii) to provide certain information to the Stockholders. Pursuant to the Plan, each holder of common stock of the Company on the Effective Date was deemed to be a party to, and bound by, the Stockholders Agreement, regardless of whether such holder executed a signature page thereto.

Unregistered Sales of Equity Securities

On the Effective Date, pursuant to the Plan:

Subsequent Event - Anagram Bankruptcy, Deconsolidation, and Sale

On November 8, 2023 (the "Anagram Petition Date"), Anagram filed voluntary petitions (the "Anagram Chapter 11 Cases") in the Bankruptcy Court seeking relief under the Bankruptcy Code. The Company and certain of its domestic subsidiaries were not included in the Anagram Chapter 11 Cases and continued to operate in the ordinary course of business throughout the duration of the Anagram Chapter 11 Cases. On November 8, 2023, the Bankruptcy Court granted Anagram motion to jointly administer the Anagram Chapter 11 Cases for procedural purposes only under the caption In re: Anagram Holdings, LLC, et. al. (Case No. 23-90901). To ensure its ability to continue operating in the ordinary course of business, Anagram also filed with the Bankruptcy Court a variety of motions seeking "first-day" relief, which were approved by the Bankruptcy Court and permitted Anagram to operate in the ordinary course during the Anagram Chapter 11 Cases and included the interim approval of a debtor-in-possession ABL facility (the "Anagram DIP ABL Facility") and a debtor-in-possession note purchase agreement and notes indenture (the facility issued thereunder, the "Anagram DIP Notes Facility"). Anagram continued to operate their business and manage their properties as "debtors-in-possession" in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court throughout the duration of the Anagram Chapter 11 Cases.

Anagram subsequently received court approval for the Anagram DIP Term Facility ($22million commitment) and the Anagram DIP ABL Facility ($15million commitment), with the commitments coming from the group of its existing secured lenders.

On November 8, 2023, Anagram filed certain documents with the Bankruptcy Court disclosing that an agreement was reached with a group of their lenders as the "Stalking Horse" bidder to acquire substantially all of Anagram's assets through a credit bid with a value of at least $175million in a Section 363 transaction under the Bankruptcy Code, subject to higher or otherwise better offers and court approval. As part of this agreement, the "Stalking Horse" bidder committed to hire all Anagram employees and assume all pre and post-petition trade payables. No other bids were received other than the Stalking Horse bid prior to the bid deadline of December 15, 2023. The sale hearing was held on December 22, 2023, during which the Bankruptcy Court approved the sale to the Stalking Horse bidder. The sale closed on December 29, 2023.

The Anagram Chapter 11 Cases was a reconsideration event for PCHI to reevaluate whether consolidation of Anagram continued to be appropriate. We concluded that the power to make material decisions for Anagram had been transferred to the Bankruptcy Court, and, therefore, PCHI no longer controlled Anagram as of the Anagram Petition Date (November 8, 2023). Accordingly, we concluded that PCHI deconsolidated Anagram effective on the Anagram Petition Date. As such, amounts presented in the Company's financial statements and notes thereto following the Anagram Petition Date exclude the operating results, cash flows, assets, liabilities, and equity of Anagram subsequent to November 8, 2023.

Delisting of Our Common Stock from the NYSE

On January 18, 2023 and as a result of the Chapter 11 Cases, the New York Stock Exchange (the "NYSE" or the "Exchange") commenced proceedings to delist the Company's common stock from the NYSE. Under NYSE delisting procedures, the Company had the right to appeal this determination but did not exercise its right to do so. On February 3, 2023, the NYSE notified the SEC of its intention to remove the Company's common stock from listing and registration on the Exchange on February 14, 2023, pursuant to the provisions of Rule 12d2-2(b) because, in the opinion of the Exchange, the Company's common stock is no longer suitable for continued listing and trading on the Exchange. Accordingly, as of February 14, 2023, the Company's common stock is no longer listed on the NYSE. The NYSE delisting of its common stock did not adversely affect the Company's business operations or the restructuring under the Chapter 11 Cases, and the delisting of the Company's common shares does not change the Company's reporting requirements under SEC rules and regulations. The Company's common stock traded on the OTC Pink Open Market on February 14, 2023 under the symbol "PRTYQ" and ceased trading on the Effective Date of the Plan.

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 ("GAAP") 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, 2022. 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 interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for any future interim or annual period.

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 their fiscal quarters ("Fiscal Quarter") as the four interim 13-week periods following the end of the previous Fiscal Year, except in the case of a 53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The consolidated financial statements of the Company combine the Fiscal Year and Fiscal Quarters of the Company's retail operations with the calendar year and calendar quarters of the Company's wholesale operations, as the differences are not significant.

Note 3 - Store and Other Long-Lived Asset Impairments

During the three months ended March 31, 2023, the Company recorded an impairment charge of $30.9million, of which $9.1million was mainly attributable to vacated leased stores and a decrease in expected future store cash flow projections and $21.8million was attributable to the early termination of the lease for our online sales distribution center in Naperville, Illinois.

During the three months ended March 31, 2022, the Company recorded an impairment charge of $2.2million related to the closure of a manufacturing facility in New Mexico.

Note 4 - Inventories, net

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

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

In the ordinary course of business, the Company is involved in transactions with certain of its equity-method investees, primarily for the purchase of finished goods inventory. For the three months ended March 31, 2023, the Company purchased$1.5 million from equity-method investees. As of March 31, 2023, approximately$11.9million of purchases are reflected in finished goods inventory with accounts payable of $4.9million related to such transactions.

Note 5 - Goodwill

In the third quarter of 2022, impairment indicators were identified that suggested the carrying values of the wholesale and retail reporting units could exceed their fair values. Such impairment indicators included the recent performance of the reporting units, revised projections of future cash flows that were lower than previous projections, and a continuing decline in the Company's market capitalization. To test for potential impairment of goodwill related to our wholesale and retail reporting units, we prepared an estimate of the fair value of these reporting units based on a combination of a market-based valuation method (utilizing earnings multiples of similarly situated guideline public companies) and an income approach that uses projected discounted cash flows.

Based on these valuations of the wholesale and retail reporting units, the Company recognized a non-cash pre-tax goodwill impairment charge of $288.4million in the wholesale reporting unit in the third quarter of 2022, which is included with Goodwill and intangible asset impairments in the Consolidated Statements of Operations and Comprehensive Loss.

In the fourth quarter of 2022, additional impairment indicators were identified that suggested the carrying values of the wholesale and retail reporting units could exceed their fair values, as the Company reduced its sales projections for 2023, continued to experience a decline in its market capitalization, and, most notably, began to contemplate filing for Chapter 11 bankruptcy for the Company and certain of its subsidiaries. Subsequent to December 31, 2022, the Company and certain of its subsidiaries filed for bankruptcy under Chapter 11 on January 17, 2023 (see Note 1 Description of Business,). In light of these circumstances, we tested the goodwill related to our wholesale and retail reporting units for impairment in the fourth quarter of 2022 using the same market-based and income-based approach utilized in the third quarter.

Based on these valuations of the wholesale and retail reporting units, the Company recognized a non-cash pre-tax goodwill impairment charge of $60.3million in the wholesale reporting unit and $219.9million in the retail reporting unit for a total goodwill impairment charge of $280.2million recognized in the fourth quarter of 2022.

For the year ended December 31, 2022, we recognized pre-tax goodwill impairment charges of $348.7million in the wholesale reporting unit and $219.9million in the retail reporting unit for a total goodwill impairment charge of $568.6million recognized in 2022.

Noimpairment indicators were identified during the three months ended March 31, 2023.

Subsequent Event - Emergence from Chapter 11 Valuation

In connection with the Company's emergence from bankruptcy on the Effective Date and in accordance with ASC 852, Reorganizations, the Company qualified for and adopted fresh-start accounting. The Company was required to adopt fresh-start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company, and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

ASC 852 prescribes that with the application of fresh-start accounting, the Company allocates its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations. The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. As a result of new basis accounting, the Predecessor Company retail segment goodwill of approximately $101.3million as of the first quarter of 2023 was fully adjusted to a fair value of zeroupon emergence from bankruptcy.

Note 6 - Intangible Assets

Finite-Lived Intangible Assets: The Company's finite-lived intangible assets primarily include franchise licenses that are amortized utilizing accelerated patterns based on the discounted cash flows that were used to value such assets, as well as customer relationships. As of March 31, 2023, December 31, 2022, and March 31, 2022, the net balance of our finite-lived intangible assets was $12.6million, $13.3million, and $22.3million, respectively, was recorded within Other intangible assets, net in our Condensed Consolidated Balance Sheets. For the three months ended March 31, 2023 and 2022, the amortization expense for finite-lived intangible assets was$0.9million and $1.5million, respectively. Estimated amortization expense for finite-lived intangible assets for each of the next five years will be approximately $2.8million, $2.4million, $2.1million, $1.8million, and $1.4million, respectively.

In consideration of the Company's contemplation of bankruptcy in the fourth quarter of 2022, it was concluded that certain customer relationship assets in the wholesale segment were impaired, and as a result, impairment charges on such assets of $4.9million were recordedand are included within Goodwill and intangible asset impairments on the Condensed Consolidated Statements of Operations and Comprehensive loss in the fourth quarter of 2022.

Indefinite-Lived Intangible Assets (Trade Names): In addition to the Company's finite-lived intangible assets, the Company has an indefinite-lived intangible asset for the Party City trade name. As of March 31, 2023 and December 31, 2022, the carrying value of the Company's Party City trade name was $94.7million. As of March 31, 2022, the carrying value of the Company's Party City and Amscan trade names was$383.8million.

In the fourth quarter of 2022, impairment indicators were identified that suggested the carrying values of the Company's trade names could exceed their fair values, as management began to contemplate filing for Chapter 11 bankruptcy for the Company and certain of its subsidiaries. The Company and certain of its subsidiaries filed for bankruptcy under Chapter 11 on January 17, 2023. In light of these circumstances, the Company tested its indefinite-lived trade names for impairment as of December 31, 2022. To test for potential impairment of our trade names, we prepared an estimate of the trade names' fair value using a discounted cash flow analysis based on the "relief from royalty" method, assuming that a third-party would be willing to pay a royalty in lieu of ownership for this intangible asset. This approach is dependent on many factors, including estimates of royalty rates and discount rates.

Based on this valuation, the Company recognized non-cash pre-tax trade name impairment charges of $288.9million in the fourth quarter of 2022, which included a $262.0million impairment charge against the Party City trade name, and a full impairment of the Amscan trade name and a trade name related to an ancillary business ($26.0million and $0.9million, respectively).

Noimpairment indicators were identified during the three months ended March 31, 2023.

Subsequent Event - Emergence from Chapter 11 Valuation

In connection with the Company's emergence from bankruptcy on the Effective Date and in accordance with ASC 852, Reorganizations, the Company qualified for and adopted fresh-start accounting. The Company was required to adopt fresh-start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company, and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

ASC 852 prescribes that with the application of fresh-start accounting, the Company allocates its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations. The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. As a result, $94.7million of trade names was fully adjusted to a fair value of zero.

Note 7 - Income Taxes

The Company is required at the end of each interim reporting period to make its best estimate of the annual effective income tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. In addition, the Company is required to project the deferred income tax effects of expected year-end temporary differences, and include in its effective income tax rate, the tax effect of a valuation allowance expected to be necessary at the end of the year for deferred tax assets related to deductible temporary differences and carryforwards originating during the year.

The effective income tax rate for the three months ended March 31, 2023and 2022 was (0.1%) and 37.8%, respectively. The difference in the current year effective tax rate from the statutory rate of 21.0% is primarily due to the tax impact of non-deductible costs related to the bankruptcy filing and to the recording of a valuation allowance to reduce the total deferred tax assets to an amount that will, more-likely-than-not, be realized in the future.

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Note 8 - Changes in Accumulated Other Comprehensive Income

Note 9 - Segment Information

Industry Segments

The Company has tworeportable operating segments: Wholesale and Retail. 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 North America, and it operates e-commerce websites, principally through the domain name partycity.com. The Company's reportable operating segment data for the threemonths ended March 31, 2023 and 2022 was as follows:

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Note 10 - Commitments and Contingencies

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

We establish an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We monitor those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, we do not establish an accrual, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimable. If it is at least a reasonable possibility that a material loss will occur, we will provide disclosure regarding the contingency.

Note 11 - 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:

The majority of the Company's non-financial instruments, which include goodwill, intangible 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.

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, 2023 because of the short-term maturities of the instruments and/or their variable rates of interest.

The fair values represent Level 2 fair value measurements as the debt instruments trade in inactive markets. The carrying amounts for other debt instruments approximated fair value at March 31, 2023 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.

Impairment of Long-Lived Assets

The fair value of the Company's long-lived assets is primarily calculated using a discounted cash-flow model directly associated with those assets, which consist principally of property and equipment and ROU assets. These assets are tested for impairment when events indicate that their carrying value may not be recoverable.

The Company performed periodic quantitative impairment assessments of its long-lived assets, inclusive of ROU assets and recorded impairment charges of $30.9million and $2.2million in the quarter ended March 31, 2023 and 2022, respectively. Impairment charges were primarily recorded in the retail segment. Refer to Note 3 for more information.

Note 12 - Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of outstanding common shares for the period. In reporting periods with net income, diluted earnings per share is 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.

During the three months ended March 31, 2023, 856,805stock options and 5,161,051performance restricted stock units were excluded from the calculation of net loss per share - diluted as they were anti-dilutive. During the three months ended March 31, 2022, 1,800,535stock options and 8,966,015restricted stock units were excluded from the calculation of net loss per share - diluted as they were anti-dilutive.

Note 13 - Current and Long-Term Obligations

On January 17, 2023, the Company and certain of its direct and indirect domestic subsidiaries, excluding the Anagram and the Company's foreign subsidiaries, filed for relief under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court. The filing triggered an event of default that accelerated the Company's following debt obligations: a) its 8.750% senior secured first lien notes due 2026(the "Fixed Rate Notes"); b) its 6.125% senior notes due 2023; c) its 6.625% senior notes due 2026, and d) its senior secured first lien floating rate notes due 2025(the "Secured Floating Rate 2025 Notes" and, together with the Fixed Rate Notes, the "Secured Notes"). See Note 1 Description of Business,for a further discussion of the Chapter 11 Cases.

On March 30, 2023, Anagram notified the agents and trustees under the documents governing its (a) asset-backed revolving credit facility (the "Anagram ABL Credit Agreement"), (b) 15.00% senior secured first lien notes due 2025 (the "First Lien Anagram Notes Indenture"), and (c) 10.00% senior secured second lien notes due 2026 (collectively with the First Lien Anagram Notes Indenture, the "Anagram Notes Indentures," and collectively with the Anagram ABL Credit Agreement, the "Anagram Financing Agreements") of certain defaults or potential defaults that existed or could exist (the "Specified Anagram Defaults") as a result of, among other things, Anagram International, Inc. making certain tax-related advances to the Company from February 2021 to January 2023 that exceeded the limitations in the Anagram Financing Agreements.

On April 4, 2023, Anagram and the agent under the Anagram ABL Credit Agreement entered into an agreement pursuant to which the required lenders under the Anagram ABL Credit Agreement and the agent waived the Specified Anagram Defaults retroactive to March 1, 2023, and the delivery of Anagram's 2022 annual audited financial statements without qualification as to "going concern" or scope, and further amended the Anagram ABL Credit Agreement and the related security agreement.

On April 21, 2023, Anagram obtained the Anagram Notes Waivers (as defined herein), with the Anagram Notes Waivers being subject to Anagram obtaining, by May 19, 2023, an agreement on a new contract with a supplier. Anagram did not enter into a new contract with the supplier prior to filing for bankruptcy on November 8, 2023. Concurrently, with the effectiveness of the Anagram Notes Waivers, Anagram entered into supplemental indentures pursuant to the Anagram Notes Indentures whereby, among other things, Anagram were required to make additional payments-in-kind to the holders of Anagram Notes in an amount equal to 0.5% of aggregate principal outstanding and thereby increasing the principal amount of the Anagram Notes. On May 9, 2023, payments in-kind of $0.6million and $0.5million were made on the 15.00% PIK/Cash Senior Secured First Lien Notes due 2025(the "First Lien Anagram Notes") and the 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026(the "Second Lien Anagram Notes"), respectively.

On August 15, 2023, the Anagram elected to not make the interest payment on the First Lien Anagram Notes. As of the date of the Anagram sale, the Anagram had not made this interest payment.

For information regarding the subsequent event related to Anagram's Chapter 11 Cases and the developments related to the Stalking Horse bid to acquire the Anagram, see "Note 1 - Description of Business- Subsequent Event - Anagram Bankruptcy, Deconsolidation, and Sale."

As a result of the timing of the Company's bankruptcy declaration, debt obligations excluding Anagram's debt obligations, are recorded in Liabilities Subject to Compromise in the Condensed Consolidated Balance Sheets as of March 31, 2023 (see Note 2 for further details) and current liabilities as of December 31, 2022. As a result of the Specified Anagram Defaults, all of Anagram's long-term debt has been classified as a current liability in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022.

Pre-emergence Debt

DIP Facility

On January 18, 2023, the Bankruptcy Court approved the Debtors proposed $150million senior secured superpriority priming debtor-in-possession term loan credit facility (the "DIP Facility") on an interim basis pursuant to the Interim Order for the DIP Facility (as defined herein). On January 19, 2023, certain of the Debtors entered into the credit agreement governing the DIP Facility along with certain financial institutions party thereto as lenders and Ankura Trust Company, LLC, as the administrative agent and collateral agent (the "DIP Credit Agreement"), and the closing of the DIP Facility occurred on the same day.

An initial draw of $75million under the DIP Facility was made on January 19, 2023, and the proceeds were used in accordance with the DIP Facility budget to, among other things, (i) pay the administrative costs and expenses of the Chapter 11 Cases and the DIP Facility and (ii) fund general corporate purposes. A second draw of $75million was made following the Bankruptcy Court's entry of the order approving the DIP Facility on a final basis on March 3, 2023. The second draw of borrowings for $75million were used for the same purposes as the first draw.

The DIP Facility was secured by perfected senior security interests and liens having the priorities set forth in the DIP Orders on substantially all assets of the Debtors, as further described in the DIP Orders.

The DIP Facility terminated on October 12, 2023 as part of our emergence from the Chapter 11 Cases, as discussed in Note 1 Description of Business.

Loans under the DIP Facility bore interest at an adjusted secured overnight financing rate with a one-month tenor rate plus 10.00% per annum or an adjusted base rate plus 9.00% per annum. In addition, the DIP Facility provided for the following premiums and fees, as further described in the DIP Credit Agreement: (i) an upfront commitment premium equal to 8.00% of the total commitments that is payable in cash or paid-in-kind, i.e., as additional loans, (ii) an undrawn commitment fee equal to 0.50% per annum that is payable in cash, and (iii) a backstop commitment premium payable, at the election of the backstopping lenders, in (a) equity (or equity-linked securities) or (b) cash in an amount equal to 10.00% of the outstanding term loans held by such as of the date the DIP Facility terminates.

On October 12, 2023, the outstanding borrowings of the DIP Facility of $138.8million were settled via the issuance of 9,339,564New PCHI Shares. Such New PCHI Shares were issued to holders of Allowed DIP Claims on account of such holders' DIP Loans (each as defined in the Plan).

Prepetition ABL Facility

The filing of the Chapter 11 Cases, as discussed in Note 1 Description of Business, constituted an event of default that accelerated the Company's obligations under its Prepetition ABL Facility. Any efforts to enforce payment obligations on the Prepetition ABL Facility were automatically stayed as a result of the filing of the Chapter 11 Cases and the holders' rights of enforcement in respect of the Debtors' debt agreements were subject to the applicable provisions of the Bankruptcy Code.

In connection with entering into and amending the Prepetition ABL Facility, the Company incurred and capitalized third-party costs. As a result of the Chapter 11 Cases, the Company wrote off the remaining $3.1million of unamortized financing costs in the period ended March 31, 2023 to Reorganization items, net.

Outstanding borrowings under the Prepetition ABL Facility totaled$383.4million and $361.7millionat March 31, 2023 and December 31, 2022, respectively. There were noborrowings as of March 31, 2022. As a result of the Chapter 11 Cases, the remaining capacity under the Prepetition ABL Facility was terminated on January 17, 2023, and the full borrowed balance was recorded to Liabilities Subject to Compromise on the Condensed Consolidated Balance Sheets. Outstanding standby letters of credit totaled $37.9million, $37.9million at March 31, 2023, December 31, 2022 and $24.9million at March 31, 2022, respectively. After considering borrowing base restrictions, as of December 31, 2022 and March 31, 2022, Holdings had available borrowing capacity under the terms of the facility $75.4million and $77.3million, respectively.

As of the Effective Date of the Plan, Prepetition ABL Facility borrowings of $383.4million were deemed repaid and refinanced in full by the New ABL Facility discussed below.

Anagram ABL Credit Agreement

As of March 31, 2023, outstanding borrowings under the Anagram ABL Credit Agreement totaled $9.0million and there was $5.1million of availability under this facility. As of December 31, 2022, outstanding borrowings under the Anagram ABL Credit Agreement totaled $3million and there was $11.4million of availability under this facility. There were noamountsoutstanding under the Anagram ABL Credit Agreement as of March 31, 2022.

For information regarding a subsequent event related to Anagram's Chapter 11 Cases and the developments related to the Stalking Horse bid to acquire the Anagram, see "Note 1 - Description of Business- Subsequent Event - Anagram Bankruptcy, Deconsolidation, and Sale."

Long-Term Obligations

As a result of the Chapter 11 Cases, the Company wrote off on the 8.75% Senior Secured Notes $13.3million of unamortized financing costs, original issue discount, and call premium in the first quarter of 2023 to Reorganization items, net. In addition, the Company wrote off on the 6.125% Senior Notes and 6.625% Senior Notes the remaining unamortized financing costs of $0.5 million to Reorganization items, net in the first quarter of 2023. Lastly, in the first quarter of 2023, we also recorded a credit adjustment of $27.2million to Reorganization items, net, to reduce the carrying amount of the First Lien Party City Notes to the notes' allowed claim amount.

As of the Effective Date of the Plan, $750million of Senior Secured First Lien Notes, $22.9million of 6.125% Senior Notes, $92.3million of 6.625% Senior Notes, and $161.7million of First Lien Party City Notes were cancelled, and the duties and obligations of all parties thereto were deemed satisfied in full, canceled, released, discharged, and of no force or effect. Each holder of an Allowed Secured Notes Claim received (i) its Pro Rata (as defined in the Plan) share of the New PCHI Shares issued on the Effective Date on account of the Allowed Secured Notes Claims, representing 100% of the New PCHI Shares outstanding on the Effective Date, subject to dilution by the New PCHI Shares issued as DIP Reorganized Securities (as defined in the Plan), the New PCHI Shares issued in connection with the Rights Offering (including in partial satisfaction of the Backstop Commitment Premium), and the MIP Equity Pool and (ii) subscription rights to purchase up to its Pro Rata (as defined in the Plan) share of the securities comprising the Investment Package (as defined in the Plan) for an aggregate purchase price of $75million offered in the Rights Offering in accordance with the Rights Offering Procedures (as defined in the Plan). Holders of the 6.125% Senior Notes and 6.625% Senior Notes will receive a pro rata share of the general unsecured claim pool as per the General Unsecured Claims protocols set forth in the Plan.

Subsequent Event - Post-emergence Debt and Other Obligations

New ABL Credit Agreement

For a description of the New ABL Credit Agreement, see "Note 1 - Description of Business - Subsequent Event - Emergence from Chapter 11 Cases - Debt Securities and Agreements - New ABL Credit Agreement."

Second Lien Notes

For a description of the Second Lien Notes, see "Note 1 - Description of Business - Subsequent Event - Emergence from Chapter 11 Cases - Debt Securities and Agreements - Second Lien Notes."

Note 14 - Revenue from Contracts with Customers

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. At March 31, 2023, December 31, 2022, and March 31, 2022, the allowance for credit losses was $8.7million, $9.2million, and $8.1million, respectively.

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Note 15 - Condensed Combined Debtor-in-Possession Only Financial Statements

The financial statements below represent the unaudited condensed combined financial statements of the Debtors only as of and for the three months ended March 31, 2023.

Intercompany transactions among the Debtors have been eliminated in the financial statements below. Intercompany transactions among the Debtors and non-Debtors have not been eliminated in the financial statements below, as such, these transactions appear in the financial statements in the same manner as transactions with independent third parties. The results of operations of the Debtors may not represent the actual results if operating on a stand-alone basis.

PARTY CITY HOLDCO INC.

CONDENSED COMBINED DEBTORS' BALANCE SHEET

(Unaudited)

(In thousands)

PARTY CITY HOLDCO INC.

CONDENSED COMBINED DEBTORS' STATEMENT OF OPERATIONS

(Unaudited)

(In thousands)

PARTY CITY HOLDCO INC.

CONDENSED COMBINED DEBTORS' STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

Note 16 - Subsequent Events

Emergence from Chapter 11 Cases

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. See Notes 1 and 13 for disclosure regarding the Company's emergence from the Chapter 11 Cases on October 12, 2023 and the bankruptcy, deconsolidation, and sale of Anagram.

Disposition of Assets

In the second quarter of 2024, management approved the closure of Kookaburra, a manufacturer and distributor of paper napkins and cups located in Newburgh, New York. We expect to close Kookaburra no later than the end of the fourth quarter of 2024. Kookaburra is part of our wholesale segment, and its revenues and profitability have not been material to the Company or wholesale segment in current or previous years.

In the first quarter of 2024, management approved the closure of Am-Source, Inc. ("Am-Source"), a manufacturer and distributor of plastic plates, cups, and bowls located in East Providence, Rhode Island. We expect to close Am-Source no later than the end of the fourth quarter of 2024, commensurate with the termination date of the lease of the East Providence facility. Am-Source is part of our wholesale segment, and its revenues and profitability have not been material to the Company or wholesale segment in current or previous years.

In conjunction with the planned shutdown of the Kookaburra and Am-Source manufacturing facilities the Company recorded $5.4million of equipment impairment charges in the first half of 2024.

On March 18, 2024, we sold the assets of Deco Paper Products, Inc. ("Deco"), a manufacturer and distributor of paper plates located in Louisville, Kentucky, for approximately $7million. Deco was part of our wholesale segment, and its revenues and profitability were not material to the Company or wholesale segment in current or previous years.

On January 22, 2024, we sold the assets of Print Appeal, Inc. ("Print Appeal"), which engages in the manufacturing and personalization of cups and napkins located in Dallas, Texas, for approximately $2.2million. Print Appeal was part of our wholesale segment, and its revenues and profitability were not material to the Company or wholesale segment in current or previous years.

On March 31, 2023, the Debtors filed a motion with the Bankruptcy Court seeking the authority to sell, pursuant to section 363 of the Bankruptcy Code, their equity interests in Granmark, S.A. de C.V. ("Granmark"), a Non-Debtor Affiliate that is a party goods manufacturer located in Mexico, for $5.4million. On April 11, 2023, the Bankruptcy Court authorized the Debtors to proceed with this sale. This sale was consummated on April 18, 2023. Granmark was part of our wholesale segment, and its revenues and profitability were not material to the Company or the wholesale segment in current or previous years. Upon sale, the Company recorded an approximately $14million loss within the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

In January 2021, we sold our international wholesale, retail, and e-commerce operations to a private equity firm in the UK; and in late 2022, that business was rebranded as the Wonder Group. As part of the agreement, the Company and the Wonder Group also formed a joint venture partnership (the JV) for our costume sourcing and development. In July 2024, the Wonder Group experienced financial difficulties and filed for bankruptcy. As a result, the JV will also be placed into liquidation. With this change, the Company has engaged a third-party provider which will assume the role of our previous JV, overseeing and managing our wearable business from development, costing & sampling through to order management & delivery. In conjunction with this change, the Company is in the process of assessing related impairment charges to the joint venture investment as well as reserves against open receivables from the joint venture.

New Chief Executive Officer

Additionally, in July 2024, the Company announced the hiring of Barry Litwin as the new Chief Executive Officer ("CEO") who started on August 12, 2024. Prior to joining the Company, Barry served as the CEO and Board Member of Global Industrial Company (NYSE: GIC), a $1.4B distribution leader in industrial products. He guided strategy and execution for all facets of the company, serving 500K customers across manufacturing, transportation, retail, and healthcare. Prior to GIC, Barry was the CEO of Adorama, where he orchestrated the turnaround of an iconic omnichannel retailer of professional cameras, photo-finishing services, and consumer electronics. During his tenure, he rebuilt the financial, marketing, merchandising, operational, and cultural practices and achieved double-digit growth in revenue, profit, and market share. He also spent time in senior executive roles in retail and distribution with Sears, Office Depot, Avnet, and Fannie May Candies.

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