Leases

12 Months Ended

Dec. 31, 2019

Note 26—Leases

In February 2016, the FASB issued ASU

2016-02,

“Leases”. The ASU requires that companies recognize assets and liabilities for the rights and obligations created by the companies’ leases. The update was effective for the Company during the first quarter of 2019.

The FASB has provided companies with a transition option under which they can opt to continue to apply the legacy guidance, including its disclosure requirements, in the comparative periods presented in the year during which they adopt the new lease standard. Entities that elect the option only make annual disclosures for the comparative periods as legacy guidance does not require interim disclosures. The Company has elected this transition option.

Practical Expedients/Policy Elections

Under the new standard, companies may elect the following practical expedients, which must be elected as a package and applied consistently to all leases:

1. An entity need not reassess whether any expired or existing contracts are or contain leases.

2. An entity need not reassess the lease classification for any expired or existing leases.

3. An entity need not reassess initial direct costs for any existing leases.

The Company elected this package of practical expedients.

Under the new standard, an entity may also elect a practical expedient to use hindsight in determining the lease term and in assessing impairment of the entity’s

right-of-use

assets. The Company did not elect this practical expedient.

Additionally

, under the new standard, lessees can make an accounting policy election (by class of underlying asset to which the right of use relates) to apply accounting similar to legacy accounting to leases that meet the new standard’s definition of a “short-term lease” (a lease that, at the commencement date, has a lease term of twelve months or less and does not include an option to purchase

the

underlying asset that the lessee is reasonably certain to exercise). The Company has made this election for all classes of underlying assets.

Further, the new standard provides a practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated

non-lease

components as a single lease component. The Company has elected this expedient for all asset classes, with the exception of its real estate.

Lease Population

The Company’s lease portfolio is primarily comprised of real estate leases for its permanent Party City stores. The Company also leases manufacturing facilities, distribution facilities, warehouse space and office space. Additionally, the Company enters into short leases (generally less than four months) in order to operate its temporary stores. Further, the Company enters into leases of equipment, copiers, printers and automobiles.

Substantially all of the Company’s leases are operating leases.

The Company’s finance leases are immaterial. The

right-of-use

asset for the Company’s finance leases is included in Property, plant and equipment, net on the Company’s consolidated balance sheet. The liabilities for the Company’s finance leases are included in Current portion of long-term obligations and Long-term obligations, excluding current portion, on the Company’s consolidated balance sheet.

The Company’s

sub-leases

are also immaterial.

Variable Lease Payments

A limited number of the Company’s store leases require rent to be paid based on sales levels. The Company’s cost for such leases is immaterial. Variable lease consideration is not included in lease payments until the contingency is resolved.

Additionally, for most store leases, the Company pays variable taxes and insurance.

Renewal Options

Many of the Company’s store leases, and certain of the Company’s other leases, contain renewal options. However, the renewal periods are generally not included in the

right-of-use

assets and lease liabilities for such leases as exercise of the options is not reasonably certain.

Discount Rates

The Company is unable to determine the discount rates that are implicit in its operating leases. Therefore, for such leases, the Company is utilizing its incremental borrowing rate.

For leases that existed as of January 1, 2019, the Company determined the

applicable

incremental borrowing rates for such leases based on the remaining lease terms for the leases as of such date.

Quantitative Disclosures

During the

year

ended

December

, 2019, the Company’s operating lease cost was $204,466.

Such amount excludes impairment charges recorded in conjunction with the Company’s store optimization program (see Note 3, Store Impairment and Restructuring Charges).

The Company’s variable lease cost during the

year

ended

Dece

mber

, 2019 was $30,817.

During the

year

ended

Dec

ember

, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $197,574.

During the

year

ended

December

, 2019,

right-of-use

assets obtained in exchange for new operating lease liabilities were $195,687

As of

December

, 2019, the weighted-average remaining lease term for operating leases was eight years and the weighted-average discount rate for operating leases was 6.7%.

As of

December

, 2019, the future cash flows for the Company’s operating leases were:


	Future Minimum Operating Lease Payments
2020	$	197,480
2021		181,970
2022		162,352
2023		134,131
2024		106,078
Thereafter		367,639

Total Undiscounted Cash Flows		1,149,650

Less: Interest		(273,444	)

Total Operating Lease Liability		876,206
Less: Current Operating Lease Liability		(155,471	)

Long-Term Operating Lease Liability	$	720,735