Party City Holdco Inc. - Quarter Report: 2015 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended September 30, 2015

OR

For the transition period from                      to                     

Commission file number 001-37344

Party City Holdco Inc.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code:

(914) 345-2020

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

As of November 12, 2015, 119,258,374 shares of the Registrant’s common stock were outstanding.

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PARTY CITY HOLDCO INC.

Form 10-Q

September 30, 2015

TABLE OF CONTENTS

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PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share)

Note 1 – Description of Business

Party City Holdco Inc. (the “Company” or “Party City Holdco”) is a vertically integrated supplier of decorated party goods. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s retail operations include approximately 900 specialty retail party supply stores (including approximately 200 franchise stores) in the United States and Canada operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com. Party City Holdco franchises both individual stores and franchise areas throughout the United States, Mexico and Puerto Rico, principally under the name Party City.

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

On April 21, 2015, the Company consummated an initial public offering and sold 25,156,250 shares of common stock for net proceeds of $397,159. See Note 6 for further detail.

During March 2015, the Company acquired the stock of Travis Designs Limited for total consideration of $10,319. Additionally, during August 2015, the Company acquired the assets of Accurate Custom Injection Molding Inc. for total consideration of $10,147. The Company is in the process of finalizing purchase accounting for the acquisitions.

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 significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. 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 majority of our retail operations define a fiscal year (“Fiscal Year”) as the 52-week period or 53-week period ended on the Saturday nearest December 31st of each year and define fiscal quarters (“Fiscal Quarter”) as the four interim 13-week periods following the end of the previous Fiscal Year, except in the case of a 53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The condensed consolidated financial statements of the Company combine the Fiscal Quarters of our retail operations with the calendar quarters of our wholesale operations. The Company has determined the differences between the retail operation’s Fiscal Year and Fiscal Quarters and the calendar year and calendar quarters to be insignificant.

Operating results for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2015. Our business is subject to substantial seasonal variations as our retail segment has realized a significant portion of its net sales, cash flows and net income in the fourth quarter of each year, principally due to its Halloween season sales in October and, to a lesser extent, other year-end holiday sales. We expect that this general pattern will continue. Our results of operations may also be affected by industry factors that may be specific to a particular period such as movement in and the general level of raw material costs. For further information see the consolidated financial statements, and notes thereto, included in the Company’s prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended , as filed with the Securities and Exchange Commission on April 15, 2015.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Recently Issued Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, “Business Combinations—Simplifying the Accounting for Measurement-Period Adjustments”. The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The pronouncement will be effective for the Company during the first quarter of 2016. Although the Company continues to review this pronouncement, it does not believe that it will have a material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. The update changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The pronouncement will be effective for the Company during the first quarter of 2017. The Company is in the process of evaluating the impact of the pronouncement on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The pronouncement will be effective for the Company during the first quarter of 2016. It will require companies to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of such debt liability. As of September 30, 2015 and December 31, 2014, the Company had $22,400 and $44,372, respectively, of debt issuance costs recorded in “other assets” on the Company’s condensed consolidated balance sheet.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The update clarifies that a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition. The pronouncement will be effective for the Company during the first quarter of 2016. Although the Company continues to review this pronouncement, it does not believe that it will have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The pronouncement contains a five-step model which replaces most existing revenue recognition guidance. The update is effective for the Company during the first quarter of 2018; however, early adoption is permitted. The pronouncement can be applied retrospectively to prior reporting periods or through a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of the pronouncement on the Company’s consolidated financial statements.

Note 3 – Inventories

Inventories consisted of the following:

Inventories are valued at the lower of cost or market. The Company determines the cost of inventory at its retail stores using the weighted average method. Other inventory cost is principally determined using the first-in, first-out method.

The Company estimates retail inventory shortages for the periods 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.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 4 – Income Taxes

The income tax benefit for the three and nine months ended September 30, 2015 was determined based upon the Company’s estimated consolidated effective income tax rate for the year ending December 31, 2015. The difference between the estimated consolidated effective income tax rate for the year ending December 31, 2015 and the U.S. federal statutory rate is primarily attributable to unrecognized foreign tax credits and state income taxes, partially offset by a foreign rate differential and available domestic manufacturing deductions.

Note 5 – Changes in Accumulated Other Comprehensive (Loss) Income

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

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 6 – Capital Stock

At September 30, 2015, the Company’s authorized capital stock consisted of 300,000,000 shares of $0.01 par value common stock. On April 2, 2015, the Company affected a 2,800 for 1 split of its common stock. All earnings per share amounts and number of shares outstanding have been retroactively adjusted.

Additionally, on April 21, 2015, the Company consummated an initial public offering of its common stock and sold 25,156,250 shares. The net proceeds of the offering, $397,159 after underwriter fees and other expenses directly related to the offering, were used to, among other things, fully redeem the $350,000 PIK Notes (“Nextco Notes”) and pay a management agreement termination fee to affiliates of Thomas H. Lee Partners, L.P. (“THL”) and Advent International Corporation (“Advent”).

The Company paid $363,720 in order to redeem the Nextco Notes, including a 2% prepayment penalty of $7,000 and the payment of all accrued interest as of the redemption date of $6,720. The Company recorded the $7,000 prepayment penalty in other expense, net in the Company’s condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. Additionally, in conjunction with the redemption, the Company wrote off $8,596 of capitalized debt issuance costs and original issuance discounts related to the Nextco Notes. Such charge was also recorded in other expense, net in the Company’s condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015 and it was recorded in amortization of deferred financing costs and original issuance discounts in the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2015.

In 2012, the Company entered into a management agreement with THL and Advent under which THL and Advent provided advice to the Company on, among other things, financing, operations, acquisitions and dispositions. Under the agreement, THL and Advent were paid an annual management fee for such services. In connection with the initial public offering, the management agreement was terminated and the Company paid THL and Advent an aggregate termination fee of $30,697. Such amount was recorded in other expense, net in the Company’s condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015.

Under the terms of Party City Holdco’s prior stockholders’ agreement, dated July 27, 2012, employee stockholders who died or became disabled while employed could have required Party City Holdco to purchase all of the shares held by the employee stockholders. The aggregate amount that would have been payable by the Company to current employee stockholders should they have died or become disabled while employed, based on the estimated fair market value of fully paid and vested common securities, totaled $35,062 at December 31, 2014 and was classified as redeemable common securities on the Company’s consolidated balance sheet. During April 2015, Party City Holdco consummated an initial public offering of its common stock and, at such time, the existing stockholders’ agreement was amended and restated. In conjunction with such amendment and restatement, employee stockholders no longer have the ability to require Party City Holdco to purchase their shares in the event of death or disability and, therefore, all amounts included in redeemable common securities have been reclassified to common stock and additional paid-in capital.

The changes in redeemable common securities during the nine months ended September 30, 2015 were as follows:

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 7 – Segment Information

Industry Segments

The Company has two identifiable business segments. The Wholesale segment designs, manufactures, contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Retail segment operates specialty retail party supply stores in the United States and Canada, principally under the names Party City and Halloween City, and it operates e-commerce websites, principally through the domain name Partycity.com. The Retail segment also franchises both individual stores and franchise areas throughout the United States, Mexico and Puerto Rico, principally under the name Party City.

The Company’s industry segment data for the three months ended September 30, 2015 and September 30, 2014 was as follows:

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

The Company’s industry segment data for the nine months ended September 30, 2015 and September 30, 2014 was as follows:

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 8 – Commitments and Contingencies

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

The Company is an assignor with contingent lease liability for three stores sold to franchisees and other parties. The potential contingent lease obligations continue until the applicable leases expire in 2018. The maximum amount of the contingent lease obligations may vary, but is limited to the sum of the total amount due under the leases. At September 30, 2015, the maximum amount of the contingent lease obligations was approximately $539. Payment of such amount is contingent upon certain events occurring, which management has not assessed as probable or estimable at this time.

Note 9 – Derivative Financial Instruments

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

Interest Rate Risk Management

As part of the Company’s risk management strategy, the Company periodically uses interest rate swap agreements to hedge the variability of cash flows on floating rate debt obligations. Accordingly, interest rate swap agreements are reflected in the consolidated balance sheets at fair value and the related gains and losses on these contracts are deferred in stockholders’ equity and recognized in interest expense over the same period in which the related interest payments being hedged are recognized in income. The fair value of an interest rate swap agreement is the estimated amount that the counterparty would receive or pay to terminate the swap agreement at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparty. The Company did not utilize interest rate swap agreements during the nine months ended September 30, 2015 and September 30, 2014.

Foreign Exchange Risk Management

A portion of the Company’s cash flows is derived from transactions denominated in foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling, the Canadian Dollar, the Euro, the Malaysian Ringgit and the Australian Dollar, the Company enters into foreign exchange contracts with major international financial institutions. These forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For contracts that qualify for hedge accounting, the terms of the foreign exchange contracts are such that cash flows from the contracts should be highly effective in offsetting the expected cash flows from the underlying forecasted transactions.

The foreign currency exchange contracts are reflected in the condensed consolidated balance sheets at fair value. The fair value of the foreign currency exchange contracts is the estimated amount that the counterparties would receive or pay to terminate the foreign currency exchange contracts at the reporting date, taking into account current foreign exchange spot rates. At September 30, 2015 and December 31, 2014, the Company had certain foreign currency exchange contracts that qualified for hedge accounting. No components of these agreements were excluded in the measurement of hedge effectiveness. As these hedges were 100% effective, there was no impact on earnings due to hedge ineffectiveness. The Company anticipates that substantially all unrealized gains and losses in accumulated other comprehensive loss related to these foreign currency exchange contracts will be reclassified into earnings by June 2017. The impact of foreign exchange contracts that do not qualify for hedge accounting is not material.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

The following table displays the fair values of the Company’s derivatives at September 30, 2015 and December 31, 2014:

The following table displays the notional amounts of the Company’s derivatives at September 30, 2015 and December 31, 2014:

Note 10 – Fair Value Measurements

The provisions of FASB 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:

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

The following table shows assets and liabilities as of September 30, 2015 that are measured at fair value on a recurring basis:

The following table shows assets and liabilities as of December 31, 2014 that are measured at fair value on a recurring basis:

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record other assets and liabilities at fair value on a nonrecurring basis, generally as a result of impairment charges.

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 September 30, 2015 because of the short-term maturities of the instruments and/or their variable rates of interest.

During the three months ended September 30, 2015, the Company refinanced its debt. See Note 12 for further discussion. The carrying amount and fair value of the Company’s borrowings under its $1,340,000 senior secured term loan facility (“Term Loan Credit Agreement”) and its $350,000 of 6.125% senior notes (“Senior Notes”) are as follows:

The fair values of the Term Loan Credit Agreement and the Senior Notes represent Level 2 fair value measurements as the debt instruments trade in inactive markets.

The carrying amounts for other long-term debt approximated fair value at September 30, 2015 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 11 – Earnings Per Share

Basic earnings per share are computed by dividing net income available for common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated based on the weighted average number of outstanding common shares plus the dilutive effect of stock options as if they were exercised.

A reconciliation between basic and diluted income (loss) per share is as follows:

All earnings per share amounts and number of shares outstanding have been retroactively adjusted to give effect to a 2,800-for-1 split of the Company’s common stock, which was effected on April 2, 2015.

During both the three and nine months ended September 30, 2015, 4,544,964 stock options were excluded from the calculation of net loss per common share – diluted as they were anti-dilutive. During both the three and nine months ended September 30, 2014, 2,609,600 stock options were excluded from the calculation of net loss per common share – diluted as they were anti-dilutive.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Note 12 – Long-Term Obligations

Long-term obligations consisted of the following:

The Nextco Notes were redeemed during the three months ended June 30, 2015. See Note 6 for further discussion.

During the three months ended September 30, 2015, PCHI redeemed its $700,000 of 8.875% senior notes (“Old Senior Notes”) and refinanced its existing $1,125,000 senior secured term loan facility (“Old Term Loan Credit Agreement”) and $400,000 asset-based revolving credit facility (“Old ABL Facility”) with new indebtedness consisting of: (i) a $1,340,000 senior secured term loan facility (“Term Loan Credit Agreement”), (ii) a $540,000 asset-based revolving credit facility (with a seasonal increase to $640,000 during a certain period of each calendar year) (“ABL Facility”) and (iii) $350,000 of 6.125% senior notes (“Senior Notes”).

As both the Old Term Loan Credit Agreement and the Term Loan Credit Agreement are loan syndications, the Company assessed whether the refinancing of the term loans should be accounted for as an extinguishment on a creditor-by-creditor basis and wrote-off $2,036 of existing deferred financing costs, as well as a $786 related original issue discount and $853 of the existing unamortized call premium, all of which were recorded in other expense in the Company’s condensed consolidated statement of operations and comprehensive loss. The remaining deferred financing costs of $9,308 and the remaining original discount of $3,592 will be amortized over the life of the Term Loan Credit Agreement, using the effective interest method. The remainder of the call premium, $3,900, will also continue to be amortized over the life of the Term Loan Credit Agreement. Finally, in conjunction with the refinancing, the Company incurred $12,837 of banker and legal fees; $9,758 of which was recorded in other expense. The rest of the costs will be amortized over the life of the Term Loan Credit Agreement. The write-offs of the deferred financing costs, original issuance discount and call premium were included in amortization of deferred financing costs and original issuance discount in the Company’s condensed consolidated statement of cash flows.

Additionally, the Company compared the borrowing capacity under the Old ABL Facility and the ABL Facility, on a creditor-by-creditor basis, and concluded that $321 of existing deferred financing costs should be written-off. Such amount was recorded in other expense in the Company’s condensed consolidated statement of operations and comprehensive loss and included in amortization of deferred financing costs and original issuance discount in the Company’s condensed consolidated statement of cash flows. The remaining costs, $2,246, will be amortized over the term of the ABL Facility.

The redemption price for the Old Senior Notes was 6.656 % of the principal amount, aggregating $46,592. The Company recorded such amount in other expense in the Company’s condensed consolidated statement of operations and comprehensive loss. Additionally, the Company wrote-off $18,664 of deferred financing costs related to the Old Senior Notes. Such amount was also recorded in other expense in the Company’s condensed consolidated statement of operations and comprehensive loss and included in amortization of deferred financing costs and original issuance discount in the Company’s condensed consolidated statement of cash flows.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Term Loan Credit Agreement

Loans outstanding under the Term Loan Credit Agreement were issued with a 0.25% original issuance discount. Such amount, $3,350, has been netted against the amount of the debt on the Company’s condensed consolidated balance sheet and is being amortized over the life of the debt, using the effective interest method. Additionally, a portion of the existing original issuance discount has been netted against the new debt and is being amortized consistent with the new discount (see above for further discussion).

The Term Loan Credit Agreement provides for two pricing options for outstanding loans: (i) an ABR for any day, a rate per annum equal to the greater of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 0.5%, (c) the adjusted LIBOR rate plus 1% and (d) 2.00% or (ii) the LIBOR rate, with a LIBOR floor of 1.00%, in each case plus an applicable margin. The applicable margin is 2.25% with respect to ABR borrowings and 3.25% with respect to LIBOR borrowings. At September 30, 2015, all outstanding borrowings were based on LIBOR and were at a rate of 4.25%.

Subsequent to February 19, 2016, the Company may voluntarily prepay the term loans at any time without premium or penalty, other than customary breakage costs with respect to loans based on the LIBOR rate. Prior to such date, voluntary prepayments are subject to a 1% premium. The term loans are subject to mandatory prepayment, subject to certain exceptions, with (i) 100% of net proceeds above a threshold amount of certain asset sales/insurance proceeds, subject to reinvestment rights and certain other exceptions, (ii) 100% of the net cash proceeds of any incurrence of debt other than debt permitted under the Term Loan Credit Agreement, (iii) 50% of Excess Cash Flow, as defined in the agreement, if any (starting with the payment to be made in 2017, the percentage will be reduced to 25% if PCHI’s first lien leverage ratio (as defined in the agreement) is less than 3.50 to 1.00, but greater than 2.50 to 1.00, and 0% if PCHI’s first lien leverage ratio is less than 2.50 to 1.00).

The term loans under the Term Loan Credit Agreement mature on August 19, 2022. Starting on December 31, 2015, the Company is required to repay installments on the loans in quarterly principal amounts of 0.25%, with the remaining amount payable on the maturity date.

All obligations under the agreement are jointly and severally guaranteed by PC Intermediate, PCHI and each existing and future domestic subsidiary of PCHI. PCHI and each guarantor has secured its obligations, subject to certain exceptions and limitations, by a first-priority lien on substantially all of its assets (other than accounts receivable, inventory, cash and certain related assets), including a pledge of all of the capital stock held by PC Intermediate, PCHI and each guarantor, and a second-priority lien on its accounts receivable, inventory, cash and certain related assets.

The Term Loan Credit Agreement contains certain customary affirmative covenants and events of default. Additionally, it contains negative covenants which, among other things and subject to certain exceptions, restrict the ability of PCHI to:

In connection with entering into the Term Loan Credit Agreement, the Company incurred and capitalized $3,079 of third-party costs. Additionally, certain existing deferred financing costs will continue to be capitalized (see above for further discussion). All capitalized costs are being amortized over the life of the new debt using the effective interest method.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

Senior Notes

The Senior Notes mature on August 15, 2023. Interest on the notes is payable semi-annually in arrears on February 15 and August 15 of each year.

The notes are guaranteed, jointly and severally, on a senior basis by each of PCHI’s existing and future wholly-owned domestic subsidiaries. The Senior Notes and the guarantees are general unsecured senior obligations and are effectively subordinated to all other secured debt to the extent of the assets securing such secured debt.

The indenture governing the Senior Notes contains certain covenants limiting, among other things and subject to certain exceptions, PCHI’s ability to:

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

On or after August 15, 2018, the Company may redeem the Senior Notes, in whole or in part, at the following (expressed as a percentage of the principal amount to be redeemed):

In addition, the Company may redeem up to 40% of the aggregate principal amount outstanding on or before August 15, 2018 with the net cash proceeds from certain equity offerings at a redemption price of 106.125% of the principal amount. The Company may also redeem some or all of the Senior Notes before August 15, 2018 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture.

If the Company experiences certain types of change in control, as defined, the Company may be required to offer to repurchase the Senior Notes at 101% of their principal amount.

In connection with the issuance of the Senior Notes, the Company incurred $6,485 of third-party costs that have been capitalized and are being amortized over the life of the debt.

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PARTY CITY HOLDCO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share)

ABL Facility

The ABL Facility, which matures on August 19, 2020, provides for (a) revolving loans in an aggregate principal amount at any time outstanding not to exceed $540,000 (with a seasonal increase to $640,000 during a certain period of each calendar year), subject to a borrowing base described below, and (b) letters of credit, in an aggregate face amount at any time outstanding not to exceed $50,000.

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

The ABL Facility generally provides for two pricing options: (i) an alternate base interest rate (“ABR”) equal to the greater of (a) the prime rate, (b) the federal funds rate plus 0.5% or (c) the LIBOR rate plus 1%, in each case, on the date of such borrowing or (ii) a LIBOR based interest rate, in each case plus an applicable margin. The applicable margin ranges from 0.25% to 0.50% with respect to ABR borrowings and from 1.25% to 1.50% with respect to LIBOR borrowings.

In addition to paying interest on outstanding principal, the Company is required to pay a commitment fee of 0.25% per annum in respect of unutilized commitments. The Company must also pay customary letter of credit fees.

All obligations under the ABL Facility are jointly and severally guaranteed by PC Intermediate, PCHI and each existing and future domestic subsidiary of PCHI. PCHI and each guarantor has secured its obligations, subject to certain exceptions and limitations, including obligations under its guaranty, as applicable, by a first-priority lien on its accounts receivable, inventory, cash and certain related assets and a second-priority lien on substantially all of its other assets.

The facility contains negative covenants that, among other things and subject to certain exceptions, restrict the ability of PCHI to:

In addition, PCHI must comply with a fixed charge coverage ratio if excess availability under the ABL Facility on any day is less than the greater of: (a) 10% of the lesser of the aggregate commitments and the then borrowing base under the ABL Facility and (b) $40,000. The fixed charge coverage ratio is the ratio of (i) Adjusted EBITDA (as defined in the facility) minus maintenance-related capital expenditures (as defined in the facility) to (ii) fixed charges (as defined in the facility).

The ABL Facility also contains certain customary affirmative covenants and events of default.

In connection with entering into the ABL Facility, the Company incurred and capitalized $1,688 of third-party costs. Additionally, certain existing deferred financing costs will continue to be capitalized (see above for further discussion). All capitalized costs are being amortized over the life of the new debt.

Amounts outstanding under the ABL Facility and the Old ABL Facility are included in Loans and Notes Payable in the Company’s condensed consolidated balance sheet.

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

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

Business Overview

Our Company

We are the leading party goods retailer by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally, based on revenues, with multiple levers to drive future growth across channels, products and geographies. We have the only coast-to-coast network of party superstores in the U.S. and Canada that make it easy and fun to enhance special occasions with a differentiated shopping experience and an unrivaled assortment of innovative and exciting merchandise offered at a compelling value. Through a series of acquisitions, we built a powerful retail operation that captures the full manufacturing-to-retail margin on a significant portion of the products sold in our stores. We believe we are the largest global designer, manufacturer and distributor of decorated party supplies, by revenue, with products found in over 40,000 retail outlets worldwide, including our own stores as well as independent party supply stores, mass merchants, grocery retailers, dollar stores and others. Our category-defining retail concept, multi-channel reach, widely recognized brands, broad and deep product offering, and low-cost global sourcing model are, we believe, significant competitive advantages. We believe these characteristics position us for continued organic and acquisition-led growth and margin expansion.

How We Assess the Performance of Our Company

In assessing the performance of our company, we consider a variety of performance and financial measures for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses. We also review other metrics such as adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per common share – diluted. For a discussion of our use of these measures and a reconciliation of net income (loss) to adjusted EBITDA and income (loss) before income taxes to adjusted net income (loss), please see below.

Segments

Our Retail segment generates revenues from the sale of merchandise to the end consumer through our chain of company-owned party goods stores, our e-commerce websites, including PartyCity.com, and our chain of temporary Halloween City locations. Franchise revenues include royalties on franchise retail sales and franchise fees charged for the initial franchise award and subsequent renewals. Our retail sales of party goods are fueled by everyday events such as birthdays, various seasonal events, particularly Halloween, and other special occasions occurring throughout the year. In addition, through Halloween City, our temporary Halloween business, we seek to maximize our Halloween seasonal opportunity. As a result, in 2014, our Halloween business represented approximately 25% of our total domestic retail sales, generally occurring in a five-week selling season ending on October 31. We expect to continue to generate a significant portion of our retail sales during the Halloween selling season.

Our Wholesale segment generates revenues globally through sales of Amscan, Designware, Anagram, Costumes USA and other party supplies to party goods superstores, including our company-owned and franchised stores, other party goods retailers, dollar stores, mass merchants, independent card and gift stores and other retailers and distributors throughout the world.

Intercompany sales between the Wholesale and the Retail segment are eliminated, and the profits on intercompany sales are deferred and realized at the time the merchandise is sold to the consumer. For segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on revenues.

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Financial Measures

Revenues. Revenues from retail operations are recognized at point of sale. 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 revenues include shipping revenue related to e-commerce sales. Retail sales are reported net of taxes collected. Franchise royalties are recognized based on reported franchise retail sales.

Revenues from our wholesale operations represent the sale of our products to third parties, less rebates, discounts and other allowances. The terms of our wholesale sales are generally free-on-board (“FOB”) shipping point, and revenue is recognized when goods are shipped. We estimate reductions to revenues for volume-based rebate programs and subsequent credits at the time sales are recognized. Intercompany sales from our wholesale operations to our retail stores are eliminated in our consolidated total revenues.

Comparable Retail Same-Store Sales. The growth in same-store sales represents the percentage change in same-store sales in the period presented compared to the prior year. Same-store sales exclude the net sales of a store for any period if the store was not open during the same period of the prior year. Comparable sales are calculated based upon stores that were open at least thirteen full months as of the end of the applicable reporting period. 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. 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 operations. 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. 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.

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.

On July 27, 2012, PC Merger Sub, Inc., a wholly-owned subsidiary of PC Intermediate, merged into PCHI, with PCHI being the surviving entity (“the Transaction”). As a result of the Transaction, we applied the acquisition method of accounting and increased the value of our inventory by $89.8 million as of July 28, 2012. The adjustment principally reflected the previously deferred wholesale margin on inventory supplied to our retail operations and on hand at July 27, 2012. Such adjustment increased our cost of sales subsequent to July 27, 2012 as the related inventory was sold. See “Results of Operations” below for further discussion.

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 of the costs associated with retail store operations, excluding occupancy-related costs included in cost of sales. Costs include store payroll and benefits, advertising, supplies and credit card costs. Retail expenses are largely variable but do not necessarily vary in proportion to net sales.

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

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General and Administrative Expenses. General and administrative expenses include all operating costs not included elsewhere in the statement of operations and comprehensive income (loss). 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 and data-processing costs. These expenses generally do not vary proportionally with net sales.

Art and Development Costs. Art and development costs include the costs associated with art production, creative development and product management. Costs include the salaries and benefits of the related work force. These expenses generally do not vary proportionally with net sales.

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 ongoing 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 and analysts calculate Adjusted EBITDA in the same manner. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding 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. Adjusted net income 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 discount, the Sponsors management fee, refinancing charges, equity based compensation, impairment charges and costs relating to the Transactions. We present adjusted net income because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

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Results of Operations

Three Months Ended September 30, 2015 Compared To Three Months Ended September 30, 2014

The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended September 30, 2015 and 2014.

Revenues

Total revenues for the third quarter of 2015 were $555.4 million and were $12.7 million or 2.3% higher than the third quarter of 2014. The following table sets forth the Company’s total revenues for the three months ended September 30, 2015 and 2014.

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Retail

Retail net sales during the third quarter of 2015 were $339.5 million and increased $13.4 million, or 4.1%, compared to the corresponding quarter of 2014. Retail net sales at our Party City stores totaled $293.9 million and were $6.2 million, or 2.2%, higher than the corresponding quarter of 2014 principally due to increased store count and a shift in our retail fiscal calendar. Seventeen additional stores operated during the third quarter of 2015 as 24 stores were opened, two stores were acquired and nine stores were closed during the twelve months ended September 30, 2015. In addition, the fiscal quarter ended on October 3^rd in 2015, as compared to September 27^th in 2014, and, therefore, benefitted from an additional week of Halloween-related sales. These two factors were partially offset by the impact of same-store sales, discussed below, and foreign currency translation, which negatively impacted store sales by approximately $3.5 million due to the strengthening of the U.S. Dollar in comparison to the Canadian Dollar. Global retail e-commerce sales totaled $36.0 million during the third quarter of 2015 and were $3.2 million, or 9.8%, higher than the corresponding fiscal quarter of 2014, principally reflecting the timing of Halloween product sales. Global retail e-commerce sales were negatively impacted by approximately $0.5 million due to the strengthening of the U.S. Dollar in comparison to the British Pound Sterling. Sales at our temporary Halloween City stores were $9.6 million during the quarter and were $4.0 million higher than the third quarter of 2014 due to the shift in the retail fiscal calendar, as well as the timing of, and number of, temporary store openings.

Same-store sales for the Party City brand (including North American retail e-commerce sales and sales at acquired stores, to the extent that the stores were converted to the Party City format and included in our sales for the comparable period of the prior year) decreased by 3.6% during the third quarter of 2015 due to a 2.9% decrease in transaction count and a 0.7% decrease in average transaction dollar size. Same-store sales for the third quarter of 2015 continued to be negatively impacted by the lapping of last year’s Frozen sales and the disruptive effect of store resets. Excluding the impact of e-commerce, same-store sales decreased by 4.1% due to a 3.3% decrease in transaction count and a 0.8% decrease in average transaction dollar size. The North American retail e-commerce sales included in our Party City brand comp increased by 1.5% as an 8.0% increase in transaction count was partially offset by a 6.5% decrease in average transaction dollar size. Same-store sales percentages were not affected by the shift in the Company’s retail fiscal calendar, or by foreign currency, as such percentages are based on a comparison to the corresponding week from the prior calendar year and are calculated in local currency.

Wholesale

Wholesale net sales during the third quarter of 2015 totaled $211.9 million and were $0.7 million, or 0.3%, lower than during the third quarter of 2014 principally due to the impact of lapping last year’s Frozen load-ins, foreign currency movements and the elimination of sales following the acquisition of the metallic balloon distributor U.S. Balloon Manufacturing Co., Inc. (“U.S. Balloon”). During the three months, net sales to domestic party goods retailers and distributors, including our franchisee network, totaled $96.7 million and were $4.5 million, or 4.4%, lower than the corresponding quarter of 2014. The decrease in sales occurred principally in the Halloween and Juvenile Birthday categories. Net sales of metallic balloons to domestic distributors, other domestic retailers and our franchisee network totaled $18.2 million and were $5.6 million, or 23.5%, lower than in 2014. Our acquisition of U.S. Balloon in October 2014 resulted in the addition of approximately $2 million of third-party sales during the third quarter of 2015. However, those sales were more than offset by the elimination of the now intercompany sales from our metallic balloon manufacturing operation to U.S. Balloon. In the third quarter of 2014 our metallic balloon sales to U.S. Balloon totaled approximately $7 million and were reported as third-party sales in that quarter. Sales from our international operations (including certain import sales into the U.S.) and our U.S. export sales totaled $97.0 million and were $9.4 million, or 10.7%, higher than the third quarter of 2014 despite foreign currency translation negatively impacting third quarter 2015 international sales by approximately $10 million. International sales increased versus 2014 primarily due to the success of a new store-in-store program with a mass merchandiser in Australia and increased party and costume sales (partially due to the acquisition of Travis Designs Limited in March 2015) in Europe.

Intercompany sales to our retail affiliates totaled $206.5 million during the third quarter of 2015 and were $4.9 million, or 2.3%, lower than the corresponding period of 2014. Intercompany sales represented 49.4% of total wholesale sales during the third quarter of 2015, compared to 49.9% during the corresponding period of 2014. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

Royalties and franchise fees

Royalties and franchise fees for the third quarter of 2015 were $4.0 million and were consistent with the corresponding quarter of 2014.

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Gross Profit

Our total gross profit on net sales during the third quarter of 2015 was 34.4%, compared to 34.2% during the third quarter of 2014. As a result of the Transaction, we applied the acquisition method of accounting and increased the value of our inventory by $89.8 million as of July 28, 2012. Such adjustment increased our cost of sales during the third quarter of 2014 by $0.6 million as the related inventory was sold. Further, during the application of the acquisition method of accounting, we increased the values of certain intangible assets and property, plant and equipment. The impact of such adjustments on depreciation and amortization expense increased our cost of sales during the third quarters of 2015 and 2014 by $2.7 million and $3.5 million, respectively. The purchase accounting adjustments to cost of sales negatively impacted our gross profit percentages during the third quarters of 2015 and 2014 by 50 basis points and 70 basis points, respectively.

The following table sets forth the Company’s gross profit for the three months ended September 30, 2015 and September 30, 2014.

The gross profit on net sales at retail during the third quarters of 2015 and 2014 was 37.7% and 36.5%, respectively. The purchase accounting adjustments to cost of sales negatively impacted retail’s gross profit percentage during the third quarters of 2015 and 2014 by 40 basis points and 70 basis points, respectively. The gross profit percentage during the third quarter of 2015 was higher than during the third quarter of 2014 principally due to increased share of shelf. During the third quarter of 2015, 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 operations) was 73.5% versus 69.2% during the third quarter of 2014.

The gross profit on net sales at wholesale during the third quarters of 2015 and 2014 was 29.2% and 30.6%, respectively. The purchase accounting adjustments to cost of sales negatively impacted wholesale’s gross profit percentage during the third quarters of 2015 and 2014 by 70 basis points and 90 basis points, respectively. The decrease in margin was partially due to the strengthening of the U.S. Dollar and its unfavorable impact on certain of our international subsidiaries that purchase product denominated in U.S. Dollars and sell in local currency (approximately $2 million impact). Additionally, the 2015 margin percentage was impacted by changes in sales mix, including increased lower margin international sales and the elimination of approximately $5 million, net, of higher margin metallic balloon sales due to the acquisition of U.S. Balloon (see above).

Operating expenses

Wholesale selling expenses were $15.5 million during the third quarter of 2015 and $18.2 million during the corresponding quarter of 2014. Approximately $1 million of the $2.8 million decrease was due to foreign currency translation at international subsidiaries. The remainder of the decrease was principally due to cost savings associated with the reorganization of both our party/gift sales group and our marketing group and a $0.3 million decrease in intangible asset amortization. Wholesale selling expenses were 7.3% and 8.6% of net wholesale sales during the third quarters of 2015 and 2014, respectively.

Retail operating expenses during the third quarter of 2015 were $102.4 million and were $6.9 million, or 7.2%, higher than the third quarter of 2014. The increase was principally due to higher store payroll costs, driven by increased store count and additional store headcount due to store resets and the Halloween season shift into the third quarter of 2015. Foreign currency translation at international subsidiaries reduced retail operating expenses by approximately $1 million in comparison to the third quarter of 2014. Retail operating expenses were 30.2% and 29.3% of net retail sales during the third quarters of 2015 and 2014, respectively.

Franchise expenses during the third quarters of 2015 and 2014 were $3.6 million and $3.5 million, respectively.

General and administrative expenses during the third quarter of 2015 totaled $36.0 million and were $1.2 million or 3.1% lower than in 2014. Approximately $1 million of the decrease was due to foreign currency translation at international subsidiaries. Additionally, the variance was driven by lower executive compensation costs, favorable bad debt expense and the cessation of the ongoing management fee following the April 2015 initial public offering. These positive factors were partially offset by inflationary cost increases and the general and administrative costs of Travis Designs Limited, which was acquired in March 2015. General and administrative expenses as a percentage of total revenues decreased from 6.8% in 2014 to 6.5% in 2015.

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Art and development costs were $4.9 million during the third quarters of 2015 and 2014. The costs were 0.9% of total revenues during both quarters.

Interest expense, net

Interest expense, net, totaled $29.6 million during the third quarter of 2015, compared to $39.2 million during the third quarter of 2014. The decrease principally reflects the repayment of the $350 million PIK Notes (“Nextco Notes”), which were fully redeemed during the second quarter of 2015 with proceeds from the Company’s initial public offering, and, to a lesser extent, the benefits of the third quarter 2015 refinancing (see below for further discussion). The timing of the refinancing and the repayment of the existing debt caused a temporary increase in our total debt, which resulted in approximately $2 million of additional interest expense in the third quarter of 2015.

Other expense (income), net

Other expense (income), net generally includes foreign currency (gains) losses, corporate development expenses and (gains) losses from unconsolidated joint ventures.

For the three months ended September 30, 2015, other expense, net, totaled $79.1 million, all of which related to the refinancing of the Company’s debt (see below).

During the three months ended September 30, 2015, the Company redeemed its $700 million of 8.875% senior notes (“Old Senior Notes”) and refinanced its existing $1,125 million senior secured term loan facility (“Old Term Loan Credit Agreement”) and $400 million asset-based revolving credit facility (“Old ABL Facility”) with new indebtedness consisting of: (i) a $1,340 million senior secured term loan facility, (ii) a $540 million asset-based revolving credit facility (with a seasonal increase to $640 million during a certain period of each calendar year) and (iii) $350 million of 6.125% senior notes.

The redemption price for the Old Senior Notes was 6.656 % of the principal amount, $46.6 million. The Company recorded such amount in other expense, net. Additionally, in conjunction with the refinancing, the Company wrote-off $22.7 million of previously capitalized deferred financing costs, original issuance discounts and call premiums and also recorded such amount in other expense, net. Further, in conjunction with the refinancing of the term loans, the Company incurred banker and legal fees; $9.8 million of which was recorded in other expense, net.

For the three months ended September 30, 2014, other income, net, totaled $0.1 million.

Income tax benefit

The income tax benefit for the three months ended September 30, 2015 was determined based upon the Company’s estimated consolidated effective income tax rate for the year ending December 31, 2015.

The difference between the estimated consolidated effective income tax rate for the year ending December 31, 2015, as determined as of September 30, 2015, and the U.S. federal statutory rate is primarily attributable to unrecognized foreign tax credits and state income taxes, partially offset by a foreign rate differential and available domestic manufacturing deductions.

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Nine Months Ended September 30, 2015 Compared To Nine Months Ended September 30, 2014

The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the nine months ended September 30, 2015 and 2014.