Party City Holdco

ANNUAL REPORT 
2015

[NYSE: PRTY]

Party City is the leading party 

goods company by revenue in 

North America and, we believe,  

the largest, vertically integrated 

manufacturer, supplier and 

retailer of decorated party 

goods in the world by revenue. 

With record revenues of $2.3 

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leading player in our category. 

We continue to grow by reaching 

new markets and expanding our 

global footprint. Through a series 

of strategic acquisitions, we have 

evolved dramatically since the 

founding of our legacy wholesale 

business. Today our unique, 

vertical business model and 

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competitive advantages and 

multiple levers to enhance 

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$2.3B
WORLDWIDE
SALES

ANNUAL REPORT
2015

002

(cid:21)(cid:19)(cid:8)

OTHER
INTERNATIONAL

2%

INTERNATIONAL
BALLOON
DISTRIBUTORS

6%

DOMESTIC
BALLOON
DISTRIBUTORS/
RETAILERS

(cid:20)(cid:21)(cid:8)

OTHER DOMESTIC
RETAILERS

WHOLESALE SALES
BY CHANNEL

47%

OWNED
STORES & 
E-COMMERCE

(cid:20)(cid:22)(cid:8)

PARTY CITY
FRANCHISED STORES

886

901

912

814

NUMBER
OF PARTY
CITY
STORES

CORPORATE

FRANCHISE

600

674

693
6666669696696969696969693693939393939393333333333333333333333

712
777777717177171717171717127121212121212221212222222222222222222222

214

212

208

200

2012

2013

2014

2015

MANUFACTURING/
WHOLESALE

$1,227M1 SALES

Sales to 40K retail locations
in 100+ countries

We believe we are the largest 
manufacturer of metallic 
balloons in the world 
by revenue

(cid:39)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:564)(cid:72)(cid:71)(cid:3)revenue channels
beyond party goods

RETAIL

$1,622M SALES

#1 party goods retailer
in North America

900+ stores in North America

75% of products sold are
sourced through our
vertical model

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sales to our retail operations

ANNUAL REPORT 
2015

003

DEAR FELLOW SHAREHOLDERS,

Over the years, through the three pillars of our business — manufacturing, wholesale and retail —  
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Our  broad  and  extensive  product  line,  vertical  model,  national  retail  footprint,  omni-channel 
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These  elements  all  work  in  concert  and  allow  us  to  achieve  sustainable  synergies  and  greater  
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competition that all retailers face today.  The sheer breadth of selection and merchandising programs, 
such as Candy City and Color City wearables, make our store an exciting destination and a shopping 
experience that online competitors cannot replicate.

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capital and strengthen our balance sheet.  

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towards each of these goals.  

Deepen  our  vertical  model  through  accretive  acquisitions  in  order  to  manufacture  and 
distribute more of what we sell  

This  past  year  we  increased  our  share  of  shelf  (the  percentage  of  our  retail  product  cost  of  sales 
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of Travis Designs, a small, high-end costume design company located in the United Kingdom.  This 
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company, a large step toward our stated goal of increasing manufactured product sold by our retail 
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Expand our retail footprint by growing our store base 

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the coming years.  

Drive same store sales

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Reduce our debt leverage

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Drive international sales and extend our global reach 

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party supplies product category is much less developed at the consumer level outside of the U.S. and, 
as such, we believe there is a great deal of room for growth. 

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up this great company. A company is only as good as its people, and we are fortunate to have some 
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City as we continue to grow our market share, increase our margins, expand our global footprint and 
extend our reach into new markets and deliver meaningful increases in value to our stakeholders.  

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will continue to relentlessly focus on the initiatives that will drive the business forward.  

Sincerely, 

JAMES M. HARRISON 
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T  hanks to our customers, we are making a difference. Since 2011, we have 

raised over $14 million in donations and fundraising. These charitable 

initiatives support pediatric cancer research, child life services, therapeutic and 
recreation programs, and special needs support to multiple causes. Party City, 
Memorial Sloan Kettering and the Times Square Advertising Coalition turned 
Times Square Gold on September 17 to raise awareness for the “Go Gold 
for Pediatric Cancer” campaign and celebrate over $400,000 donated to the 
pediatric department at Memorial Sloan Kettering.

 
ANNUAL REPORT
2015

005
OUR 2015
ACCOMPLISHMENTS

POSITION THE COMPANY TO DELIVER LONG-TERM 
SHAREHOLDER VALUE IN FY16 AND BEYOND

6TH CONSECUTIVE

YEAR OF RECORD 
REVENUES AND 
ADJUSTED
EBITDA1

32%

GROWTH IN
ADJUSTED
NET INCOME1

80

MEXICO
FRANCHISE
STORES

TO OPEN IN THE 
NEXT 10 YEARS

75%

$55M

ANNUAL INTEREST SAVINGS 
FROM DEBT REDUCTION
AND REFINANCE

15% INCREASE IN 

INTERNATIONAL
WHOLESALE REVENUES2

2 ACQUISITIONS

IN COSTUMES AND
MOLDED PLASTICS

OF PRODUCTS 
SOLD IN OUR STORES
FLOW  THROUGH THE 
VERTICAL MODEL

(cid:20)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)

(cid:86)(cid:72)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:564)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:17)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:70)(cid:76)(cid:87)(cid:92)(cid:17)(cid:70)(cid:82)(cid:80)

2 Constant currency basis

ANNUAL REPORT
2015

006

FINANCIAL HIGHLIGHTS

(cid:918)(cid:49)(cid:3)(cid:48)(cid:918)(cid:47)(cid:47)(cid:918)(cid:50)(cid:49)(cid:54)(cid:15)(cid:3)(cid:40)(cid:59)(cid:38)(cid:40)(cid:51)(cid:55)(cid:3)(cid:40)(cid:36)(cid:53)(cid:49)(cid:918)(cid:49)(cid:42)(cid:54)(cid:3)(cid:51)(cid:40)(cid:53)(cid:3)(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)

OPERATING RESULTS

(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)(cid:53)(cid:40)(cid:57)(cid:40)(cid:49)(cid:56)(cid:40)(cid:54)(cid:20)

(cid:42)(cid:53)(cid:50)(cid:54)(cid:54)(cid:3)(cid:48)(cid:36)(cid:53)(cid:42)(cid:918)(cid:49)

(cid:36)(cid:39)(cid:45)(cid:56)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:40)(cid:37)(cid:918)(cid:55)(cid:39)(cid:36)2

(cid:36)(cid:39)(cid:45)(cid:56)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:40)(cid:37)(cid:918)(cid:55)(cid:39)(cid:36)(cid:3)(cid:48)(cid:36)(cid:53)(cid:42)(cid:918)(cid:49)2

(cid:36)(cid:39)(cid:45)(cid:56)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:49)(cid:40)(cid:55)(cid:3)(cid:918)(cid:49)(cid:38)(cid:50)(cid:48)(cid:40)2

(cid:51)(cid:53)(cid:50)(cid:3)(cid:41)(cid:50)(cid:53)(cid:48)(cid:36)(cid:3)(cid:36)(cid:39)(cid:45)(cid:56)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:40)(cid:36)(cid:53)(cid:49)(cid:918)(cid:49)(cid:42)(cid:54)(cid:3)(cid:51)(cid:40)(cid:53)(cid:3)(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)2,4

FINANCIAL POSITION

(cid:38)(cid:36)(cid:54)(cid:43)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:38)(cid:36)(cid:54)(cid:43)(cid:3)(cid:40)(cid:52)(cid:56)(cid:918)(cid:57)(cid:36)(cid:47)(cid:40)(cid:49)(cid:55)(cid:54)

(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)(cid:36)(cid:54)(cid:54)(cid:40)(cid:55)(cid:54)

(cid:47)(cid:50)(cid:49)(cid:42)(cid:16)(cid:55)(cid:40)(cid:53)(cid:48)(cid:3)(cid:39)(cid:40)(cid:37)(cid:55)(cid:3)(cid:918)(cid:49)(cid:38)(cid:47)(cid:56)(cid:39)(cid:918)(cid:49)(cid:42)(cid:3)(cid:38)(cid:56)(cid:53)(cid:53)(cid:40)(cid:49)(cid:55)(cid:3)(cid:51)(cid:50)(cid:53)(cid:55)(cid:918)(cid:50)(cid:49)

2013

2014

2015

(cid:7)(cid:21)(cid:15)(cid:19)(cid:23)(cid:24)(cid:17)(cid:20)

(cid:7)(cid:21)(cid:15)(cid:21)(cid:26)(cid:20)(cid:17)(cid:22)

(cid:7)(cid:21)(cid:15)(cid:21)(cid:28)(cid:23)(cid:17)(cid:24)

37.9%

(cid:22)(cid:21)(cid:19)(cid:17)(cid:27)

(cid:20)(cid:24)(cid:17)(cid:26)(cid:8)

68.4

(cid:49)(cid:18)(cid:36)

(cid:7)(cid:21)(cid:24)(cid:17)(cid:25)

3,272.3

(cid:21)(cid:15)(cid:20)(cid:21)(cid:28)(cid:17)(cid:21)

38.9%

(cid:22)(cid:25)(cid:21)(cid:17)(cid:20)

(cid:20)(cid:24)(cid:17)(cid:28)(cid:8)

86.8

(cid:7)(cid:19)(cid:17)(cid:26)(cid:26)

$47.2

(cid:22)(cid:15)(cid:22)(cid:22)(cid:25)(cid:17)(cid:24)

(cid:21)(cid:15)(cid:20)(cid:21)(cid:19)(cid:17)(cid:27)

39.7%

(cid:22)(cid:27)(cid:19)(cid:17)(cid:22)

(cid:20)(cid:25)(cid:17)(cid:25)(cid:8)

(cid:20)(cid:20)(cid:23)(cid:17)(cid:21)

(cid:7)(cid:20)(cid:17)(cid:19)(cid:20)

$42.9

3,292.4

(cid:20)(cid:15)(cid:26)(cid:27)(cid:25)(cid:17)(cid:27)

(cid:49)(cid:40)(cid:55)(cid:3)(cid:39)(cid:40)(cid:37)(cid:55)(cid:3)(cid:55)(cid:50)(cid:3)(cid:36)(cid:39)(cid:45)(cid:56)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:40)(cid:37)(cid:918)(cid:55)(cid:39)(cid:36)2

6.6 times

(cid:24)(cid:17)(cid:26)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)

4.6 times

OPERATING METRICS

(cid:54)(cid:43)(cid:36)(cid:53)(cid:40)(cid:3)(cid:50)(cid:41)(cid:3)(cid:54)(cid:43)(cid:40)(cid:47)(cid:41)3

PERMANENT STORES:

(cid:16)(cid:3)(cid:38)(cid:50)(cid:48)(cid:51)(cid:36)(cid:49)(cid:60)(cid:16)(cid:50)(cid:58)(cid:49)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:53)(cid:40)(cid:54)

(cid:16)(cid:3)(cid:41)(cid:53)(cid:36)(cid:49)(cid:38)(cid:43)(cid:918)(cid:54)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:53)(cid:40)(cid:54)

TOTAL PERMANENT STORES

(cid:55)(cid:40)(cid:48)(cid:51)(cid:50)(cid:53)(cid:36)(cid:53)(cid:60)(cid:3)(cid:43)(cid:36)(cid:47)(cid:47)(cid:50)(cid:58)(cid:40)(cid:40)(cid:49)(cid:3)(cid:38)(cid:918)(cid:55)(cid:60)(cid:3)(cid:54)(cid:55)(cid:50)(cid:53)(cid:40)(cid:54)

(cid:37)(cid:53)(cid:36)(cid:49)(cid:39)(cid:3)(cid:38)(cid:50)(cid:48)(cid:51)(cid:36)(cid:53)(cid:36)(cid:37)(cid:47)(cid:40)(cid:3)(cid:54)(cid:36)(cid:47)(cid:40)(cid:54)

(cid:25)(cid:26)(cid:17)(cid:24)(cid:8)

(cid:26)(cid:19)(cid:17)(cid:21)(cid:8)

(cid:26)(cid:24)(cid:17)(cid:19)(cid:8)

674

(cid:21)(cid:20)(cid:21)

886

(cid:22)(cid:24)(cid:19)

2.9%

693

(cid:21)(cid:19)(cid:27)

901

(cid:22)(cid:20)(cid:24)

(cid:24)(cid:17)(cid:27)(cid:8)

(cid:26)(cid:20)(cid:21)

(cid:21)(cid:19)(cid:19)

912

(cid:22)(cid:22)(cid:24)

(cid:20)(cid:17)(cid:24)(cid:8)

CONSOLIDATED
REVENUES

ADJUSTED
EBITDA2

C AG R   5 . 2 %

$2,045

$2,271

$2,295

$1,872

$1,914

C A G R   8 . 4 %

$321

$362

$380

$275

$292

ADJUSTED EBITDA 
MARGIN2

SHARE OF SHELF

67.5%

70.2%

64.2%

60.5%

75.0%

16.6%

15.7%

15.9%

15.3%

14.7%

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

1 Fiscal 2014 includes a 53rd week
2 For a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures, see our filings with the SEC or investor.partycity.com 
3 Represents the percentage of product sold at retail sourced through our wholesale segment
4 Not previously published for 2013

ANNUAL REPORT 
2015

007
GLOBAL 
OPERATIONS

NORTH AMERICA

CORPORATE 
HEADQUARTERS 
(cid:40)(cid:47)(cid:48)(cid:54)(cid:41)(cid:50)(cid:53)(cid:39)(cid:15)(cid:3)(cid:49)(cid:60)

RETAIL HEADQUARTERS  
(cid:53)(cid:50)(cid:38)(cid:46)(cid:36)(cid:58)(cid:36)(cid:60)(cid:15)(cid:3)(cid:49)(cid:45)

PARTY CITY CANADA 
HEADQUARTERS  
(cid:50)(cid:49)(cid:55)(cid:36)(cid:53)(cid:918)(cid:50)(cid:15)(cid:3)(cid:38)(cid:36)(cid:49)(cid:36)(cid:39)(cid:36)

RETAIL STORES 
(cid:23)(cid:24)(cid:3)(cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:54)(cid:15)(cid:3)(cid:51)(cid:56)(cid:40)(cid:53)(cid:55)(cid:50)(cid:3)(cid:53)(cid:918)(cid:38)(cid:50)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:38)(cid:36)(cid:49)(cid:36)(cid:39)(cid:36)

DISTRIBUTION 
(cid:37)(cid:53)(cid:50)(cid:50)(cid:46)(cid:47)(cid:60)(cid:49)(cid:15)(cid:3)(cid:49)(cid:60) 
(cid:38)(cid:43)(cid:40)(cid:54)(cid:55)(cid:40)(cid:53)(cid:15)(cid:3)(cid:49)(cid:60) 
(cid:49)(cid:36)(cid:51)(cid:40)(cid:53)(cid:57)(cid:918)(cid:47)(cid:47)(cid:40)(cid:15)(cid:3)(cid:918)(cid:47)

MANUFACTURING 
(cid:36)(cid:47)(cid:37)(cid:56)(cid:52)(cid:56)(cid:40)(cid:53)(cid:52)(cid:56)(cid:40)(cid:15)(cid:3)(cid:49)(cid:48) 
(cid:40)(cid:39)(cid:40)(cid:49)(cid:3)(cid:51)(cid:53)(cid:36)(cid:918)(cid:53)(cid:918)(cid:40)(cid:15)(cid:3)(cid:48)(cid:49) 
(cid:43)(cid:36)(cid:53)(cid:53)(cid:918)(cid:48)(cid:36)(cid:49)(cid:15)(cid:3)(cid:49)(cid:60) 
(cid:49)(cid:40)(cid:58)(cid:37)(cid:56)(cid:53)(cid:42)(cid:43)(cid:15)(cid:3)(cid:49)(cid:60)

MANUFACTURING/DISTRIBUTION 
(cid:40)(cid:36)(cid:54)(cid:55)(cid:3)(cid:51)(cid:53)(cid:50)(cid:57)(cid:918)(cid:39)(cid:40)(cid:49)(cid:38)(cid:40)(cid:15)(cid:3)(cid:53)(cid:918) 
(cid:40)(cid:39)(cid:918)(cid:49)(cid:36)(cid:15)(cid:3)(cid:48)(cid:49) 
(cid:47)(cid:50)(cid:56)(cid:918)(cid:54)(cid:57)(cid:918)(cid:47)(cid:47)(cid:40)(cid:15)(cid:3)(cid:46)(cid:60) 

LATIN AMERICA

MANUFACTURING/ 
DISTRIBUTION 
(cid:42)(cid:56)(cid:36)(cid:39)(cid:36)(cid:47)(cid:36)(cid:45)(cid:36)(cid:53)(cid:36)(cid:3)(cid:11)(cid:48)(cid:40)(cid:59)(cid:918)(cid:38)(cid:50)(cid:12) 
(cid:55)(cid:918)(cid:45)(cid:56)(cid:36)(cid:49)(cid:36)(cid:3)(cid:11)(cid:48)(cid:40)(cid:59)(cid:918)(cid:38)(cid:50)(cid:12) 

 
EUROPE

DISTRIBUTION 
(cid:46)(cid:918)(cid:53)(cid:38)(cid:43)(cid:40)(cid:918)(cid:48)(cid:3)(cid:56)(cid:49)(cid:55)(cid:40)(cid:53)(cid:3)(cid:55)(cid:40)(cid:38)(cid:46)(cid:3)(cid:11)(cid:42)(cid:40)(cid:53)(cid:48)(cid:36)(cid:49)(cid:60)(cid:12)(cid:3) 
(cid:48)(cid:918)(cid:47)(cid:55)(cid:50)(cid:49)(cid:3)(cid:46)(cid:40)(cid:60)(cid:49)(cid:40)(cid:54)(cid:3)(cid:11)(cid:40)(cid:49)(cid:42)(cid:47)(cid:36)(cid:49)(cid:39)(cid:12)

EUROPEAN E-COMMERCE/ 
DISTRIBUTION 
(cid:48)(cid:36)(cid:49)(cid:38)(cid:43)(cid:40)(cid:54)(cid:55)(cid:40)(cid:53)(cid:3)(cid:11)(cid:40)(cid:49)(cid:42)(cid:47)(cid:36)(cid:49)(cid:39)(cid:12)

COSTUME DESIGN/SOURCING 
(cid:37)(cid:40)(cid:53)(cid:46)(cid:43)(cid:36)(cid:48)(cid:54)(cid:55)(cid:40)(cid:39)(cid:3)(cid:11)(cid:40)(cid:49)(cid:42)(cid:47)(cid:36)(cid:49)(cid:39)(cid:12)

ANNUAL REPORT 
2015

008

FACT: 

(cid:51)(cid:36)(cid:53)(cid:55)(cid:60)(cid:3)(cid:38)(cid:918)(cid:55)(cid:60)(cid:519)(cid:54)(cid:3)(cid:58)(cid:50)(cid:53)(cid:47)(cid:39)(cid:58)(cid:918)(cid:39)(cid:40)(cid:3)
(cid:54)(cid:36)(cid:47)(cid:40)(cid:54)(cid:3)(cid:53)(cid:40)(cid:36)(cid:38)(cid:43) 40K+ RETAIL 
LOCATIONS IN OVER 100 
COUNTRIES

ASIA/PACIFIC

DISTRIBUTION/ SOURCING 
& SOURCING FACILITIES 
(cid:39)(cid:40)(cid:47)(cid:43)(cid:918)(cid:3)(cid:11)(cid:918)(cid:49)(cid:39)(cid:918)(cid:36)(cid:12)(cid:3) 
(cid:43)(cid:50)(cid:3)(cid:38)(cid:43)(cid:918)(cid:3)(cid:48)(cid:918)(cid:49)(cid:43)(cid:3)(cid:11)(cid:57)(cid:918)(cid:40)(cid:55)(cid:49)(cid:36)(cid:48)(cid:12) 
(cid:43)(cid:50)(cid:49)(cid:42)(cid:3)(cid:46)(cid:50)(cid:49)(cid:42)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12) 
(cid:45)(cid:36)(cid:46)(cid:36)(cid:53)(cid:55)(cid:36)(cid:3)(cid:11)(cid:918)(cid:49)(cid:39)(cid:50)(cid:49)(cid:40)(cid:54)(cid:918)(cid:36)(cid:12) 
(cid:49)(cid:36)(cid:49)(cid:45)(cid:918)(cid:49)(cid:42)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12) 
(cid:51)(cid:36)(cid:49)(cid:60)(cid:56)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12) 
(cid:52)(cid:918)(cid:49)(cid:42)(cid:39)(cid:36)(cid:50)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12)(cid:3) 
(cid:54)(cid:43)(cid:36)(cid:49)(cid:55)(cid:50)(cid:56)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12) 
(cid:60)(cid:918)(cid:58)(cid:56)(cid:3)(cid:11)(cid:38)(cid:43)(cid:918)(cid:49)(cid:36)(cid:12)

DISTRIBUTION  
(cid:37)(cid:36)(cid:56)(cid:47)(cid:46)(cid:43)(cid:36)(cid:48)(cid:3)(cid:43)(cid:918)(cid:47)(cid:47)(cid:54) 
(cid:11)(cid:36)(cid:56)(cid:54)(cid:55)(cid:53)(cid:36)(cid:47)(cid:918)(cid:36)(cid:12)

MANUFACTURING/ 
DISTRIBUTION 
(cid:48)(cid:40)(cid:47)(cid:36)(cid:46)(cid:36)(cid:3)(cid:11)(cid:48)(cid:36)(cid:47)(cid:36)(cid:60)(cid:54)(cid:918)(cid:36)(cid:12) 

AFRICA

MANUFACTURING 
(cid:48)(cid:36)(cid:39)(cid:36)(cid:42)(cid:36)(cid:54)(cid:38)(cid:36)(cid:53) 

ANNUAL REPORT 
2015

009

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2015
OR

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

ACT OF 1934

For the transition period from

to

Commission File Number: 001-37344

Party City Holdco Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

46-0539758
(I.R.S. Employer
Identification No.)

80 Grasslands Road
Elmsford, NY 10523
(Address of Principal Executive Offices)
(914) 345-2020
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock $0.01 par value

New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ‘ No È

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange

Act of 1934. Yes ‘ No È

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 È No ‘

Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not

contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
Non-accelerated filer È (Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company ‘

‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ‘ No È

The aggregate market value of common stock held by non-affiliates as of June 30, 2015 was $608,507,305. As of February 29,

2016, there were 119,302,054 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its 2016 annual meeting of stockholders to be held on June 15,

2016 are incorporated by reference in Part III.

FORM 10-K

TABLE OF CONTENTS

PART I

Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Item 3
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . .
Item 9
Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13 Certain Relationships and Related Party Transactions and Director Independence . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14

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10
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22
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25

26
27
33
57
59
104
104
104

105
105

105
105
105

Item 15 Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

PART IV

Forward-Looking Statements

PART I

This Annual Report on Form 10-K, including the section “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” in Part II, Item 7, contains information that may constitute
forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans
and strategies, anticipated events or trends and similar expressions concerning matters that are not historical
facts, such as statements regarding our future financial condition or results of operations, our prospects and
strategies for future growth and the development and introduction of new products. In many cases you can
identify forward-looking statements by terms such as “believes,” “anticipates,” “expects,” “targets,”
“estimates,” “intends,” “will,” “may” or “plans” and similar expressions. These forward-looking statements
reflect our current expectations and are based upon data available to us at the time the statements were made.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from expectations. These risks, as well as other risks and uncertainties, are detailed in the section
Item 1A. “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the
impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements we may make. In light
of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this
Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those
anticipated or implied in the forward-looking statements. All forward-looking statements are qualified by these
cautionary statements and are made only as of the date of this Annual Report on Form 10-K. Any such forward-
looking statements should be considered in context with the various disclosures made by us about our business.
Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements
to reflect new information or future events or otherwise. You should, however, review the factors and risks we
describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”)
after the date of the filing of this Annual Report on Form 10-K.

In this Annual Report on Form 10-K references to “Party City Holdco,” “Party City,” the “Company”
“we,” “our,” “ours” and “us” refer to Party City Holdco Inc. and its consolidated subsidiaries unless stated or
the context otherwise requires.

Item 1. Business

Overview

Party City Holdco is a holding company with no operating assets or operations. Party City Holdco 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”). PCHI or its direct or indirect
subsidiaries conduct all of our operating businesses. The Company’s principal executive offices are located at 80
Grasslands Road, Elmsford, New York 10523.

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 by revenue. With over 900 locations (inclusive of
approximately 200 franchised stores), 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. During the
Halloween selling season, we also operate a network of approximately 300 temporary stores under the Halloween
City banner.

Through a series of acquisitions starting in 2005, 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. Based on our revenues,
we believe we are the largest global designer, manufacturer and distributor of decorated party supplies with

1

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 products are available in over 100
countries with the U.K., Germany, Australia and France among the largest end markets for our products outside
of North America.

The 2005 combination of Amscan, which focused on the wholesale market, and Party City, which focused
on the retail market, represented an important step in our evolution. Since the acquisition of Party City in 2005,
we have steadily increased the selection of Amscan merchandise offered in Party City stores from approximately
25% to approximately 75% in 2015, allowing us to capture the full manufacturing-to-retail margin on a
significant portion of our retail sales.

Through a combination of organic growth and strategic acquisitions, we have been able to generate strong

topline performance and margin expansion, including:

• Growing revenue from $1,872.0 million for the year ended December 31, 2011 to $2,294.5 million for

the year ended December 31, 2015, representing a compounded annual growth rate of 5.2%.

•

•

Increasing adjusted EBITDA from $275.5 million, an adjusted EBITDA margin of 14.7%, for the year
ended December 31, 2011 to $380.3 million for the year ended December 31, 2015, representing an
adjusted EBITDA margin of 16.6%.

Increasing adjusted net income from $88.3 million for the year ended December 31, 2011 to $114.2
million for the year ended December 31, 2015.

For a discussion of our use of adjusted EBITDA and adjusted net income and reconciliations to net income

(loss), please refer to Item 6, “Selected Consolidated Financial Data.”

Industry Overview

We operate in the broadly defined $10 billion retail party goods industry (including decorative paper and

plastic tableware, decorations, accessories and balloons), which is supported by a range of suppliers from
commodity paper goods producers to party goods specialty retailers. Sales of party goods are fueled by everyday
events such as birthdays, baby showers, weddings and anniversaries, as well as seasonal events such as holidays
and other special occasions. As a result of numerous and diverse occasions, the U.S. party goods market enjoys
broad demographic appeal. We also operate in the $7 billion Halloween market, a portion of which overlaps with
the $10 billion retail party goods industry. The Halloween market includes costumes, candy and makeup.

The retail landscape is comprised primarily of party superstores, mass merchants, craft stores, grocery
retailers, and dollar stores. The party superstore has emerged as a preferred destination for party goods shoppers,
similar to the dominance of specialty retailers in other categories such as home improvement, pet products and
sporting goods. This is typically due to the superstore chain’s ability to offer a wider variety of merchandise at
more compelling prices in a convenient setting as well as the knowledgeable staff often found at superstores.
Other retailers that cater to the party goods market typically offer a limited assortment of party supplies and
seasonal items. Mass merchants tend to focus primarily on juvenile and seasonal goods, greeting cards and gift
wrap; craft stores on decorations and seasonal merchandise; and dollar stores on general and seasonal party
goods items.

Segments

We have two primary reporting segments: Retail and Wholesale. In 2015, we generated 71.5% of our total

revenues from our retail segment and 28.5% of our total revenues from our wholesale segment.

Our retail operations generate revenue primarily through the sale of Amscan, Designware, Anagram,
Costumes USA and other party supplies through Party City, Halloween City and PartyCity.com. During 2015,
approximately 75% of the product that was sold by our retail operations was supplied by our wholesale
operations.

2

Our wholesale revenues are generated from the sale of party goods for all occasions, including paper and

plastic tableware, accessories and novelties, metallic and latex balloons, stationery and gift items. Our products
are sold at wholesale to party goods superstores, including our franchise stores, other party goods retailers, mass
merchants, independent card and gift stores, dollar stores and other retailers and distributors throughout the
world.

Financial information about our business segments and geographical areas is provided in Note 15, Segment

Information, to our consolidated financial statements in Part II, Item 8 in this Annual Report on Form 10-K.

Retail Operations

Overview

Opening its first company-owned store in 1986, Party City has grown to become what we believe is the
largest operator of owned and franchised party superstores by revenue in the United States. At the time of its
acquisition in 2005, Party City’s network consisted of 502 stores, including 254 franchised locations. Since the
acquisition, we have expanded the Party City network to approximately 860 superstore locations in the United
States (inclusive of approximately 200 franchised stores) and approximately 50 locations in Canada. We also
operate approximately 300 temporary Halloween stores, under the Halloween City banner.

The following table shows the change in our company-owned Party City store network over the past three

years:

693
Stores open at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Stores opened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iParty Corp. stores acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Stores acquired from franchisees/others . . . . . . . . . . . . . . . . . . . . . . . .
Stores closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6
(14)

Stores open at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

712

674
23
—

600
25
54
6 —

(10)

693

(5)

674

2015

2014

2013

E-commerce

Our website, PartyCity.com, offers a convenient, user-friendly and secure online shopping option for new

and existing customers. In addition to the ability to order products, our website provides a substantial amount of
content about our party products, party planning ideas and promotional offers. The website is also one of our key
marketing vehicles, specifically as it relates to social marketing initiatives.

Retail Advertising and Marketing

Our advertising focuses on promoting specific seasonal occasions and general party themes, with a strong

emphasis on our price-value proposition—“Nobody Has More Party for Less”—with the goal of increasing
customer traffic and further building our brand.

Competition at Retail

In our retail segment, our stores compete primarily on the basis of product mix and variety, store location

and layout, customer convenience and value. Although we compete with a variety of smaller and larger retailers,
including, but not limited to, independent party goods supply stores, specialty stores, dollar stores, warehouse/
merchandise clubs, drug stores, mass merchants and catalogue and e-commerce merchandisers, we believe that,
based on our revenues, our retail stores maintain a leading position in the party goods business by offering a
wider breadth of merchandise than most competitors and a greater selection within merchandise classes, at a
compelling value. We are one of only a few vertically integrated suppliers of decorated party goods. While some

3

of our competitors in our markets may have greater financial resources, we believe that our significant buying
power, which results from the size of our retail store network and the breadth of our assortment, is an important
competitive advantage. Many of our retail competitors are also customers of our wholesale business.

Retail Seasonality

Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a
significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to
our Halloween sales in October and, to a lesser extent, year-end holiday sales. In 2015, Halloween business
represented approximately 25% of our total domestic retail sales. To maximize our seasonal opportunity, we
operate a chain of temporary Halloween stores, under the Halloween City banner, during the months of
September and October of each year. During 2015, our temporary Halloween stores (including Canadian stores)
generated revenues of approximately $84 million.

Franchise Operations

We have franchised stores throughout the United States, Mexico and Puerto Rico run by franchisees
utilizing our format, design specifications, methods, standards, operating procedures, systems and trademarks.
Our wholesale sales to franchised stores generally mirror, with respect to relative size, mix and category, those to
our company-owned stores. The following table shows the change in our franchise-owned store network over the
past three years:

Stores open at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208
Stores opened/acquired by existing franchisees . . . . . . . . . . . . . . . . . . —
Stores sold to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores closed or converted to independent stores . . . . . . . . . . . . . . . . .

(6)
(2)

212
—

214
1

(1) —
(3)

(3)

Stores open at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

200

208

212

2015

2014

2013

We are not currently marketing, nor do we plan to market, new franchise territories in the United States or
Canada. However, in the future, we do plan on marketing new franchise territories internationally. During 2015,
the Company entered into an agreement with a subsidiary of Grupo Oprimax to franchise the Party City concept
throughout Mexico. Under the terms of the agreement, Grupo Oprimax will have the exclusive right to open up
Party City stores in Mexico.

We receive revenue from our franchisees, consisting of an initial one-time fee and ongoing royalty fees
generally ranging from 4% to 6% of net sales. In exchange for these franchise fees, franchisees receive brand
value and company support with respect to planograms, information technology, purchasing and marketing. In
addition, each franchisee has a mandated advertising budget, which consists of a minimum initial store opening
promotion and ongoing local advertising and promotions. Also, franchisees must pay an additional 1% to 2.25%
of net sales to a group advertising fund to cover common advertising materials. Further, the terms of our
franchise agreements provide for payments to franchisees based on our domestic retail e-commerce sales
originating from specified areas relating to the franchisees’ contractual territory. The amounts paid by us vary
based on several factors, including the profitability of our e-commerce sales, and are expensed at the time of sale.
We do not offer financing to our franchisees for one-time fees or ongoing royalty fees. Our franchise agreements
provide us with a right of first refusal should any franchisee look to dispose of its operations.

Current franchise agreements provide for an assigned area or territory that typically equals a three or four-

mile radius from the franchisee’s store location and the right to use the Party City® logo and trademark. In
addition, certain agreements with our franchisees and other business partners contain geographic limitations on
opening new stores. For most stores, the franchisee or the majority owner of a corporate franchisee devotes full
time to the management, operation and on-premises supervision of the stores or groups of stores.

4

Wholesale Operations

Overview

We currently offer over 400 party goods ensembles, which range from approximately five to 50 design-
coordinated items spanning tableware, accessories, novelties, balloons, decorations and gifts. The breadth of
these ensembles enables retailers to promote additional sales of related products for every occasion. To enhance
our customers’ celebrations of life’s important events, we market party goods ensembles for a wide variety of
occasions, including seasonal and religious holidays, special events and themed celebrations.

Our Amscan, Anagram, Costumes USA and Designware branded products are offered in over 40,000 retail

outlets worldwide, ranging from party goods superstores, including our company-owned and franchised retail
stores, other party goods retailers, mass merchants, independent card and gift stores, dollar stores and other
retailers and distributors throughout the world. We have long-term relationships with many of our wholesale
customers. Party goods superstores, the Company’s primary channel of distribution, provide consumers with a
one-stop source for all of their party needs. Amscan, Anagram, Costumes USA and Designware branded
products represent a significant portion of party goods carried by both company-owned and third-party stores
with the overall percentage continuing to increase, reflecting the breadth of our product line and, based on our
scale, our ability to manufacture and source quality products at competitive prices.

The table below shows the breakdown of our total wholesale sales by channel for the year ended

December 31, 2015:

Channel

Party City and Halloween City—owned stores and e-commerce . . . . . . .
Party City—franchised stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other domestic retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic balloon distributors/retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International balloon distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international

Sales

(dollars in millions)
$ 573
166
149
74
23
242

Total wholesale sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,227

Product Lines

The following table sets forth the principal products we distribute by product category, and the

corresponding percentage of revenue that each category represents:

Wholesale Sales by Product for the Year Ended
December 31, 2015

Category

Items

Tableware . . . . . . . . . . . . . . . . . . . . . Plastic Plates, Paper Plates, Plastic Cups, Paper Cups, Paper

Favors, Stationery & Other . . . . . . . . Party Favors, Gift Bags, Gift Wrap, Invitations, Bows,

Napkins, Plastic Cutlery, Tablecovers

% of Sales

24%

16%

Decorations . . . . . . . . . . . . . . . . . . . . Latex Balloons, Piñatas, Crepes, Flags & Banners, Decorative

20%

Stationery

Tissues, Stickers and Confetti, Scene Setters, Garland,
Centerpieces

Metallic Balloons . . . . . . . . . . . . . . . Bouquets, Standard 18 Inch Sing-A-Tune, SuperShapes,

Costumes & Accessories . . . . . . . . . Costumes, Other Wearables, Wigs

Weights

12%

28%

5

Our products span a wide range of lifestyle events from birthdays to theme parties and sporting events, as

well as holidays such as Halloween and New Year’s. In 2015, approximately 68% of our wholesale sales
consisted of items designed for everyday occasions, with the remaining sales comprised of items used for
holidays and seasonal celebrations throughout the year. Our product offerings cover the following broad range of
occasions and life celebrations:

Current Product Offering

Everyday

Anniversaries
Bar Mitzvahs
Birthdays
Bridal/Baby Showers
Christenings
Confirmations
First Communions
Graduations
Theme-oriented*
Weddings

Seasonal

New Year’s
Valentine’s Day
St. Patrick’s Day
Easter
Passover
Fourth of July
Halloween
Fall
Thanksgiving
Hanukkah
Christmas

*

Our theme-oriented ensembles enhance various celebrations and include Bachelorette, Card Party, Casino,
Chinese New Year, Cocktail Party, Disco, Fiesta, Fifties Rock-and-Roll, Hawaiian Luau, Hollywood, Mardi
Gras, Masquerade, Patriotic, Retirement, Sports, Summer Barbeque and Western.

Wholesale Manufactured Products

In 2015, we manufactured items representing approximately 32% of our net sales at wholesale (including

sales to our retail operations). Our manufacturing facilities in Rhode Island, Kentucky, Minnesota, Mexico,
Malaysia, New Mexico and New York are highly automated and produce paper and plastic plates and cups, paper
napkins, metallic and latex balloons, injection molded product and other party and novelty items at globally
competitive costs. State-of-the-art printing, forming, folding and packaging equipment support these
manufacturing operations. Given our size and sales volume, we are generally able to operate our manufacturing
equipment on the basis of at least two shifts per day, thus lowering production costs per unit. In select cases, we
use available capacity to manufacture products for third parties, which allows us to maintain a satisfactory level
of equipment utilization.

The table below summarizes our principal manufacturing facilities:

Location

Principal Products

Approximate Square Feet

East Providence, Rhode Island
Louisville, Kentucky
Eden Prairie, Minnesota
Tijuana, Mexico
Melaka, Malaysia
Los Lunas, New Mexico
Harriman, New York
Newburgh, New York

Plastic plates, cups and bowls
Paper plates
Metallic balloons and accessories
Piñatas and other party products
Latex balloons
Injection molded plastics
Paper napkins
Paper napkins and paper cups

229,230(1)
189,175
115,600
135,000
100,000
85,055
74,400
52,400

(1) This figure represents an industrial park, which includes a 48,455 square foot office and warehouse.

6

Complementing our manufacturing facilities, we have a diverse global network of third-party suppliers that

supports our strategy of consistently offering a broad selection of high quality, innovative and competitively
priced product. We have over 20-year relationships with many of our vendors and often represent a significant
portion of their overall business. They generally produce items designed by and created for us, are located in
Asia and are managed by our sourcing office in Hong Kong. We actively work with our third-party suppliers to
ensure product cost, quality and safety.

The principal raw materials used in manufacturing our products are paper, petroleum-based resin and cotton.
While we currently purchase such raw material from a relatively small number of sources, paper, resin and cotton
are available from numerous sources. Therefore, we believe our current suppliers could be replaced without
adversely affecting our manufacturing operations in any material respect.

Wholesale Product Safety and Quality Assurance

We are subject to regulatory requirements in the United States and internationally, and we believe that all
products that we manufacture and source comply with the requirements in the markets in which they are sold.
Third-party manufactured products are tested both at the manufacturing site and upon arrival at our distribution
centers. We have a full-time staff of professionals in the United States, Asia and Europe dedicated to product
safety and quality assurance.

Wholesale Distribution and Systems

We ship our products directly to retailers and distributors throughout the world from our distribution

facilities, as well as on a free-on-board (“FOB”) basis directly from our domestic and international factories. Our
electronic order entry and information systems allow us to manage our inventory with minimal obsolescence
while maintaining strong fill rates and quick order turnaround time.

Our main distribution facility for domestic party customers is located in Chester, New York, with nearly

900,000 square feet under one roof. This state-of-the-art facility serves as the main point of distribution for our
Amscan-branded products and utilizes paperless, pick-by-light systems, offering superior inventory management
and turnaround times as short as 48 hours.

We utilize a bypass system which allows us to ship products directly from selected third-party suppliers to
our company-owned and franchised stores, thus bypassing our distribution facilities. In addition to lowering our
distribution costs, this bypass system creates warehouse capacity.

The distribution center for our retail e-commerce platform is located in Naperville, Illinois. We also have
other distribution centers in the U.K., Germany, Mexico and Australia, to support our international customers.

Wholesale Customers

We have a diverse third party customer base at wholesale. During 2015, no individual third party customer

accounted for more than 10% of our total third-party sales at wholesale.

Competition at Wholesale

In our wholesale segment, we compete primarily on the basis of diversity and quality of our product designs,

breadth of product line, product availability, price, reputation and customer service. Although we have many
competitors with respect to one or more of our products, we believe that there are no competitors who design,
manufacture, source and distribute products with the complexity of design and breadth of product lines that we
do. Furthermore, our design and manufacturing processes create efficiencies in manufacturing that few of our
competitors can achieve in the production of numerous coordinated products in multiple design types.
Competitors include smaller independent manufacturers and distributors, as well as divisions or subsidiaries of

7

large companies. Certain of these competitors control various party goods product licenses for widely recognized
images, such as cartoon or motion picture characters, which could provide them with a competitive advantage.
However, we control a strong portfolio of character licenses for use in the design and production of our metallic
balloons and, as a result of the acquisition of Designware, we have access to a strong portfolio of character and
other licenses for party goods.

Information Systems

We continually evaluate and upgrade our information systems to enhance the quantity, quality and
timeliness of information available to management and to improve the efficiency of our manufacturing and
distribution facilities, as well as our service at the store level. We have implemented merchandise replenishment
software to complement our distribution, planning and allocation processes. The system enhances the store
replenishment function by improving in-stock positions, leveraging our distribution infrastructure and allowing
us to become more effective in our use of store labor. We have implemented a Point of Sale system and upgraded
merchandising systems to standardize technology across all of our domestic retail superstores and we have
implemented similar systems at our temporary Halloween City locations.

Employees

As of December 31, 2015, the Company had approximately 7,544 full-time employees and 10,687 part-time

employees, none of whom is covered by a collective bargaining agreement. We consider our relationship with
our employees to be good.

Intellectual Property

We own the copyrights in the designs we create and use on our products and various trademarks and service

marks used on or in connection with our products. It is our practice to register our copyrights with the United
States Copyright Office and our trademarks and service marks with the United States Patent and Trademark
Office, or with other foreign jurisdictions, to the extent we deem necessary. In addition, we rely on unregistered
common law trademark rights and unregistered copyrights under applicable U.S. law to distinguish and/or protect
our products, services and branding. We do not believe that the loss of copyrights or trademarks with respect to
any particular product or products would have a material adverse effect on our business. We hold numerous
intellectual property licenses from third parties, allowing us to use various third-party cartoon and other
characters and designs on our products, and the images on our metallic balloons and costumes are principally
covered by these licenses. None of these licenses is individually material to our aggregate business. We also own
patents relating to display racks and balloon weights, none of which is individually material to our aggregate
business.

We permit our franchisees to use a number of our trademarks and service marks, including Party City, The

Discount Party Super Store, Party America and Halloween City.

Government Regulation

As a franchisor, we must comply with regulations adopted by the Federal Trade Commission, such as the

Trade Regulation Rule on Franchising, which requires us, among other things, to furnish prospective franchisees
with a franchise offering circular. We also must comply with a number of state laws that regulate the offer and
sale of our franchises and certain substantive aspects of franchisor-franchisee relationships. These laws vary in
their application and in their regulatory requirements. State laws that regulate the offer and sale of franchises
typically require us to, among other things, register before the offer and sale of a franchise can be made in that
state and to provide a franchise offering circular to prospective franchisees.

State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of
states. Those laws regulate the franchise relationship, for example, by restricting a franchisor’s rights with regard
to the termination, transfer and renewal of a franchise agreement (for example, by requiring “good cause” to exist

8

as a basis for the termination and the franchisor’s decision to refuse to permit the franchisee to exercise its
transfer or renewal rights), by requiring the franchisor to give advance notice to the franchisee of the termination
and give the franchisee an opportunity to cure most defaults. To date, those laws have not precluded us from
seeking franchisees in any given area and have not had a material adverse effect on our operations.

Our wholesale and retail segments must also comply with applicable regulations adopted by federal
agencies, including product safety regulations, and with licensing and other regulations enforced by state and
local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining the required
licenses or approvals can delay and sometimes prevent the opening of a new store or the shutting down of an
existing store.

Our manufacturing operations, stores and other facilities must comply with applicable environmental, health
and safety regulations, although the cost of complying with these regulations to date has not been material. More
stringent and varied requirements of local governmental bodies with respect to zoning, land use, and
environmental factors can delay, and sometimes prevent, development of new stores in particular locations. Our
stores must comply with the Fair Labor Standards Act and various state laws governing various matters such as
minimum wages, overtime and other working conditions. Our stores must also comply with the provisions of the
Americans with Disabilities Act, which requires that employers provide reasonable accommodation for
employees with disabilities and that stores must be accessible to customers with disabilities.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), and in accordance therewith, we file reports, proxy and information statements and other
information with the SEC. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and other information to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act are available through the investor relations section of our website at www.partycity.com. Reports
are available free of charge as soon as reasonably practicable after we electronically file them with, or furnish
them to, the SEC. The information contained on our website is not incorporated by reference into this Annual
Report on Form 10-K.

In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the

SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site that contains our reports, proxy and information statements, and other information that we file electronically
with the SEC at www.sec.gov.

9

Item 1A. Risk Factors

The following risk factors may be important to understanding any statement in this Annual Report on
Form 10-K or elsewhere. Our business, financial condition and operating results can be affected by a number of
factors, whether currently known or unknown, including but not limited to those described below. Any one or
more of such factors could directly or indirectly cause our actual results of operations and financial condition to
vary materially from past or anticipated future results of operations and financial condition. Any of these factors,
in whole or in part, could materially and adversely affect our business, financial condition, results of operations
and stock price.

We operate in a competitive industry, and our failure to compete effectively could cause us to lose our market
share, revenues and growth prospects.

We compete with many other manufacturers and distributors, including smaller, independent manufacturers
and distributors and divisions or subsidiaries of larger companies with greater financial and other resources than
we have. Some of our competitors control licenses for widely recognized images and have broader access to
mass market retailers that could provide them with a competitive advantage.

The party goods retail industry is large and highly fragmented. Our retail stores compete with a variety of

smaller and larger retailers, including specialty retailers, warehouse/merchandise clubs, drug stores,
supermarkets, dollar stores, mass merchants, and catalogue and online merchants. Our stores compete, among
other ways, on the basis of location and store layout, product mix and availability, customer convenience and
price. We may not be able to continue to compete successfully against existing or future competitors in the retail
space. Expansion into markets served by our competitors and entry of new competitors or expansion of existing
competitors into our markets could materially adversely affect our business, results of operations, cash flows and
financial performance.

We must remain competitive in the areas of quality, price, breadth of selection, customer service and
convenience. Competing effectively may require us to reduce our prices or increase our costs, which could lower
our margins and adversely affect our revenues and growth prospects.

A decrease in our Halloween sales could have a material adverse effect on our operating results for the year.

Our retail business realizes a significant portion of its revenues, net income and cash flows in September

and October, principally due to Halloween sales. We believe that this general pattern will continue in the future.
An economic downturn, or adverse weather, during this period could adversely affect us to a greater extent than
at other times of the year. Any unanticipated decrease in demand for our products during the Halloween season
could require us to maintain excess inventory or sell excess inventory at substantial markdowns, which could
have a material adverse effect on our business, profitability, ability to repay any indebtedness and our brand
image. In addition, our sales during the Halloween season could be affected if we are not able to find sufficient
and adequate lease space for our temporary Halloween City stores or if we are unable to hire temporary
personnel to adequately staff these stores and our distribution facility during the Halloween season. Failure to
have proper lease space and adequate personnel could hurt our business, financial condition and results of
operations.

Our failure to appropriately respond to changing merchandise trends and consumer preferences could
significantly harm our customer relationships and financial performance.

As a manufacturer, distributor and retailer of consumer goods, our products must appeal to a broad range of
consumers whose preferences are constantly changing. We also sell certain licensed products, with images such
as cartoon or motion picture characters, which are in great demand for short time periods, making it difficult to
project our inventory needs for these products. In addition, we may not be able to obtain the licenses for certain

10

popular characters and could lose market share to competitors who are able to obtain those licenses. Additionally,
if consumers’ demand for single-use, disposable party goods were to diminish in favor of reusable products for
environmental or other reasons, our sales could decline.

The success of our business depends upon many factors, such as our ability to accurately predict the market

for our products and our customers’ purchasing habits, to identify product and merchandise trends, to innovate
and develop new products, to manufacture and deliver our products in sufficient volumes and in a timely manner
and to differentiate our product offerings from those of our competitors. We may not be able to continue to offer
assortments of products that appeal to our customers or respond appropriately to consumer demands. We could
misinterpret or fail to identify trends on a timely basis. Our failure to anticipate, identify or react appropriately to
changes in consumer tastes could, among other things, lead to excess inventories and significant markdowns or a
shortage of products and lost sales. Our failure to do so could harm our customer relationships and financial
performance.

Our business may be adversely affected by fluctuations in commodity prices.

The costs of our key raw materials (paper, petroleum-based resin and cotton) fluctuate. In general, we
absorb movements in raw material costs that we consider temporary or insignificant. However, cost increases
that are considered other than temporary may require us to increase our prices to maintain our margins. Raw
material prices may increase in the future and we may not be able to pass on these increases to our customers. A
significant increase in the price of raw materials that we cannot pass on to customers could have a material
adverse effect on our results of operations and financial performance. In addition, the interruption in supply of
certain key raw materials essential to the manufacturing of our products may have an adverse impact on our and
our suppliers’ abilities to manufacture the products necessary to maintain our existing customer relationships.

We may not be able to successfully implement our store growth strategy.

If we are unable to increase the number of retail stores we operate and increase the productivity and
profitability of existing retail stores, our ability to increase sales, profitability and cash flow could be impaired.
To the extent we are unable to open new stores as we planned, our retail store sales growth would come primarily
from increases in comparable store sales. We may not be able to increase our comparable store sales, improve
our margins or reduce costs as a percentage of sales. Growth in profitability in that case would depend
significantly on our ability to increase margins or reduce costs as a percentage of sales. Further, as we implement
new initiatives to reduce the cost of operating our stores, sales and profitability may be negatively impacted.

Our ability to successfully open and operate new stores depends on many factors including, among others,

our ability to:

•

•

•

identify suitable store locations, including temporary lease space for our Halloween City locations, the
availability of which is largely outside of our control;

negotiate and secure acceptable lease terms, desired tenant allowances and assurances from operators and
developers that they can complete the project, which depend in part on the financial resources of the
operators and developers;

obtain or maintain adequate capital resources on acceptable terms, including the availability of cash for rent
outlays under new leases;

• manufacture and source sufficient levels of inventory at acceptable costs;

•

•

hire, train and retain an expanded workforce of store managers and other personnel;

successfully integrate new stores into our existing control structure and operations, including information
system integration;

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• maintain adequate manufacturing and distribution facilities, information system and other operational

system capabilities;

•

•

•

identify and satisfy the merchandise and other preferences of our customers in new geographic areas and
markets;

gain brand recognition and acceptance in new markets; and

address competitive, merchandising, marketing, distribution and other challenges encountered in connection
with expansion into new geographic areas and markets, including geographic restrictions on the opening of
new stores based on certain agreements with our franchisees and other business partners.

In addition, as the number of our stores increases along with our online sales, we may face risks associated

with market saturation of our product offerings. To the extent our new store openings are in markets where we
have existing stores, we may experience reduced net sales in existing stores in those markets. Finally, there can
be no assurance that any newly opened stores will be received as well as, or achieve net sales or profitability
levels comparable to those of, our existing stores in the time periods estimated by us, or at all. If our stores fail to
achieve, or are unable to sustain, acceptable net sales and profitability levels, our business may be materially
harmed and we may incur significant costs associated with closing those stores. Our failure to effectively address
challenges such as these could adversely affect our ability to successfully open and operate new stores in a timely
and cost-effective manner, and could have a material adverse effect on our business, results of operations and
financial condition.

Because we rely heavily on our own manufacturing operations, disruptions at our manufacturing facilities
could adversely affect our business, results of operations, cash flows and financial performance.

Any significant disruption in our manufacturing facilities, in the United States or abroad, for any reason,

including regulatory requirements, the loss of certifications, power interruptions, fires, hurricanes, war or other
forces of nature, could disrupt our supply of products, adversely affecting our business, results of operations,
cash flows and financial performance. The occurrence of one or more natural disasters, or other disruptive geo-
political events, could also result in increases in fuel (or other energy) prices or a fuel shortage, the temporary or
permanent closure of one or more of manufacturing or distribution centers, the temporary lack of an adequate
work force in a market, the temporary or long-term disruption in the supply of products from some local and
overseas suppliers, the temporary disruption in the transport of goods from overseas or delays in the delivery of
goods to our distribution centers or stores or to third parties who purchase from us. If one or more of these events
occurred, our revenues and profitability would be reduced.

Disruption to the transportation system or increases in transportation costs may negatively affect our
operating results.

We rely upon various means of transportation, including shipments by air, sea, rail and truck, to deliver

products to our distribution centers from vendors and manufacturers and from other distribution centers to our
stores, as well as for direct shipments from vendors to stores and sales to third-party customers. Independent
third parties with whom we conduct business may employ personnel represented by labor unions. Labor
stoppages, shortages or capacity constraints in the transportation industry, disruptions to the national and
international transportation infrastructure, fuel shortages or transportation cost increases could adversely affect
our business, results of operations, cash flows and financial performance.

Product recalls and/or product liability may adversely impact our business, merchandise offerings, reputation,
results of operations, cash flow and financial performance.

We may be subject to product recalls if any of the products that we manufacture or sell are believed to cause

injury or illness. In addition, as a retailer of products manufactured by third parties, we may also be liable for

12

various product liability claims for products we do not manufacture. Indemnification provisions that we may
enter into are typically limited by their terms and depend on the creditworthiness of the indemnifying party and
its insurer and the absence of significant defenses. We may be unable to obtain full recovery from the insurer or
any indemnifying third party in respect of any claims against us in connection with products manufactured by
such third party. In addition, if our vendors fail to manufacture or import merchandise that adheres to our quality
control standards or standards established by applicable law, our reputation and brands could be damaged,
potentially leading to an increase in customer litigation against us. Furthermore, to the extent we are unable to
replace any recalled products, we may have to reduce our merchandise offerings, resulting in a decrease in sales,
especially if a recall occurs near or during a peak seasonal period. If our vendors are unable or unwilling to recall
products failing to meet our quality standards, we may be required to recall those products at a substantial cost to
us.

Our business is sensitive to consumer spending and general economic conditions, and an economic slowdown
could adversely affect our financial performance.

In general, our retail sales, and the retail sales of our business partners to whom we sell, represent

discretionary spending by our customers and our business partners’ customers. Discretionary spending is affected
by many factors, such as general business conditions, interest rates, availability of consumer credit,
unemployment levels, taxation, weather and consumer confidence in future economic conditions. Our customers’
purchases and our business partners’ customers’ purchases of discretionary items, including our products, often
decline during periods when disposable income is lower or during periods of actual or perceived unfavorable
economic conditions. If this occurs, our revenues and profitability will decline. In addition, economic downturns
may make it difficult for us to accurately forecast future demand trends, which could cause us to purchase excess
inventories, resulting in increases in our inventory carrying cost, or insufficient inventories, resulting in our
inability to satisfy our customer demand and potential loss of market share.

Our business may be adversely affected by the loss or actions of our third-party vendors.

Our ability to find new qualified vendors who meet our standards and supply products in a timely and

efficient manner can be a significant challenge, especially for goods sourced from outside the United States.
Many of our vendors currently provide us with incentives such as volume purchasing allowances and trade
discounts. If our vendors were to reduce or discontinue these incentives, costs would increase. Should we be
unable to pass cost increases to consumers, our profitability would be reduced.

Our business and results of operations may be harmed if our suppliers or third-party manufacturers fail to
follow acceptable labor practices or to comply with other applicable laws and guidelines.

Many of the products sold in our stores and on our website are manufactured outside of the United States,

which may increase the risk that the labor, manufacturing safety and other practices followed by the
manufacturers of these products may differ from those generally accepted in the United States as well as those
with which we are required to comply under many of our image or character licenses. Although we require each
of our vendors to sign a purchase order and vendor agreement that requires adherence to accepted labor practices
and compliance with labor, manufacturing safety and other laws and we test merchandise for product safety
standards, we do not supervise, control or audit our vendors or the manufacturers that produce the merchandise
we sell to our customers. The violation of labor, manufacturing safety or other laws by any of our vendors or
manufacturers, or the divergence of the labor practices followed by any of our vendors or manufacturers from
those generally accepted in the United States could interrupt or otherwise disrupt the shipment of finished
products to us, damage our brand image, subject us to boycotts by our customers or activist groups or cause some
of our licensors of popular images to terminate their licenses to us. Our future operations and performance will
be subject to these factors, which are beyond our control and could materially hurt our business, financial
condition and results of operations or require us to modify our current business practices or incur increased costs.

13

Our international operations subject us to additional risks, which risks and costs may differ in each country in
which we do business and may cause our profitability to decline.

We conduct our business in a number of foreign countries, including contracting with manufacturers and

suppliers located outside of the United States, many of which are located in Asia. We have expanded our
international operations through numerous acquisitions and we plan on continuing to expand them through
additional acquisitions, investments in joint ventures and organic growth. Our operations and financial condition
may be adversely affected if the markets in which we compete or source our products are affected by changes in
political, economic or other factors. These factors, over which we have no control, may include:

•

•

•

recessionary or expansive trends in international markets;

changes in foreign currency exchange rates, principally fluctuations in the British Pound Sterling, the
Canadian Dollar, the Euro, the Malaysian Ringgit, and the Australian Dollar;

hyperinflation or deflation in the foreign countries in which we operate;

• work stoppages or other employee rights issues;

•

•

•

•

•

•

the imposition of restrictions on currency conversion or the transfer of funds;

transportation delays and interruptions;

increases in the taxes we pay and other changes in applicable tax laws;

difficulty enforcing our intellectual property and competition against counterfeit goods;

legal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including
trade restrictions and tariffs; and

political and economic instability.

Our business may be adversely impacted by helium shortages.

Although not used in the actual manufacture of our products, helium gas is currently used to inflate the

majority of our metallic balloons. We rely upon the exploration and refining of natural gas to ensure adequate
supplies of helium as helium is a by-product of the natural gas production process. Helium shortages can
adversely impact our financial performance.

We may face risks associated with litigation and claims.

On November 18, 2015, a putative class action complaint was filed in the U.S. District Court for the
Southern District of New York, naming Party City Holdco, Chief Executive Officer James Harrison, and Chief
Financial Officer Michael Correale as defendants. The complaint alleges violations of Section 11 of the
Securities Act of 1933 in connection with public filings related to our April 2015 initial public offering. The
plaintiff seeks to represent a class of shareholders who purchased stock in the initial public offering or who can
trace their shares to that offering. The complaint seeks unspecified damages and costs. We intend to vigorously
defend ourselves against this action. We are unable at this time to determine whether the outcome of the
litigation would have a material impact on our results of operations, financial condition or cash flows.

In addition, from time to time, we may become involved in other legal proceedings relating to the conduct
of our business, including but not limited to, employee-related and consumer matters. Additionally, as a retailer
and manufacturer of decorated party goods, we have been and may continue to be subject to product liability
claims if the use of our products, whether manufactured by us or third party manufacturers, is alleged to have
resulted in injury or if our products include inadequate instructions or warnings. Such matters can be time-
consuming, divert management’s attention and resources and cause us to incur significant expenses. Due to the
uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in the

14

lawsuits that we currently face or that additional claims will not be made against us in the future. Furthermore,
because litigation is inherently uncertain, there can be no assurance that the results of any of these actions will
not have a material adverse effect on our business, results of operations or financial condition.

We may require additional capital to fund our business, which may not be available to us on satisfactory terms
or at all.

We currently rely on cash generated by operations and borrowings available under the credit facilities to

meet our working capital needs. However, if we are unable to generate sufficient cash from operations or if
borrowings available under the credit facilities are insufficient, we may be required to adopt one or more
alternatives to raise cash, such as incurring additional indebtedness, selling our assets, seeking to raise additional
equity capital or restructuring, which alternatives may not be available to us on satisfactory terms or at all. Any
of the foregoing could have a material adverse effect on our business.

Our success depends on key personnel whom we may not be able to retain or hire.

The success of our business depends, to a large extent, on the continued service of our senior management
team. Gerald C. Rittenberg, our Executive Chairman, and James M. Harrison, our Chief Executive Officer, have
been with the Company for approximately 26 and 20 years, respectively. The loss of the services and leadership
of either of these individuals could have a negative impact on our business, as we may not be able to find
management personnel with similar experience and industry knowledge to replace either of them on a timely
basis. We do not maintain key life insurance on any of our senior officers.

As our business expands, we believe that our future success will depend greatly on our continued ability to
attract, motivate and retain highly skilled and qualified personnel. Although we generally have been able to meet
our staffing requirements in the past, our ability to meet our labor needs while controlling costs is subject to
external factors, such as unemployment levels, minimum wage legislation and changing demographics. Our
inability to meet our staffing requirements in the future at costs that are favorable to us, or at all, could impair our
ability to increase revenue, and our customers could experience lower levels of customer service.

We are subject to risks associated with leasing substantial amounts of space.

We lease all of our company-owned stores, our corporate headquarters and most of our distribution
facilities. Payments under our leases account for a significant portion of our operating expenses and we expect
payment obligations under our leases to account for a significant portion of our future operating expenses. The
majority of our store leases contain provisions for base rent and a small number of store leases contain provisions
for base rent, plus percentage rent based on sales in excess of an agreed upon minimum annual sales level. Our
continued growth and success depends in part on our ability to renew leases for successful stores and negotiate
leases for new stores, including temporary leases for our Halloween City stores. There is no assurance that we
will be able to negotiate leases at similar or favorable terms, and we may decide not to enter a market or be
forced to exit a market if a favorable arrangement cannot be made. If an existing or future store is not profitable
and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable
lease, including, among other things, paying the base rent for the balance of the lease term. Moreover, even if a
lease has an early cancellation clause, we may not satisfy the contractual requirements for early cancellation
under the lease.

Our business could be harmed if our existing franchisees do not conduct their business in accordance with
agreed upon standards.

Our success depends, in part, upon the ability of our franchisees to operate their stores and promote and
develop our store concept. Although our franchise agreements include certain operating standards, all franchisees
operate independently and their employees are not our employees. We provide certain training and support to our

15

franchisees, but the quality of franchise store operations may be diminished by any number of factors beyond our
control. Consequently, franchisees may not successfully operate stores in a manner consistent with our standards
and requirements, or may not hire and train qualified managers and other store personnel. If they do not, our
image, brand and reputation could suffer.

Our information systems, order fulfillment and distribution facilities may prove inadequate or may be
disrupted.

We depend on our management information systems for many aspects of our business. We will be

materially adversely affected if our management information systems are disrupted or we are unable to improve,
upgrade, maintain and expand our systems. In particular, we believe our perpetual inventory, automated
replenishment and stock ledger systems are necessary to properly forecast, manage and analyze our inventory
levels, margins and merchandise ordering quantities. We may fail to properly optimize the effectiveness of these
systems, or to adequately support and maintain the systems. Moreover, we may not be successful in developing
or acquiring technology that is competitive and responsive to our customers and might lack sufficient resources
to make the necessary investments in technology needs and to compete with our competitors, which could have a
material adverse impact on our business, results of operations, cash flows and financial performance.

In addition, we may not be able to prevent a significant interruption in the operation of our electronic order
entry and information systems, e-commerce platform or manufacturing and distribution facilities due to natural
disasters, accidents, systems failures or other events. Any significant interruption in the operation of these
facilities, including an interruption caused by our failure to successfully expand or upgrade our systems or
manage our transition to utilizing the expansions or upgrades, could reduce our ability to receive and process
orders and provide products and services to our stores, third-party stores, and other customers, which could result
in lost sales, cancelled sales and a loss of loyalty to our brand.

We may fail to adequately maintain the security of our electronic and other confidential information.

We have become increasingly centralized and dependent upon automated information technology processes.

In addition, a portion of our business operations is now conducted over the Internet. We could experience
operational problems with our information systems and e-commerce platform as a result of system failures,
viruses, computer “hackers” or other causes. Any material disruption or slowdown of our systems could cause
information, including data related to customer orders, to be lost or delayed, which could—especially if the
disruption or slowdown occurred during a peak sales season—result in delays in the delivery of merchandise to
our stores and customers or lost sales, which could reduce demand for our merchandise and cause our sales to
decline.

In addition, in the ordinary course of our business, we collect and store certain personal information from

individuals, such as our customers and suppliers, and we process customer payment card and check information,
including via our e-commerce platform. Computer hackers may attempt to penetrate our computer system and, if
successful, misappropriate personal information, payment card or check information or confidential Company
business information. In addition, a Company employee, contractor or other third party with whom we do
business may attempt to circumvent our security measures in order to obtain such information and may
purposefully or inadvertently cause a breach involving such information. Any failure to maintain the security of
our customers’ confidential information, or data belonging to us or our suppliers, could put us at a competitive
disadvantage, result in deterioration in our customers’ confidence in us, subject us to potential litigation and
liability, and fines and penalties, resulting in a possible material adverse impact on our business, results of
operations, cash flows and financial performance.

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Historically we have made a number of acquisitions, and we may make more acquisitions in the future as part
of our growth strategy. Future acquisitions or investments could disrupt our ongoing business, distract
management and employees, increase our expenses and adversely affect our business. In addition, we may not
be able to identify suitable acquisitions.

We have made a number of recent acquisitions which have contributed to our growth. Acquisitions require
significant capital resources and can divert management’s attention from our existing business. Acquisitions also
entail an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising
from events or conduct predating the acquisition, that were not known to us at the time of acquisition. We may
also incur significantly greater expenditures in integrating an acquired business than we had anticipated at the
time of the acquisition, which could impair our ability to achieve anticipated cost savings and synergies.
Acquisitions may also have unanticipated tax and accounting ramifications. Our failure to successfully identify
and consummate acquisitions or to manage and integrate the acquisitions we make could have a material adverse
effect on our business, financial condition or results of operations.

In addition, we may not be able to:

identify suitable acquisition candidates;

consummate acquisitions on acceptable terms;

successfully integrate any acquired business into our operations or successfully manage the operations of
any acquired business; or

retain an acquired company’s significant customer relationships, goodwill and key personnel or otherwise
realize the intended benefits of an acquisition.

•

•

•

•

In the event that the operations of an acquired business do not meet our performance expectations, we may

have to restructure the acquired business or write-off the value of some or all of the assets of the acquired
business.

Our intellectual property rights may be inadequate to protect our business.

We hold a variety of United States trademarks, service marks, patents, copyrights, and registrations and
applications therefor, as well as a number of foreign counterparts thereto and/or independent foreign intellectual
property asset registrations. In some cases, we rely solely on unregistered common law trademark rights and
unregistered copyrights under applicable United States law to distinguish and/or protect our products, services
and branding from the products, services and branding of our competitors. We cannot assure you that no one will
challenge our intellectual property rights in the future. In the event that our intellectual property rights are
successfully challenged by a third party, we could be forced to re-brand, re-design or discontinue the sale of
certain of our products or services, which could result in loss of brand recognition and/or sales and could require
us to devote resources to advertising and marketing new branding or re-designing our products. Further, we
cannot assure you that competitors will not infringe our intellectual property rights, or that we will have adequate
resources to enforce these rights. We also permit our franchisees to use a number of our trademarks and service
marks, including Party City, The Discount Party Super Store, Nobody has more Party for Less, Party America
and Halloween City. Our failure to properly control our franchisees’ use of such trademarks could adversely
affect our ability to enforce them against third parties. A loss of any of our material intellectual property rights
could have a material adverse effect on our business, financial condition and results of operations.

We license from many third parties and do not own the intellectual property rights necessary to sell products

capturing many popular images, such as cartoon or motion picture characters. While none of these licenses is
individually material to our aggregate business, a large portion of our business depends on the continued ability
to license the intellectual property rights to these images in the aggregate. Any injury to our reputation or our
inability to comply with, in many cases, stringent licensing guidelines in these agreements may adversely affect

17

our ability to maintain these relationships. A termination of any of our significant intellectual property licenses,
or any other similarly material limitation on our ability to use certain licensed material may prevent us from
manufacturing and distributing certain licensed products and could cause our customers to purchase these
products from our competitors. In addition, we may be unable to renew some of our significant intellectual
property licenses on terms favorable to us or at all. A large aggregate loss of our right to use intellectual property
under our license agreements could have a material adverse effect on our business, financial condition and results
of operations.

We also face the risk of claims that we have infringed third parties’ intellectual property rights, which could
be expensive and time consuming to defend, cause us to cease using certain intellectual property rights, redesign
certain products or packaging or cease selling certain products or services, result in our being required to pay
significant damages or require us to enter into costly royalty or licensing agreements in order to obtain the rights
to use third parties’ intellectual property rights, which royalty or licensing agreements may not be available at all,
any of which could have a negative impact on our operating profits and harm our future prospects.

Our substantial indebtedness and lease obligations could adversely affect our financial flexibility and our
competitive position.

As of December 31, 2015, we had total indebtedness of $1,786.8 million and an additional $349.1 million of

borrowing capacity available under our asset-based revolving credit facility (“ABL Facility”, collectively with
our $1,340.0 million senior secured term loan facility, the “Senior Credit Facilities”).

As of December 31, 2015, we had outstanding approximately $1,444.5 million in aggregate principal
amount of indebtedness under the Senior Credit Facilities. Such indebtedness bears interest at a floating rate.

We also have, and will continue to have, significant lease obligations. As of December 31, 2015, our
minimum aggregate rental obligation under operating leases for fiscal 2016 through 2020 totaled $585.1 million.

Our substantial level of indebtedness will increase the possibility that we may be unable to generate cash
sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. For
example, it could:

• make it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to

comply with the obligations under any of our debt instruments, including restrictive covenants, could result
in an event of default under the agreements governing such other indebtedness;

•

•

•

•

•

•

require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions,
selling and marketing efforts, product development and other purposes;

increase our vulnerability to adverse economic and industry conditions, which could place us at a
competitive disadvantage compared to our competitors that have relatively less indebtedness;

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;

expose us to the risk of increasing rates as certain of our borrowings, including under the Senior Credit
Facilities, will be at variable interest rates;

restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; and

limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working
capital, capital expenditures, acquisitions, product development and other corporate purposes.

The occurrence of any one of these events could have an adverse effect on our business, financial condition,

results of operations, prospects and ability to satisfy our obligations under our indebtedness.

18

Restrictions under our existing and future indebtedness may prevent us from taking actions that we believe
would be in the best interest of our business.

The agreements governing our existing indebtedness contain and the agreements governing our future
indebtedness will likely contain customary restrictions on us or our subsidiaries, including covenants that, among
other things and subject to certain exceptions, restrict us or our subsidiaries, as the case may be, from:

•

•

incurring additional indebtedness or issuing disqualified stock;

paying dividends or distributions on, redeeming, repurchasing or retiring our capital stock;

• making payments on, or redeeming, repurchasing or retiring indebtedness;

• making investments, loans, advances or acquisitions;

•

•

•

•

•

•

•

entering into sale and leaseback transactions;

engaging in transactions with affiliates;

creating liens;

transferring or selling assets;

guaranteeing indebtedness;

creating restrictions on the payment of dividends or other amounts to us from our subsidiaries; and

consolidating, merging or transferring all or substantially all of our assets and the assets of our subsidiaries.

In addition, the ABL Facility requires us to comply, under specific circumstances, including certain types of

acquisitions, with a minimum fixed charge coverage ratio (as defined therein) covenant of 1.00 to 1.00. At
December 31, 2015, such ratio was 2.27 to 1.00. Our ability to comply with this covenant can be affected by
events beyond our control, and we may not be able to satisfy them. A breach of this covenant would be an event
of default. If an event of a default occurs under the ABL Facility, the ABL Facility lenders could elect to declare
all amounts outstanding under the ABL Facility to be immediately due and payable or terminate their
commitments to lend additional money, which would also lead to a cross-default and cross-acceleration of
amounts owed under the $1,340.0 million senior secured term loan facility (“the Term Loan Credit Agreement”)
and would lead to an event of default under our $350.0 million senior notes if any of the Senior Credit Facilities
were accelerated. If the indebtedness under the Senior Credit Facilities or our other indebtedness were to be
accelerated, our assets may not be sufficient to repay such indebtedness in full. We have pledged a significant
portion of our assets as collateral under the Senior Credit Facilities.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take
other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial
condition and operating performance, which is subject to prevailing economic and competitive conditions and to
certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash
flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our
indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be

forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or
restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the
condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at
higher interest rates and may require us to comply with more onerous covenants, which could further restrict our
business operations. The terms of existing or future debt instruments may restrict us from adopting some of these

19

alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness
on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur
additional indebtedness. In the absence of such operating results and resources, we could face substantial
liquidity problems and might be required to dispose of material assets or operations to meet our debt service and
other obligations. The Senior Credit Facilities and the indentures governing the senior notes will restrict our
ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those
dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to
meet any debt service obligations then due. These alternative measures may not be successful and may not permit
us to meet our scheduled debt service obligations.

Our ability to repay our debt is affected by the cash flow generated by our subsidiaries.

Our subsidiaries own substantially all of our assets and conduct substantially all of our operations.

Accordingly, repayment of our indebtedness will be dependent on the generation of cash flow by our subsidiaries
and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries
may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of
our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual
restrictions may limit our ability to obtain cash from our subsidiaries. While the indentures governing the senior
notes limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make
other intercompany payments to us, these limitations are subject to certain qualifications and exceptions.

In addition, under certain circumstances, legal restrictions may limit our ability to obtain cash from our
subsidiaries. Under the Delaware General Corporation Law (the “DGCL”), our subsidiaries organized in the
State of Delaware may only make dividends (i) out of their “surplus” as defined in the DGCL or (ii) if there is no
such surplus, out of their net profits for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. Under fraudulent transfer laws, certain of our subsidiaries may not pay dividends if the relevant entity
is insolvent or is rendered insolvent thereby. The measures of insolvency for purposes of these fraudulent transfer
laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, an entity would be considered insolvent if:

•

•

•

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its
assets;

the present fair saleable value of its assets was less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as they become absolute and mature;
or

it could not pay its debts as they became due.

While we believe that we and our relevant subsidiaries currently have surplus and are not insolvent, there
can otherwise be no assurance that we and these subsidiaries will not become insolvent or will be permitted to
make dividends in the future in compliance with these restrictions in amounts needed to service our indebtedness.

Significant interest rate changes could affect our profitability and financial performance.

Our earnings are affected by changes in interest rates as a result of our variable rate indebtedness under the

ABL Facility and the Term Loan Credit Agreement. The interest rate swap agreements that we use to manage the
risk associated with fluctuations in interest rates may not be able to fully eliminate our exposure to these changes.

Investment funds affiliated with the Principal Stockholders will have the ability to control the outcome of matters
submitted for stockholder approval and may have interests that differ from those of our other stockholders.

Investment funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) and Advent International

Corporation (“Advent” and, together with THL, the “Principal Stockholders”) beneficially own approximately
73% of our capital stock in the aggregate. The Principal Stockholders have significant influence over corporate

20

transactions. So long as investment funds associated with or designated by the Principal Stockholders continue to
own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%,
the Principal Stockholders will continue to be able to strongly influence or effectively control our decisions,
regardless of whether or not other stockholders believe that the transaction is in their own best interests. Such
concentration of voting power could also have the effect of delaying, deterring or preventing a change of control
or other business combination that might otherwise be beneficial to our stockholders.

Maintaining and improving our financial controls and the requirements of being a public company may strain
our resources, divert management’s attention and affect our ability to attract and retain qualified board
members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
and the New York Stock Exchange (the “NYSE”) rules. The requirements of these rules and regulations have
increased and will continue to significantly increase our legal and financial compliance costs, including costs
associated with the hiring of additional personnel, making some activities more difficult, time-consuming or costly,
and may also place undue strain on our personnel, systems and resources. The Exchange Act requires, among other
things, that we file annual, quarterly and current reports with respect to our business and financial condition.

The Sarbanes-Oxley Act requires, among other things, that we maintain disclosure controls and procedures

and internal control over financial reporting. Ensuring that we have adequate internal financial and accounting
controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently.
We are in the process of documenting our internal controls and testing these controls in order to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). Section 404 will require that we
evaluate our internal control over financial reporting to enable management to report on, and our independent
auditors to audit as of the end of our fiscal year ending December 31, 2016, the effectiveness of those controls.
Both we and our independent registered public accounting firm will be testing our internal controls in connection
with the Section 404 requirements and could, as part of that documentation and testing, identify material
weaknesses, significant deficiencies or other areas for further attention or improvement.

Implementing any appropriate changes to our internal controls may require specific compliance training for

our directors, officers and employees, require the hiring of additional finance, accounting and other personnel,
entail substantial costs to modify our existing accounting systems, and take a significant period of time to
complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls,
and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a
timely basis, could increase our operating costs and could materially impair our ability to operate our business.
Moreover, adequate internal controls are necessary for us to produce reliable financial reports and are important
to help prevent fraud. As a result, our failure to satisfy the requirements of Section 404 on a timely basis could
result in the loss of investor confidence in the reliability of our financial statements, which in turn could cause the
market value of our common stock to decline.

Various rules and regulations applicable to public companies make it more difficult and more expensive for
us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and
officers’ liability insurance, our ability to recruit and retain qualified officers and directors, especially those
directors who may be deemed independent for purposes of the NYSE rules, will be significantly curtailed.

The market price of our common stock could decline due to the large number of outstanding shares of our
common stock eligible for future sale.

Sales of substantial amounts of our common stock in the public market in future offerings, or the perception
that these sales could occur, could cause the market price of our common stock to decline. These sales could also

21

make it more difficult for us to sell equity or equity-related securities in the future, at a time and price that we
deem appropriate. In addition, the additional sale of our common stock by our officers, directors and Principal
Stockholders in the public market, or the perception that these sales may occur, could cause the market price of
our common stock to decline.

We may issue shares of our common stock or other securities from time to time as consideration for, or to

finance, future acquisitions and investments or for other capital needs. We cannot predict the size of future
issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market
price of our common stock. If any such acquisition or investment is significant, the number of shares of common
stock or the number or aggregate principal amount, as the case may be, of other securities that we may issue may
in turn be substantial and may result in additional dilution to our stockholders. We may also grant registration
rights covering shares of our common stock or other securities that we may issue in connection with any such
acquisitions and investments.

To the extent that any of us, our executive officers, directors or the Principal Stockholders sell, or indicate

an intent to sell, substantial amounts of our common stock in the public market, the trading price of our common
stock could decline significantly.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2.

Properties

The Company maintains the following facilities for its corporate and retail headquarters and to conduct its

principal design, manufacturing and distribution operations:

Location

Principal Activity

Square Feet

Elmsford, New York

Rockaway, New Jersey

East Providence, Rhode

Island

Eden Prairie, Minnesota

Eden Prairie, Minnesota

Harriman, New York

Los Lunas, New Mexico

Louisville, Kentucky

Melaka, Malaysia

Executive and other
corporate offices,
showrooms, design and art
production for party
products
Retail corporate offices

Manufacture and
distribution of plastic
plates, cups and bowls
Manufacture of metallic
balloons and accessories
Manufacture of retail,
trade show and showroom
fixtures
Manufacture of paper
napkins
Manufacture of injection
molded plastics
Manufacture and
distribution of paper plates
Manufacture and
distribution of latex
balloons

22

119,469 square feet

Owned or Leased
(With Expiration Date)

Leased (expiration date:
December 31, 2021)

106,000 square feet

229,230 square feet(1)

Leased (expiration date:
July 31, 2017)
Leased (expiration date:
April 27, 2016)

115,600 square feet

Owned

15,324 square feet

Leased (expiration date:
October 31, 2020)

74,400 square feet

85,055 square feet

Leased (expiration date:
March 31, 2019)
Owned

189,175 square feet

100,000 square feet

Leased (expiration date:
March 31, 2025)
Leased (expiration date:
May 30, 2072)

Location

Principal Activity

Square Feet

Newburgh, New York

Tijuana, Mexico

Brooklyn, New York

Chester, New York

Edina, Minnesota

Kircheim unter Teck,

Germany

Livonia, Michigan

Milton Keynes,

Buckinghamshire,
England

Naperville, Illinois

Manufacture of paper
napkins and cups
Manufacture and
distribution of party
products
Distribution of balloons

Distribution of party and
gift products
Distribution of metallic
balloons and accessories
Distribution of party
goods
Distribution of party
goods for Halloween City
Distribution of party
products throughout
Europe
Distribution of party
goods for e-commerce
sales

52,400 square feet

135,000 square feet

Owned or Leased
(With Expiration Date)

Leased (expiration date:
May 31, 2018)
Leased(2)

68,700 square feet

896,000 square feet

Leased (expiration date:
March 31, 2018)
Owned

122,312 square feet

215,000 square feet

Leased (expiration date:
March 31, 2021)
Owned

89,780 square feet

130,858 square feet

440,343 square feet

Leased (expiration date:
May 31, 2019)
Leased (expiration date:
June 30, 2017)

Leased (expiration date:
December 31, 2018)

(1) This figure represents an industrial park, which includes a 48,455 square foot office and warehouse.
(2) Property is comprised of two buildings with various lease expiration dates through March 30, 2017.

In addition to the facilities listed above, we maintain smaller distribution facilities in Mexico and the United

Kingdom; small administrative offices in California, Australia and the United Kingdom and sourcing offices in
China, Hong Kong, Indonesia, Vietnam and India. We also maintain a warehouse in New York, sales offices in
Hong Kong and Japan and showrooms in New York, Georgia, Texas, Nevada, Canada and the United Kingdom.

As of December 31, 2015, Company-owned and franchised retail stores were located in the following states

and Puerto Rico:

State

Company-owned

Franchise

Chain-wide

Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hawaii
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

1
0
0
100
14
16
1
65
30
0
51
21
8
6
9
4
3

8
16
3
15
0
0
1
9
1
2
0
0
0
0
0
8
0

9
16
3
115
14
16
2
74
31
2
51
21
8
6
9
12
3

State

Company-owned

Franchise

Chain-wide

Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12
24
30
0
0
18
0
4
6
7
27
0
52
0
0
30
2
0
14
0
3
4
6
51
2
14
15
2
12

12
0
0
18
3
1
1
0
0
0
2
3
13
19
3
0
0
2
17
5
0
6
7
16
0
8
1
0
0

24
24
30
18
3
19
1
4
6
7
29
3
65
19
3
30
2
2
31
5
3
10
13
67
2
22
16
2
12

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

664

200

864

Additionally, at December 31, 2015, there were 48 company-owned retail stores in Canada. In 2015, we

operated 335 temporary stores, under the Halloween City banner, in the U.S. and Canada. Under this program,
we operate stores under short-term leases with terms of approximately four months (to cover the early September
through late October Halloween selling season).

We lease the property for all of our company-operated stores, which generally range in size from 11,000
square feet to 14,000 square feet. We do not believe that any individual store property is material to our financial
condition or results of operations. Of the leases for the company-owned stores at December 31, 2015, 85 expire
in 2016, 74 expire in 2017, 114 expire in 2018, 76 expire in 2019, 48 expire in 2020 and the balance expire in
2021 or thereafter. We have options to extend many of these leases for a minimum of five years.

We believe that our properties have been adequately maintained, are in generally good condition and are

suitable for our business as presently conducted. We believe our existing manufacturing facilities provide
sufficient production capacity for our present needs and for our anticipated needs in the foreseeable future. To the
extent such capacity is not needed for the manufacture of our products, we generally use such capacity for the
manufacture of products for others pursuant to terminable agreements. All manufacturing and distribution
facilities generally are used on a basis of two shifts per day. We also believe that, upon the expiration of our
current leases, we will be able either to secure renewal terms or to enter into leases for alternative locations at
market terms.

24

Item 3.

Legal Proceedings

From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of

our business activities. Except as discussed below, we do not believe we are currently party to any pending legal
action, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably
expected to have a material adverse effect on our business or operating results.

On November 18, 2015, a putative class action complaint was filed in the U.S. District Court for the
Southern District of New York, naming Party City Holdco, Chief Executive Officer James Harrison, and Chief
Financial Officer Michael Correale as defendants. The complaint alleges violations of Section 11 of the
Securities Act of 1933 in connection with public filings related to our April 2015 initial public offering. The
plaintiff seeks to represent a class of shareholders who purchased stock in the initial public offering or who can
trace their shares to that offering. The complaint seeks unspecified damages and costs. We intend to vigorously
defend ourselves against this action. We are unable at this time to determine whether the outcome of the
litigation would have a material impact on our results of operations, financial condition or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

25

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases

of Equity Securities

The Company’s common stock began trading on the NYSE under the symbol “PRTY” on April 16, 2015.
Before then, there was no public market for the Company’s common stock. The following table sets forth, for the
quarterly periods indicated, the high and low market prices per share of the Company’s common stock, as
reported on the NYSE.

Period ended June 30, 2015 (from April 16, 2015) . . . . . . . . . . . .
Quarter ended September 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

22.60
22.33
17.73

19.88
15.55
10.95

As of the close of business on February 29, 2016, there were forty seven holders of record of the Company’s

common stock, which does not reflect those shares held beneficially or those shares held in “street” name.
Accordingly, the number of beneficial owners of our common stock exceeds this number.

Dividend Policy

No dividends were paid to stockholders during fiscal year 2014 or 2015. The Company currently intends to

retain all of its future earnings, if any, to finance operations, development and growth of its business and repay
indebtedness. Most of the Company’s indebtedness contains restrictions on the Company’s activities, including
paying dividends on its capital stock and restricting dividends or other payments to the Company. See Note 8,
Long-Term Obligations, of Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on
Form 10-K for further discussion. Any future determination relating to our dividend policy will be made at the
discretion of the Company’s board of directors and will depend on a number of factors, including future earnings,
capital requirements, financial conditions, future prospects, contractual restrictions and covenants and other
factors that the board of directors may deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

Plan Category

(a)

(b)

Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
incolumn (a))

Equity compensation plans approved by security

holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,517,645

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,517,645

$8.28

—

$8.28

6,590,035

—

6,590,035

26

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on the Company’s common stock

with the S&P 500 Index and the Dow Jones U.S. Specialty Retailers Index for the period from the completion of
our initial public offering on April 16, 2015 through December 31, 2015. The graph assumes an investment of
$100 made at the closing of trading on April 16, 2015 in (i) the Company’s common stock, (ii) the stocks
comprising the S&P 500 Index and (iii) the stocks comprising the Dow Jones U.S. Specialty Retailers Index. All
values assume reinvestment of the full amount of all dividends, if any, into additional shares of the same class of
equity securities at the frequency with which dividends were paid on such securities during the applicable time
period. The stock price performance included in the line graph below is not necessarily indicative of future stock
price performance.

$120.00

$100.00

$80.00

$60.00

$40.00

4/16/15

4/30/15

5/31/15

6/30/15

7/31/15

8/31/15

9/30/15

10/31/15

11/30/15

12/31/15

Party City Holdco, Inc.

S&P 500 (^GSPC)

DJ US Specialty Retailers Index (^DJUSRS)

Item 6. Selected Consolidated Financial Data

The following table sets forth selected historical consolidated financial data for the periods and as of the

dates indicated below. Our selected historical consolidated financial data as of December 31, 2014 and
December 31, 2015 and for the years ended December 31, 2013, December 31, 2014 and December 31, 2015
presented in this table has been derived from our historical audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. Our selected historical consolidated financial data for the year
ended December 31, 2011 and for the periods from January 1, 2012 to July 27, 2012 and July 28, 2012 to
December 31, 2012 were derived from our audited consolidated financial statements that are not included in this
Annual Report on Form 10-K.

On July 27, 2012, PC Merger Sub, Inc. (“Merger Sub”), which was our wholly-owned indirect subsidiary,
merged into PCHI, with PCHI being the surviving entity (the “Transaction”). Immediately afterwards, 100% of
our common stock was owned by funds affiliated with the Principal Stockholders and other minority investors,
including management. As a result of the Transaction, the financial information for the period after July 27, 2012
represents the financial information of the “Successor” company. Prior to, and including, July 27, 2012, the
consolidated financial statements include the accounts of the “Predecessor” company. Due to the change in the
basis of accounting resulting from the application of the acquisition method of accounting and push-down
accounting, the Predecessor’s consolidated financial statements and the Successor’s consolidated financial
statements are not necessarily comparable.

27

The historical results presented below are not necessarily indicative of the results to be expected for any
future period. The following information should be read in conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and our financial statements and the notes
thereto contained in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on
Form 10-K.

Fiscal Year
Ended
December 31,
2011 (1)

Period from
January 1 to
July 27,
2012

Period from
July 28 to
December 31,
2012

Fiscal Year
Ended
December 31,
2013 (2)

Fiscal Year
Ended
December 31,
2014 (3)

Fiscal Year
Ended
December 31,
2015 (4)

(Predecessor) (Predecessor)

(Successor)
(dollars in thousands, except per common share data)

(Successor)

(Successor)

(Successor)

Income Statement Data:
Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,852,869
19,106
Royalties and franchise fees . . . . . . . . . . . . . .

$ 930,903
9,281

$

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .

1,871,975

940,184

Expenses:

Cost of sales (5)
. . . . . . . . . . . . . . . . . . . . . . .
Wholesale selling expenses . . . . . . . . . . . . . .
Retail operating expenses . . . . . . . . . . . . . . . .
Franchise expenses . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses (6) . . . .
Art and development costs . . . . . . . . . . . . . . .
Impairment of Halloween City trade

name (7) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from operations . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net (8) . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before income taxes . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . .

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling

interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss) attributable to Party City

1,118,973
57,905
325,332
13,685
138,074
16,636

—

201,370
77,743
1,476

122,151
45,741

76,410

574,048
31,568
166,047
6,579
101,502
10,824

—

49,616
41,970
22,245

(14,599)
403

(15,002)

964,330
9,312

973,642

636,410
28,096
172,168
6,128
65,890
8,201

—

56,749
62,062
26,157

(31,470)
(1,322)

(30,148)

$ 2,026,272
18,841

$ 2,251,589 $
19,668

2,275,122
19,411

2,045,113

2,271,257

2,294,533

1,259,188
68,102
369,996
13,320
146,094
19,311

7,500

161,602
143,406
18,478

(282)
(4,525)

4,243

1,375,706
73,910
397,110
14,281
147,718
19,390

—

243,142
155,917
5,891

81,334
25,211

56,123

1,370,884
64,260
401,039
14,394
151,097
20,640

—

272,219
123,361
130,990

17,868
7,409

10,459

135

96

60

224

—

—

Holdco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

76,275

$ (15,098) $

(30,208) $

4,019

$

56,123 $

10,459

Statement of Cash Flow Data:
Net cash provided by (used in)

Operating activities (9) . . . . . . . . . . . . . . . . . . $ 161,264
(138,909)
. . . . . . . . . . . . . . . . . .
Investing activities (9)
(19,784)
Financing activities (9) . . . . . . . . . . . . . . . . . .

$ (18,126) $
(31,824)
33,318

(35,508) $

(1,578,553)
1,629,331

135,818
(112,522)
(18,373)

Per Share Data:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,385.90
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,341.07

$ (469.17) $
$ (469.17) $

(0.32) $
(0.32) $

0.04
0.04

Weighted Average

31,969.09
32,581.22

Outstanding basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend per common share . . . . . . . . . . . . . .
Other Financial Data:
Adjusted EBITDA (10) . . . . . . . . . . . . . . . . . . . . . . $ 275,466
Adjusted EBITDA margin (10)
Adjusted net income (10) . . . . . . . . . . . . . . . . . . . . $
Number of company-owned Party City stores . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . $
Party City brand comp sales (11) . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Share of shelf (12)

88,260
487
44,483

. . . . . . . . . . . . . . .

—

9.5%
60.5%

14.7%

Balance Sheet Data (at end of period):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $
Working capital (13) . . . . . . . . . . . . . . . . . . . . . . . .
Total assets (13) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt (13)(14) . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable common securities . . . . . . . . . . . . . . .
Total equity (14) . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,053
229,235
1,734,444
966,364
36,939
326,091

32,180.51
32,180.51

—

93,405,004
93,405,004

— $

93,725,721
93,725,721
3.60

$ 116,982

$

$

12.4%

22,883

28,864

64.7%

$

$

$

$

$

$

$

$

175,329

18.0%

50,920
600
16,376

63.7%

20,899
393,546
3,223,115
1,791,313
22,205
787,450

320,775

15.7%

68,393
674
61,241

2.9%
67.5%

25,645
400,748
3,272,288
2,129,240
23,555
456,757

28

$

$
$

$

$

$

$

136,387 $
(89,632)
(23,530)

80,212
(100,136)
18,941

0.60 $
0.59 $

0.09
0.09

93,996,355
94,444,137

111,917,168
112,943,807

—

—

362,125 $
15.9%
86,838 $
693
78,241 $
5.8%
70.2%

380,293

16.6%

114,206
712
78,825

1.5%
75.0%

47,214 $
467,115
3,336,491
2,120,796
35,062
487,226

42,919
382,788
3,292,403
1,786,809

—

913,017

(1) The acquisitions of Riethmüller GmbH and Party City Canada are included in the financial statements from their acquisition dates

(January 2011 and July 2011, respectively).

(2) The acquisitions of Party Delights Ltd. (“Party Delights”) and iParty Corp. (“IParty”) are included in the financial statements from their

acquisition dates (March 2013 and May 2013, respectively).

(3) The acquisition of U.S. Balloon Manufacturing Co., Inc. (“U.S. Balloon”) is included in the financial statements from the acquisition

date (October 2014).

(4) The acquisitions of Travis Designs Limited (“Travis”) and Accurate Custom Injection Molding Inc. (“ACIM”) are included in the

financial statements from their acquisition dates (March 2015 and August 2015, respectively).

(5) As a result of the Transaction, the Company applied the acquisition method of accounting and increased the value of its inventory by

(6)

(7)

$89.8 million as of July 28, 2012. Such adjustment increased the Company’s cost of sales during 2014, 2013 and the period from July 28,
2012 to December 31, 2012 by $5.9 million, $25.2 million and $58.6 million, respectively, as the related inventory was sold.
In conjunction with the Transaction, the Company recorded $8.4 million of transaction costs in general and administrative expenses during the
period from January 1, 2012 to July 27, 2012. Additionally, the Transaction accelerated the vesting of certain of the Company’s stock options
and during the period from January 1, 2012 to July 27, 2012 the Company recorded $2.1 million of expense in general and administrative
expenses. Further, due to the vesting of such stock options, the Company made payments in lieu of dividends to the holders of such options and
during the period from January 1, 2012 to July 27, 2012, the Company recorded a $16.1 million charge in general and administrative expenses.
In conjunction with the Transaction, the Company applied the acquisition method of accounting and allocated the $2.7 billion acquisition price
to various tangible and intangible assets, including the Company’s Halloween City trade name. The value that was ascribed to the trade name
was based on the number of Halloween City stores that the Company expected to open during each subsequent Halloween selling season and
the expected performance of such stores. The number of stores that the Company opens during a season is driven by many factors, including the
availability of suitable locations. During 2013, the Company made a strategic decision to open fewer temporary Halloween City stores. As a
result of a change in store performance and the Company’s decision to open fewer Halloween City stores than previously assumed, during 2013
the Company lowered the value of its Halloween City trade name by recording a $7.5 million impairment charge.

(8) During 2015, the Company redeemed all $700 million of its 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, or $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.

During April 2015, in conjunction with the Company’s initial public offering, the Company paid a 2% prepayment penalty, or $7.0
million, in order to redeem $350.0 million of senior PIK toggle notes (the “Nextco Notes”) issued by the Company’s wholly-owned
subsidiaries, PC Nextco and PC Nextco Finance, Inc., and paid a management agreement termination fee of $30.7 million to affiliates of
THL and Advent. The Company recorded the prepayment penalty and termination fee in other expense, net. Additionally, in conjunction
with the redemption of the Nextco Notes, the Company wrote off $8.6 million of capitalized debt issuance costs and original issuance
discounts. The write-off was also recorded in other expense, net. In conjunction with the Transaction, the Company recorded $19.7
million of transaction costs in other expense, net during the period from January 1, 2012 to July 27, 2012 and $24.6 million of transaction
costs during the period from July 28, 2012 to December 31, 2012.

(9) See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity,” for a discussion of

cash flows.

(10) The Company presents adjusted EBITDA and adjusted net income as supplemental measures of our operating performance. The

Company defines EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization and defines
adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative
of our ongoing operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net
income (loss) adjusted for, among other items, intangible asset amortization, non-cash purchase accounting adjustments, amortization of
deferred financing costs and original issue discount, the management fee paid to affiliates of THL and Advent, refinancing charges,
equity based compensation, and impairment charges. The Company presents adjusted EBITDA and adjusted net income as supplemental
measures of its performance. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate
for supplemental analysis. In evaluating adjusted EBITDA and adjusted net income, you should be aware that in the future the Company
may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of
adjusted EBITDA and adjusted net income should not be construed as an inference that the Company’s future results will be unaffected
by unusual or non-recurring items. The Company presents adjusted EBITDA and adjusted net income because the Company believes it
assists investors and analysts in comparing the Company’s performance across reporting periods on a consistent basis by excluding items
that the Company does not believe are indicative of its core operating performance. In addition, the Company uses adjusted EBITDA:
(i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of its business strategies and (iii) because the
credit facility uses adjusted EBITDA to measure compliance with certain covenants. The Company believes adjusted net income is a
helpful benchmark to evaluate its operating performance.

The Company also includes information concerning adjusted EBITDA margin, which is defined as the ratio of adjusted EBITDA to revenue.
The Company presents adjusted EBITDA margin because it is used by management as a performance measurement to judge the level of
adjusted EBITDA generated from revenue. The Company believes its inclusion is appropriate to provide additional information to investors.

29

Adjusted EBITDA, adjusted net income, and adjusted EBITDA margin have limitations as analytical tools. Some of these limitations are:

•

•

•

•

•

•

•

adjusted EBITDA, adjusted net income, and adjusted EBITDA margin do not reflect the Company’s cash expenditures or future
requirements for capital expenditures or contractual commitments;

adjusted EBITDA and adjusted net income do not reflect changes in, or cash requirements for, the Company’s working capital needs;

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

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future, and adjusted EBITDA and adjusted net income do not reflect any cash requirements for such replacements;

non-cash compensation is and will remain a key element of the Company’s overall long-term incentive compensation package,
although the Company excludes it as an expense when evaluating its ongoing operating performance for a particular period;

adjusted EBITDA and adjusted net income do not reflect the impact of certain cash charges resulting from matters the Company
considers not to be indicative of its ongoing operations; and

other companies in the Company’s industry may calculate adjusted EBITDA and adjusted net income differently than the Company
does, limiting its usefulness as a comparative measure.

Because of these limitations, adjusted EBITDA, adjusted net income and adjusted EBITDA margin should not be considered in isolation
or as substitutes for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by
relying primarily on its GAAP results and using adjusted EBITDA, adjusted net income and adjusted EBITDA margin only on a
supplemental basis. The reconciliations from net income (loss) to adjusted EBITDA and adjusted net income for the periods presented is
as follows (dollars in thousands, except per share amounts):

Fiscal Year
Ended
December 31,
2011
(Predecessor)

Period from
January 1 to
July 27,
2012
(Predecessor)

Period from
July 28 to
December 31,
2012
(Successor)

Fiscal Year
Ended
December 31,
2013
(Successor)

Fiscal Year
Ended
December 31,
2014
(Successor)

Fiscal Year
Ended
December 31,
2015
(Successor)

Net income (loss)

. . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . .

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity based compensation . . . . . . . . . .
Non-cash purchase accounting

$ 76,410
77,743
45,741
59,631

259,525
1,397

$ (15,002)
41,970
403
33,915

61,286
3,375

$ (30,148)
62,062
(1,322)
49,837

80,429
—

$

4,243
143,406
(4,525)
94,624

237,748
2,137

$ 56,123
155,917
25,211
82,890

320,141
1,583

$ 10,459
123,361
7,409
80,515

221,744
3,042

adjustments . . . . . . . . . . . . . . . . . . . .
Management fee . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . .
Restructuring, retention and

severance . . . . . . . . . . . . . . . . . . . . . .
Payment in lieu of dividend . . . . . . . . . .
Refinancing charges . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . .
Business interruption . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . .
Corporate development expenses . . . . .
Foreign currency (gains) losses . . . . . . .
Store closing costs . . . . . . . . . . . . . . . . .
Undistributed (income) loss in

unconsolidated joint venture . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . .
Change-of-control license premium . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

—
1,248
87

2,513
617
—
7,467
—
—
2,471
(280)
664

(463)
—
—
220

—
713
—

355
16,533(d)
—
3,344
—
28,582(f)
2,395
148
305

(128)
—
—
74

58,626(a)
1,292(b)
—

784
—
—
6,335
2,000
24,564(f)
351
532
169

(297)
—
—
544

25,229(a)
3,000(b)
7,822(c)

4,673
—
12,295(e)
17,055
500
—
4,828
1,581
1,498

172
—
—
2,237

8,868(a)
3,356(b)
1,012

3,391
—
4,396
14,418
(2,435)
—
700
1,447
1,199

1,556
—
—
2,493

4,470(a)
31,627(b)
852

2,318
—
94,607(e)
13,407
—
—
1,786
3,691
1,901

562
(2,660)
3,000
(54)

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . .

$275,466

$116,982

$175,329

$320,775

$362,125

$380,293

30

Fiscal Year
Ended
December 31,
2011
(Predecessor)

Period from
January 1 to
July 27,
2012
(Predecessor)

Period from
July 28 to
December 31,
2012
(Successor)

Fiscal Year
Ended
December 31,
2013
(Successor)

Fiscal Year
Ended
December 31,
2014
(Successor)

Fiscal Year
Ended
December 31,
2015
(Successor)

$ 122,151

$(14,599)

11,116(g)

5,542(g)

$(31,470)

14,160(g)

$

(282)
26,997(g)

$ 81,334

$ 17,868

22,195(g)

18,885(g)

Income (loss) before income taxes . . . . . . .
Intangible asset amortization . . . . . . . . .
Non-cash purchase accounting

adjustments . . . . . . . . . . . . . . . . . . . .

—

—

71,755(a)

39,414(a)

13,692(a)

6,445(a)

Amortization of deferred financing

costs and original issuance
discount

. . . . . . . . . . . . . . . . . . . . . . .
Management fee . . . . . . . . . . . . . . . . . . .
Refinancing charges . . . . . . . . . . . . . . . .
Equity based compensation . . . . . . . . . .
Payment in lieu of dividend . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . .
Change-of-control license premium . . .
Transaction costs . . . . . . . . . . . . . . . . . .

4,500(h)
1,248
—
1,397
617
87
—
—
—

Adjusted income before income taxes . . . .
Adjusted income taxes . . . . . . . . . . . . . . . . . .

141,116

52,856(i)

2,592(h)
713
—
3,375
16,533(d)
—
—
—
28,582(f)

42,738
19,855(i)

4,605(h)
1,292(b)
—
—
—
—
—
—
24,564(f)

84,906
33,986(i)

20,211(h)(e)
3,000(b)
4,068(e)
2,137
—
7 ,822(c)
—
—
—

15,610(h)
3,356(b)
1,407
1,583
—
1,012
—
—
—

40,516(h)(e)
31,627(b)
65,338(e)
3,042
—
852
(2,660)
3,000
—

103,367

34,974(i)

140,189

53,351(i)

184,913

70,707(i)

Adjusted net income . . . . . . . . . . . . . . . . . .

$ 88,260

$ 22,883

$ 50,920

$ 68,393

$ 86,838

$114,206

Adjusted net income per common share—
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,708.92

$ 701.81

$

0.55

$

0.73

$

0.92

$

1.01

(a) As a result of the Transaction, the Company applied the acquisition method of accounting and increased the value of its inventory by $89.8

million as of July 28, 2012. Such adjustment increased the Company’s cost of sales during 2014, 2013 and the period from July 28, 2012
to December 31, 2012 by $5.9 million, $25.2 million and $58.6 million, respectively, as the related inventory was sold. Further, during the
application of the acquisition method of accounting, the Company increased the value of certain property, plant and equipment. The
impact of such adjustments on depreciation expense increased the Company’s expenses during 2015, 2014, 2013, and the period from
July 28, 2012 to December 31, 2012 by $2.8 million, $4.8 million, $14.2 million and $13.1 million, respectively. These property, plant and
equipment depreciation amounts are included in “Non-cash purchase accounting adjustments” for purposes of calculating “adjusted net
income”, but are excluded from “Non-cash purchase accounting adjustments” for purposes of calculating adjusted EBITDA since they are
included in depreciation expense.

(c)

(b) At the time of the Transaction, 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 in
April 2015, the management agreement was terminated and the Company paid THL and Advent a termination fee. Such amount,
$30.7 million, was recorded in other expense, net. See Note 9 in Item 8, “Financial Statements and Supplemental Data,” for further
discussion.
In conjunction with the Transaction, the Company applied the acquisition method of accounting and allocated the $2.7 billion
acquisition price to various tangible and intangible assets, including the Company’s Halloween City trade name. The value that was
ascribed to the trade name was based on the number of Halloween City stores that the Company expected to open during each
subsequent Halloween selling season and the expected performance of such stores. The number of stores that the Company opens
during a season is driven by many factors, including the availability of suitable locations. During 2013, the Company made a
strategic decision to open fewer temporary Halloween City stores. As a result of a change in store performance and the Company’s
decision to open fewer Halloween City stores than previously assumed, during 2013 the Company lowered the value of its
Halloween City trade name by recording a $7.5 million impairment charge.
In December 2010, a one-time cash dividend was declared. In addition, holders of unvested options at the declaration date would
receive a distribution when the options vested. At the time of the Transaction in 2012, certain outstanding stock options became fully
vested and distributions were made in the amount of $16.1 million. Further, prior to the Transaction, during 2012 certain outstanding
stock options became fully vested and the Company made distributions in the amount of $0.4 million. The Company recorded charges
equal to such amounts in general and administrative expenses during the period from January 1, 2012 to July 27, 2012.

(d)

(e) During 2015, the Company refinanced its debt. In conjunction with the refinancing, the Company paid a call premium and other

third-party costs. The Company recorded such payments, $56.4 million in aggregate, in the Company’s 2015 consolidated statement
of income and comprehensive loss. The amount is included in “Refinancing charges” in the tables above. Additionally, in
conjunction with the refinancing, the Company wrote off $22.7 million of capitalized debt issuance costs, original issuance
discounts and call premiums. Such charge was recorded in the Company’s 2015 consolidated statement of income and
comprehensive loss and included in “Refinancing charges” in the adjusted EBITDA table above and in “Amortization of deferred
financing costs and original issue discounts” in the adjusted net income table above (consistent with the presentation in the
Company’s consolidated statement of cash flows included elsewhere in this annual Report on Form 10-K). Further, as the Company
was required to provide 30 days of notice when calling its Old Senior Notes, during a portion of 2015 both the Old Senior Notes and
Senior Notes were outstanding. The overlapping interest expense, $2.0 million, is included in “Refinancing charges” in the adjusted

31

net income table above. See Note 7 in Item 8, “Financial Statements and Supplementary Data,” for further discussion of the
refinancing. During 2015, the Company used proceeds from the initial public offering to redeem the Nextco Notes. The redemption
resulted in a prepayment penalty of $7.0 million. The Company recorded the prepayment penalty in the Company’s 2015
consolidated statement of income and comprehensive loss. The amount is included in “Refinancing charges” in the tables above.
Additionally, in conjunction with the redemption, the Company wrote off $8.6 million of capitalized debt issuance costs and
original issuance discounts related to the Nextco Notes. Such charge was recorded in the Company’s consolidated statement of
income and comprehensive loss during 2015 and included in “Refinancing charges” in the adjusted EBITDA table above and in
“Amortization of deferred financing costs and original issue discounts” in the adjusted net income table above (consistent with the
presentation in the Company’s consolidated statement of cash flows included elsewhere in this Annual Report on Form 10-K). See
Note 8 in Item 8, “Financial Statements and Supplementary Data,” for further discussion of the redemption of the Nextco Notes.
During February 2013, the Company amended the Old Term Loan Credit Agreement. In conjunction with that amendment, the
Company wrote-off $5.9 million of costs that had been capitalized during the initial issuance of the debt. Additionally, the Company
wrote-off $2.3 million of the net original issuance discount that existed as of the time of that amendment. The amounts are included
in “Refinancing charges” in the adjusted EBITDA table above and in “Amortization of deferred financing costs and original issue
discount” in the adjusted net income table above (consistent with the presentation in the Company’s consolidated statement of cash
flows included elsewhere in this Annual Report on Form 10-K). Further, in conjunction with that amendment, the Company
expensed $2.5 million of a call premium and $1.6 million of investment banking and legal fees. These amounts are included in
“Refinancing charges” in the tables above.
In conjunction with the Transaction, the Company incurred certain non-recurring costs, principally related to the Principal
Stockholders’ fees, banker fees and attorney fees.

(f)

(g) Represents the amortization of intangible assets, including those assets recorded in conjunction with the application of the

acquisition method of accounting due to the Transaction.

(h) Represents the amortization of deferred financing costs and original issuance discounts related to debt offerings. Additionally, 2015

and 2013 include the write-off of deferred financing costs, net original issuance discounts and capitalized call premiums in
conjunction with refinancings. See note (e) for further discussion.

(i) Represents adjusted income tax expense using the rate in effect after considering the adjustments. Additionally, 2014 adjusted
income tax expense excludes a non-recurring income tax benefit related to costs incurred in conjunction with the Transaction.

(11) Party City brand comp sales include North American e-commerce sales.
(12) Represents the percentage of product costs included in cost of goods sold by our Party City stores and North American retail e-commerce

operations which relate to products supplied by our wholesale operations.

(13) Amounts for 2011 to 2014 adjusted to reflect the Company’s retrospective adoption during the fourth quarter of 2015 of Financial

Accounting Standards Board Accounting Standards Update 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. Deferred
financing costs in the amounts of $44.4 million, $55.2 million, $60.2 million and $15.9 million were reclassified from “other assets” to
debt as of December 31, 2014, 2013, 2012 and 2011, respectively. See Item 7. below for further discussion.

(14) Excludes redeemable common securities.

32

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 by revenue. With over 900 locations (inclusive of
approximately 200 franchised stores), 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. During the
Halloween selling season, we also operate a network of approximately 300 temporary stores under the Halloween
City banner.

Through a series of acquisitions starting in 2005, 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. Based on our revenues,
we believe we are the largest global designer, manufacturer and distributor of decorated party supplies 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 products are available in over 100
countries with the U.K., Germany, Australia and France among the largest end markets for our products outside
of North America.

How We Assess the Performance of Our Company

In assessing the performance of our company, we consider a variety of performance and financial measures

for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit,
comparable retail same-store sales and operating expenses. We also review other metrics such as adjusted net
income (loss), adjusted EBITDA and adjusted EBITDA margin. For a discussion of our use of these measures
and a reconciliation of adjusted net income (loss) and adjusted EBITDA to net income (loss), please refer to
Item 6, “Selected Consolidated Financial Data.”

Segments

Our retail operations generate revenue primarily through the sale of Amscan, Designware, Anagram,
Costumes USA and other party supplies through Party City, Halloween City and PartyCity.com. During 2015,
approximately 75% of the product that was sold by our retail operations was supplied by our wholesale
operations.

Our wholesale revenues are generated from the sale of party goods for all occasions, including paper and

plastic tableware, accessories and novelties, metallic and latex balloons, stationery and gift items. Our products
are sold at wholesale to party goods superstores, including our franchise stores, other party goods retailers, mass
merchants, independent card and gift stores, dollar stores and other retailers and distributors throughout the
world.

Intercompany sales between the Wholesale and the Retail segment are eliminated, and the wholesale profits

on intercompany sales are deferred and realized at the time the merchandise is sold to the retail consumer. For
segment reporting purposes, certain general and administrative expenses and art and development costs are
allocated based on total revenues.

Financial Measures

Revenues. Revenues from retail store 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

33

information. E-commerce sales are recorded on a FOB destination basis and include shipping revenues. 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 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. 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 at both retail and
wholesale, inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution
costs and outbound freight to get goods to our wholesale customers. At retail, cost of sales reflects the direct cost
of goods purchased from third parties and the production or purchase costs of goods acquired from our wholesale
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.

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. (“Merger Sub”), which was our wholly-owned indirect subsidiary,
merged into Party City Holdings Inc. (“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.

34

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.

General and Administrative Expenses. General and administrative expenses include all operating costs not

included elsewhere in the statement of income 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.

In conjunction with the Transaction, we incurred transaction costs that were recorded in general and
administrative expenses. Additionally, the Transaction accelerated the vesting of certain stock options and we
recorded a charge in general and administrative expenses. Further, due to the vesting of such stock options, we
made payments in lieu of dividends to the holders of such options and recorded a charge in general and
administrative expenses. See “— Results of Operations” for further discussion of these charges.

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 facility uses Adjusted EBITDA to measure compliance with certain covenants.

Adjusted Net Income (Loss). 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 management fee paid to affiliates of THL and Advent, refinancing
charges, equity based compensation and impairment charges. 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.

Adjusted Net Income (Loss) Per Common Share — Diluted. Adjusted net income per common share—
diluted represents adjusted net income (loss) divided by the Company’s diluted weighted average common shares
outstanding. We present the metric because we believe it assists investors and analysts in comparing our per
share performance across reporting periods on a consistent basis by excluding items that we do not believe are
indicative of our core operating performance.

35

Executive Overview

Total revenues for the year ended December 31, 2015 were $2,294.5 million and were $23.3 million or

1.0% higher than 2014. However, the 2015 fiscal year of our retail operations consisted of 52 weeks, as
compared to 53 weeks during fiscal year 2014. During fiscal year 2014, the 53rd week (the week from
December 29, 2013 to January 4, 2014) contributed approximately $29 million to 2014 net sales. When adjusted
to exclude the impact of 2014’s 53rd week, revenues during 2015 were 2.3% higher than during 2014.

Adjusted EBITDA increased from $362.1 million in 2014 to $380.3 million in 2015 and adjusted net

income increased from $86.8 million to $114.2 million.

Adjusted net income per common share — diluted was $1.01 during 2015.

Factors Affecting Our Results

Other important events that have impacted or will impact the results presented in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” include:

Initial Public Offering. During April 2015, the Company consummated an initial public offering of its
common stock. In conjunction with such offering, the Company paid a 2% prepayment penalty, or $7.0 million,
in order to redeem its Nextco Notes, and the Company paid a management agreement termination fee of $30.7
million to affiliates of THL and Advent. The Company recorded the prepayment penalty and termination fee in
other expense, net in the Company’s consolidated statement of income and comprehensive loss. Additionally, in
conjunction with the redemption of the Nextco Notes, the Company wrote off $8.6 million of capitalized debt
issuance costs and original issuance discounts. The write-off was also recorded in other expense, net in the
Company’s consolidated statement of income and comprehensive loss.

Refinancing. During August 2015, the Company redeemed its $700 million Old Senior Notes and refinanced

its existing $1,125 million Old Term Loan Credit Agreement and $400 million 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.

Foreign Exchange. Our international operations conduct business in various currencies. As many of the

operations utilize U.S. Dollars to purchase product and then sell to customers in other currencies, the
strengthening of the U.S. Dollar negatively impacts the margins of such operations. Additionally, when the sales
and other income statement amounts of the foreign entities are translated into U.S. Dollars during the financial
statement consolidation process, the strengthening of the U.S. Dollar decreases such amounts in the Company’s
consolidated statement of income and comprehensive income (loss). Therefore, during 2015, the strengthening of
the U.S. Dollar versus the Euro, Pound, Canadian Dollar and Australian Dollar negatively impacted the
Company’s results when compared to 2014. Please see “Results of Operations” below for further discussion.

53rd Week. The 2014 fiscal year of our Retail operations consisted of 53 weeks. Fiscal year 2015 had 52
weeks. The 53rd week (the week from December 29, 2013 to January 4, 2014) contributed approximately $29
million to fiscal 2014 Retail net sales. Please see “Results of Operations” below for further discussion of the
impact of the 53rd week on the various accounts in our consolidated statement of income and comprehensive
loss.

36

Recent Acquisitions. In October 2014, we acquired U.S. Balloon, a distributor of metallic balloons. The

acquisition allowed us to capture the full manufacturing-to-retail margin on balloons that we manufacture and
sell at company-owned Party City stores. However, the acquisition decreased our 2015 wholesale third-party
sales, in comparison to 2014, due to the elimination of the now intercompany sales from our metallic balloon
manufacturing operation, Anagram, to U.S. Balloon. Please see “Results of Operations” below for further
discussion.

Transaction-Related Costs. 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 reflects
the previously deferred wholesale margin on inventory supplied to our retail operations at July 27, 2012. The
adjustment increased our cost of sales as the related inventory was sold. Please see “Results of Operations”
below for further discussion of the impact on our consolidated statements of income and comprehensive income
(loss).

Additionally, as a result of the Transaction, we applied the acquisition method of accounting and recorded

our property, plant and equipment and intangible assets at fair value. The impact of such adjustments on
depreciation expense and amortization expense increased our cost of sales during periods subsequent to July 27,
2012. Please see “Results of Operations” below for further discussion of the impact on our consolidated
statements of income and comprehensive income (loss).

Results of Operations

Year Ended December 31, 2015 Compared To Year Ended December 31, 2014

The following tables set forth our operating results and operating results as a percentage of total revenues

for the years ended December 31, 2015 and 2014.

Years Ended December 31,

2015

2014

(Dollars in thousands, except per share data)

Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,275,122
19,411

99.2% $2,251,589
19,668
0.8

99.1%
0.9

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,294,533

100.0

2,271,257

100.0

Expenses:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Art and development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,370,884
64,260
401,039
14,394
151,097
20,640

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,022,314

Income from operations . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income per common share — basic . . . . . . . . . . . .
Net income per common share — diluted . . . . . . . . . . .

272,219
123,361
130,990

17,868
7,409

10,459

0.09
0.09

$

$
$

59.7
2.8
17.5
0.6
6.6
0.9

88.1

11.9
5.4
5.7

0.8
0.3

1,375,706
73,910
397,110
14,281
147,718
19,390

2,028,115

243,142
155,917
5,891

81,334
25,211

60.6
3.3
17.4
0.6
6.5
0.9

89.3

10.7
6.9
0.2

3.6
1.1

0.5% $

56,123

2.5%

$
$

0.60
0.59

37

53rd Week

The 2015 fiscal year of our retail operations consisted of 52 weeks, as compared to 53 weeks during fiscal

year 2014. During fiscal year 2014, the 53rd week (the week from December 29, 2013 to January 4, 2014)
contributed approximately $29 million to 2014 net sales.

Revenues

Total revenues for the year ended December 31, 2015 were $2,294.5 million and were $23.3 million or
1.0% higher than the corresponding period of 2014. The following table sets forth the Company’s total revenues
for the years ended December 31, 2015 and 2014.

Years Ended December 31,

2015

2014

Dollars in
Thousands

Percentage of
Total Revenues

Dollars in
Thousands

Percentage of
Total Revenues

Net Sales:
Wholesale . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . .

Net wholesale . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total net sales . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . .

$1,226,989
(573,391)

53.5%
(25.0)%

$1,213,024
(566,663)

653,598
1,621,524

2,275,122
19,411

28.5%
70.7%

99.2%
0.8%

646,361
1,605,228

2,251,589
19,668

53.4%
(24.9)%

28.5%
70.6%

99.1%
0.9%

Total revenues . . . . . . . . . . . . . . . .

$2,294,533

100.0%

$2,271,257

100.0%

Retail

Retail net sales during 2015 were $1,621.5 million and increased $16.3 million, or 1.0%, compared to full-

year 2014.

During 2015, retail net sales at our Party City stores totaled $1,394.9 million and were $8.5 million, or

0.6%, higher than during 2014. The impact of the 53rd week was more than offset by the operation of 19
additional stores during 2015 (27 stores were opened, six stores were acquired from franchisees and 14 stores
were closed during the year) and positive same-store sales (discussed below). In addition to the impact of the 53rd
week (approximately $28 million), these positive factors were also partially offset by foreign currency
translation, which negatively impacted store sales by approximately $12 million due to the strengthening of the
U.S. Dollar in comparison to the Canadian Dollar. Global retail e-commerce sales totaled $142.9 million during
2015 and were $1.5 million, or 1.1%, higher than 2014 as an increase in e-commerce comp sales (discussed
below) was partially offset by both foreign currency translation and the impact of the 53rd week (approximately
$1 million). Global retail e-commerce sales were negatively impacted by approximately $2 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 $83.7 million during 2015, or $6.3 million higher than 2014, as the Company operated 335
stores in 2015 (compared to 315 in 2014) and average sales per store increased by 1.9%.

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) increased by approximately $22 million or 1.5% during 2015 as a 2.3%
increase in average transaction dollar size was partially offset by a 0.8% decrease in transaction count. Same-
store sales for 2015 were negatively impacted by the lapping of last year’s Frozen sales and the temporary
disruptive effect of store resets. Brick and mortar same-store sales increased by approximately $17 million or
1.2% as a 2.3% increase in average transaction dollar size was partially offset by a 1.1% decrease in transaction
count. The North American retail e-commerce sales included in our Party City brand comp increased by 4.3% as

38

a 5.4% increase in transaction count was partially offset by a 1.1% 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 2015 totaled $653.6 million and were $7.2 million, or 1.1%, higher than during

2014. During the period, net sales to domestic party goods retailers and distributors, including our franchisee
network, totaled $305.6 million and were $0.7 million, or 0.2%, lower than 2014. The sales decrease was
principally due to lower sales of both gift product (approximately $3 million) and seasonal party goods
(approximately $1 million); which were substantially offset by higher contract manufacturing sales
(approximately $3 million), partially due to the acquisition of Accurate Custom Injection Molding Inc. in August
2015. Net sales of metallic balloons to domestic distributors, other domestic retailers and our franchisee network
totaled $83.2 million and were $5.6 million, or 6.3%, lower than in 2014. Our acquisition of U.S. Balloon in
October 2014 resulted in an increase of approximately $5 million of third-party sales during 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. During 2014, prior to the acquisition, our metallic balloon sales to U.S.
Balloon totaled approximately $19 million and were reported as third-party sales in that period. Excluding the net
impact of the U.S. Balloon acquisition, metallic balloon sales increased during 2015 principally due to strong
sales of licensed product and the timing of certain Valentine’s Day sales. Sales from our international operations
(including certain import sales into the U.S.) and our U.S. export sales totaled $264.8 million and were $13.5
million, or 5.4%, higher than during 2014. Foreign currency translation negatively impacted 2015 international
sales by approximately $25 million. Excluding the impact of foreign currency, the increase in international sales
principally reflects higher sales of party goods in Australia (approximately $14 million) and Europe
(approximately $8 million), as well as increased European sales of Christy’s costumes (approximately $7
million) and the impact of the acquisition of Travis Designs Limited in March 2015 (approximately $4 million).

Intercompany sales to our retail affiliates totaled $573.4 million during 2015 and were $6.7 million, or
1.2%, higher than during 2014. Intercompany sales represented 46.7% of total wholesale sales during both 2015
and 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 2015 and 2014 were $19.4 million and $19.7 million, respectively.

Gross Profit

Our total gross profit on net sales during 2015 was 39.7%, compared to 38.9% during 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 2014 by $5.9 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 2015 and 2014 by $11.2 million and
$15.2 million, respectively. The purchase accounting adjustments to cost of sales negatively impacted our gross
profit percentages during 2015 and 2014 by 50 basis points and 90 basis points, respectively.

39

The following table sets forth the Company’s gross profit for the years ended December 31, 2015 and

December 31, 2014.

Year Ended December 31,

2015

2014

Dollars in
Thousands

Percentage of
Net Sales

Dollars in
Thousands

Percentage of
Net Sales

Retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$703,236
201,002

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$904,238

43.4%
30.8

39.7%

$674,453
201,430

$875,883

42.0%
31.2

38.9%

The gross profit on net sales at retail during 2015 and 2014 was 43.4% and 42.0%, respectively. The

purchase accounting adjustments to cost of sales negatively impacted retail’s gross profit percentage during 2015
and 2014 by 30 basis points and 80 basis points, respectively. In addition to the impact of purchase accounting,
the increase in gross profit percentage during 2015 reflects increased share of shelf and fewer markdowns.
During 2015 and 2014, 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 75.0% and 70.2%, respectively.

The gross profit on net sales at wholesale during 2015 and 2014 was 30.8% and 31.2%, respectively. The

purchase accounting adjustments to cost of sales negatively impacted wholesale’s gross profit percentage during
2015 and 2014 by 90 basis points and 120 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 $4 million, or 60 basis
points, impact). Additionally, the 2015 margin percentage was impacted by changes in sales mix, including
increased lower margin international sales and the elimination of approximately $14 million, net, of higher
margin metallic balloon sales due to the acquisition of U.S. Balloon (see above).

Operating expenses

Wholesale selling expenses totaled $64.3 million during 2015 and were $9.7 million or 13.1% lower than

during the comparable period of 2014. The decrease was principally due to cost savings associated with the
reorganization of both our party/gift sales group and our marketing group, the impact of foreign currency
translation (approximately $3 million), and a $1 million decrease in intangible asset amortization. Wholesale
selling expenses were 9.8% and 11.4% of net wholesale sales during 2015 and 2014, respectively.

Retail operating expenses during 2015 were $401.0 million and were $3.9 million or 1.0%, higher than
2014. The impact of new store expenses (net of closures) and inflationary cost increases were partially offset by
the 53rd week, the timing of certain advertising costs, and the impact of foreign currency translation at our
Canadian and U.K. retail operations (approximately $3 million). Retail operating expenses were 24.7% of net
retail sales during both 2015 and 2014.

Franchise expenses during 2015 and 2014 were $14.4 million and $14.3 million, respectively.

General and administrative expenses during 2015 totaled $151.1 million and were $3.4 million, or 2.3%,

higher than in 2014. The increase principally reflects inflationary cost increases, a non-recurring contract
termination charge of approximately $1 million, and the inclusion of Travis Designs Limited (acquired in March
2015) expenses. These increases were partially offset by foreign currency translation (approximately $3 million)
and the impact of the 53rd week. General and administrative expenses as a percentage of total revenues were
6.6% in 2015 and 6.5% in 2014.

40

Art and development costs during 2015 and 2014 were $20.6 million and $19.4 million, respectively. The
increase of $1.3 million, or 6.4%, was principally due to increased head count and other costs incurred in order to
support the expansion of Halloween and other retail programs. The costs were 0.9% of total revenues during both
2015 and 2014.

Interest expense, net

Interest expense, net, totaled $123.4 million during 2015, compared to $155.9 million during 2014. The

decrease principally reflects the repayment of the 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, net

Other expense, net generally includes foreign currency (gains) losses, corporate development expenses and

(gains) losses from unconsolidated joint ventures.

During 2015, other expense, net, totaled $131.0 million, $79.1 million of which related to the third quarter

refinancing of the Company’s debt (see below) and $46.3 million of which related to the Company’s initial
public offering (see below).

During the third quarter of 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 premium for the Old Senior Notes was 6.656 % of the principal amount, $46.6 million.
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. 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.

During April 2015, in conjunction with the Company’s initial public offering, the Company paid a 2%

prepayment penalty, or $7.0 million, in order to redeem its Nextco Notes, and paid a management agreement
termination fee of $30.7 million to affiliates of THL and Advent. Additionally, in conjunction with the
redemption of the Nextco Notes, the Company wrote off $8.6 million of capitalized debt issuance costs and
original issuance discounts.

During 2014, other expense, net, totaled $5.9 million.

During February 2014, the Company amended the Old Term Loan Credit Agreement. In conjunction with

the refinancing, the Company wrote-off $1.6 million of costs that had been capitalized during the issuance of the
debt. Additionally, the Company wrote-off $0.6 million of the net original issuance discount that existed as of the
time of the amendment and $0.7 million of the unamortized call premium that existed at the time of the
amendment. Also in conjunction with the refinancing, the Company expensed $1.4 million of banker and legal
fees.

Income tax expense

See Note 13 of the consolidated financial statements in Item 8. for a reconciliation of our effective income

tax rates for the years ended December 31, 2015 and December 31, 2014.

41

Year Ended December 31, 2014 Compared To Year Ended December 31, 2013

The following tables set forth our operating results and operating results as a percentage of total revenues

for the years ended December 31, 2014 and 2013.

Years Ended December 31,

2014

2013

(Dollars in thousands, except per share data)

Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,251,589
19,668

99.1% $2,026,272
18,841
0.9

99.1%
0.9

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,271,257

100.0

2,045,113

100.0

Expenses:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Art and development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,375,706
73,910
397,110
14,281
147,718
19,390
0

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,028,115

Income from operations . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax expense (benefit)

Income (loss) before income taxes . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling interests . . . . . . .

243,142
155,917
5,891

81,334
25,211

56,123
0

60.6
3.3
17.4
0.6
6.5
0.9
0.0

89.3

10.7
6.9
0.2

3.6
1.1

2.5
0.0

1,259,188
68,102
369,996
13,320
146,094
19,311
7,500

1,883,511

161,602
143,406
18,478

(282)
(4,525)

4,243
224

61.6
3.3
18.1
0.7
7.1
1.0
0.3

92.1

7.9
7.0
0.9

0.0
(0.2)

0.2
0.0

Net income attributable to Party City

Holdco Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income per common share—basic.
Net income per common share—diluted.

. . . . . . . .
. . . . . . .

$

$
$

56,123

2.5% $

4,019

0.2%

0.60
0.59

$
$

0.04
0.04

Revenues

Total revenues for the year ended December 31, 2014 were $2,271.3 million and were $226.1 million or
11.1% higher than the corresponding period of 2013. The following table sets forth the Company’s total revenues
for the years ended December 31, 2014 and 2013.

Years Ended December 31,

2014

2013

Dollars in
Thousands

Percentage of
Total Revenues

Dollars in
Thousands

Percentage of
Total Revenues

Net Sales:

Wholesale . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . .

$1,213,024
(566,663)

53.4%
(24.9)%

$1,080,740
(487,990)

Net wholesale . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . .

Total net sales . . . . . . . . . . . .
Royalties and franchise fees . . . . .

646,361
1,605,228

2,251,589
19,668

28.5%
70.6%

99.1%
0.9%

592,750
1,433,522

2,026,272
18,841

52.9%
(23.9)%

29.0%
70.1%

99.1%
0.9%

Total revenues . . . . . . . . . . . .

$2,271,257

100.0%

$2,045,113

100.0%

42

Retail

Retail net sales during 2014 were $1,605.2 million and increased $171.7 million or 12.0% over 2013. The

increase was partially due to the 2014 fiscal year of our retail operations consisting of 53 weeks (fiscal year 2013
had 52 weeks). The 53rd week (the week from December 28, 2014 to January 3, 2015) contributed $34.0 million
to fiscal 2014 Retail net sales, when compared to fiscal 2013. Retail net sales at our Party City stores (including
iParty stores acquired during May 2013) totaled $1,386.4 million and were $148.0 million or 12.0% higher than
the corresponding period of 2013, including the impact of the 53rd week. The May 2013 acquisition and
subsequent rebranding and remerchandising of iParty stores as Party City stores increased sales during the year
by $30.6 million over 2013 (including the impact of positive same-store sales from May 2014 to December
2014). The increase in sales at our Party City stores also reflects the operation of 21 additional stores during 2014
as 23 stores were opened, six stores were acquired and eight stores were closed during 2014. Our global retail e-
commerce sales totaled $141.4 million during 2014 and were $23.0 million or 19.4% higher than 2013, including
the impact of the 53rd week. Retail net sales were negatively impacted by $1.4 million compared to the
corresponding period of 2013 due to the closure of our remaining outlet stores. Same-store sales for the Party
City brand (including domestic and Canadian 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) increased by 5.8% during 2014 due to a 4.2% increase in average transaction dollar size and a 1.6%
increase in transaction count. Excluding the impact of e-commerce, same-store sales increased by 5.4% due to a
3.9% increase in average transaction dollar size and a 1.5% increase in transaction count. Retail e-commerce
sales included in our brand comp increased by 11.3% due to a 5.7% increase in transaction count and a 5.6%
increase in average transaction dollar size. Net sales at our temporary Halloween City stores were $77.4 million
during 2014 and were $2.1 million higher than 2013. The average sales per Halloween City store increased by
14.3% compared to 2013 and by 13.8% when compared to 2013’s five-week Halloween selling season. We
operated 315 Halloween City stores during 2014, as compared to 350 stores during 2013.

Wholesale

Wholesale net sales during 2014 totaled $646.4 million and were $53.6 million or 9.0% higher than the
corresponding period of 2013. The fiscal year of our Wholesale operations is the calendar year. During the year,
net sales to domestic party goods retailers and distributors, including our franchisee network, totaled $306.3
million and were $15.6 million, or 5.4%, higher than 2013. Sales increased versus 2013 due to an approximately
$8 million increase in sales of juvenile birthday product, driven principally by new licenses, an approximately $6
million increase in sales of Halloween-related product, including our Christy’s costumes line, and an
approximately $5 million increase in contract manufacturing sales of paper tableware. Sales during 2013
benefitted from approximately $4 million of sales to iParty prior to our acquisition of iParty in May 2013. As a
result of the acquisition, sales to iParty are now excluded as intercompany sales. Net sales of metallic balloons to
domestic distributors and others totaled $88.8 million and were $5.7 million or 6.9% higher than in 2013
principally due to the impact of new licenses and improving helium supplies. Sales from our international
operations and U.S. export sales totaled $251.3 million and were $32.3 million, or 14.7%, higher than 2013. The
increase was principally due to higher sales of our Christy’s costumes, approximately $18 million, and increased
sales of party goods to a large multi-national company located in the U.S. Additionally, foreign currency
translation positively impacted 2014 sales by approximately $3 million.

Intercompany sales to our retail affiliates were $566.7 million during 2014 and were $78.7 million or 16.1%

higher than the corresponding period of 2013. The increase was primarily due to sales growth at our retail
operations and an increase in our wholesale share of shelf at our retail operations (including the impact of
synergies associated with acquired iParty stores). Intercompany sales represented 46.7% of total wholesale sales
during 2014, compared to 45.2% during the corresponding period of 2013. The intercompany sales of our
wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated
financial statements.

43

Royalties and franchise fees

Royalties and franchise fees for 2014 were $19.7 million and were $0.8 million higher than 2013 principally

due to increased sales at franchise stores and the impact of the 53rd week in fiscal year 2014.

Gross Profit

Our total gross profit on net sales during 2014 was 38.9%, compared to 37.9% during the corresponding
period of 2013. 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
2014 and 2013 by $5.9 million and $25.2 million, respectively, 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 years ended December 31, 2014 and 2013 by $15.2 million and $25.9
million, respectively. The purchase accounting adjustments to cost of sales negatively impacted our gross profit
percentages during 2014 and 2013 by 90 basis points and 250 basis points, respectively.

The following table sets forth the Company’s gross profit for the years ended December 31, 2014 and

December 31, 2013.

Year Ended December 31,

2014

2013

Dollars in
Thousands

Percentage of
Net Sales

Dollars in
Thousands

Percentage of
Net Sales

Retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$674,453
201,430

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$875,883

42.0%
31.2

38.9%

$582,214
184,870

$767,084

40.6%
31.2

37.9%

The gross profit on net sales at retail during the years ended December 31, 2014 and 2013 was 42.0% and

40.6%, respectively. The purchase accounting adjustments to cost of sales negatively impacted retail’s gross
profit percentage during 2014 and 2013 by 80 basis points and 250 basis points, respectively. Excluding the
impact of purchase accounting, the gross profit percentage during 2014 was slightly lower than during 2013 as
changes in product mix was mostly offset by further leveraging of fixed occupancy costs and increased sales of
product supplied by our wholesale operations. During 2014, our wholesale operations’ share of shelf at our
domestic Party City stores (including stores acquired from iParty) and our North American retail e-commerce
operations (i.e., product costs supplied by our wholesale operations) was 70.2%.

The gross profit on net sales at wholesale during each of the years ended December 31, 2014 and 2013 was

31.2%. The purchase accounting adjustments to cost of sales negatively impacted wholesale’s gross profit
percentage during 2014 and 2013 by 120 basis points and 250 basis points, respectively. Excluding the impact of
purchase accounting, the gross profit percentage during 2014 was lower than during 2013 principally due to
changes in sales mix, including higher international sales and increased royalties due to higher sales of licensed
product, partially offset by the leveraging of fixed distribution and manufacturing costs.

Operating expenses

Wholesale selling expenses were $73.9 million during 2014 and were $5.8 million or 8.5% higher than 2013
principally due to the increase in sales (see above), inflationary cost increases and the impact of foreign currency
translation. Wholesale selling expenses were 11.4% and 11.5% of net wholesale sales during 2014 and 2013,
respectively. As a result of the application of the acquisition method of accounting, we increased the values of
certain intangible assets. The impact of such adjustments on amortization expense increased wholesale selling
expenses during 2014 and 2013 by $7.0 million and $8.3 million, respectively.

44

Retail operating expenses during 2014 and 2013 were $397.1 million and $370.0 million, respectively.

Retail operating expenses during 2014 were $27.1 million or 7.3% higher than in 2013. Approximately $9
million of the increase was due to the May 2013 acquisition of iParty and the March 2013 acquisition of Party
Delights. The remainder of the increase was primarily due to the operation of approximately 21 additional stores,
the impact of fiscal year 2014 for our Retail operations consisting of 53 weeks, and inflationary cost increases.
Such increases were partially offset by lower advertising costs. Retail operating expenses were 24.7% and 25.8%
of net retail sales during 2014 and 2013, respectively.

Franchise expenses during 2014 and 2013 were $14.3 million and $13.3 million, respectively. The $1.0

million increase was principally due to the 53rd week.

General and administrative expenses during 2014 and 2013 were $147.7 million and $146.1 million,
respectively. Inflationary cost increases, the impact of fiscal year 2014 for our Retail operations consisting of 53
weeks, and the impact of general and administrative costs at Party Delights (which was acquired in March 2013)
were offset by the elimination, in 2014, of iParty general and administrative costs which were incurred during
2013, as part of the synergies related to the May 2013 acquisition. General and administrative expenses were
6.5% and 7.1% of total revenues during 2014 and 2013, respectively.

Art and development costs totaled $19.4 million and $19.3 million during 2014 and 2013, respectively. The

costs were 0.9% and 1.0% of total revenues during 2014 and 2013, respectively.

In conjunction with the Transaction, we applied the acquisition method of accounting and allocated the $2.7
billion acquisition price to various tangible and intangible assets, including our Halloween City trade name. The
value that was ascribed to the trade name was based on the number of Halloween City stores that we expected to
open during each subsequent Halloween selling season and the expected performance of such stores. The number
of stores that the Company opens during a season is driven by many factors, including the availability of suitable
locations. During 2013, we made a strategic decision to open fewer temporary Halloween City stores. As a result
of that decision and a change in store performance, during 2013 we lowered the value of the Halloween City
trade name by recording a $7.5 million impairment charge.

Interest expense, net

Interest expense, net, totaled $155.9 million during 2014, compared to $143.4 million during 2013. The

$12.5 million increase was principally due to the August 2013 issuance of the Nextco Notes. Such impact was
partially offset by the February 2013 and February 2014 amendments of the Old Term Loan Credit Agreement,
which lowered the interest rate by 150 basis points and 25 basis points, respectively.

Other expense, net

Other expense, net, was $5.9 million during 2014, compared to $18.5 million during 2013.

During February 2014, we amended the Old Term Loan Credit Agreement. In conjunction with the
refinancing, we wrote-off $1.6 million of costs that had been capitalized during the issuance of the debt.
Additionally, we wrote-off $0.6 million of the net original issuance discount that existed as of the time of the
amendment and $0.7 million of the unamortized call premium that existed at the time of the amendment. Also in
conjunction with the refinancing, we expensed $1.4 million of banker and legal fees.

During 2014, we received $4.5 million of business interruption insurance proceeds related to the impact of

Superstorm Sandy in 2012 and recorded the amount in other expense, net.

Additionally, during February 2013, we amended the Old Term Loan Credit Agreement. In conjunction with

the refinancing, we wrote-off $5.9 million of costs that had been capitalized during the initial issuance of the
debt. Additionally, we wrote-off $2.3 million of the net original issuance discount that existed as of the time of
the amendment. Also in conjunction with the refinancing, we expensed $2.5 million of a call premium and $1.6
million of banker and legal fees.

45

Other expense, net also includes corporate development expenses, foreign currency losses and losses in

unconsolidated joint ventures.

Income tax expense (benefit)

The difference between the consolidated effective income tax rate for the year ending December 31, 2014

and the U.S. federal statutory rate is primarily attributable to the recording of a tax benefit for certain costs
incurred in conjunction with the Transaction, a foreign rate differential and available domestic manufacturing
deductions, partially offset by unrecognized foreign tax credits and state income taxes. See Note 13 in Item 8,
“Financial Statements and Supplementary Data,” for further detail.

Liquidity and Capital Resources

During April 2015, the Company consummated an initial public offering of 25,156,250 shares of its

common stock. The net proceeds of the offering were used to, among other things, fully redeem all $350 million
of the Nextco Notes and make management agreement termination payments to THL and Advent in the
aggregate amount of $30.7 million.

Additionally, during August 2015, PCHI redeemed its $700.0 million Old Senior Notes and refinanced its

existing $1,125.0 million Old Term Loan Credit Agreement and $400.0 million Old ABL Facility with new
indebtedness consisting of: (i) a $1,340.0 million senior secured term loan facility (“Term Loan Credit
Agreement”), (ii) a $540.0 million asset-based revolving credit facility (with a seasonal increase to $640.0
million during a certain period of each calendar year) (“ABL Facility”) and (iii) $350.0 million of 6.125% senior
notes (“Senior Notes”).

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 $540.0 million (with a seasonal increase to $640.0
million 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 $50.0 million.

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.

46

The facility contains negative covenants that, among other things and subject to certain exceptions, restrict

the ability of PCHI to:

•

•

•

•

•

•

incur additional indebtedness;

pay dividends on capital stock or redeem, repurchase or retire capital stock;

make certain investments, loans, advances and acquisitions;

engage in transactions with affiliates;

create liens; and

transfer or sell certain assets.

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) $40.0 million. 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.

Borrowings under the ABL Facility totaled $130.0 million at December 31, 2015. The weighted average

interest rate for such borrowings was 3.7%. Outstanding standby letters of credit totaled $24.8 million at
December 31, 2015 and, after considering borrowing base restrictions, at December 31, 2015 PCHI had $349.1
million of available borrowing capacity under the terms of the facility.

Term Loan Credit Agreement

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 December 31, 2015,
all outstanding borrowings were based on LIBOR and were at a rate of 4.25%.

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. 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.

47

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:

•

•

incur additional indebtedness;

pay dividends on capital stock or redeem, repurchase or retire capital stock;

• make certain investments, loans, advances and acquisitions;

•

•

•

engage in transactions with affiliates;

create liens; and

transfer or sell certain assets.

At December 31, 2015, the outstanding principal amount of term loans under the Term Loan Credit
Agreement was $1,314.5 million, which is net of an original issue discount of $6.6 million, a call premium of
$3.7 million and deferred financing costs of $11.9 million.

Senior Notes

(b) 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:

•

•

•

•

•

•

•

incur additional indebtedness or issue certain disqualified stock and preferred stock;

pay dividends or distributions, redeem or repurchase equity;

prepay subordinated debt or make certain investments;

engage in transactions with affiliates;

consolidate, merge or transfer all or substantially all of PCHI’s assets;

create liens; and

transfer or sell certain assets.

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):

Twelve-month period beginning on August 15,

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage

103.063%
101.531%
100.000%

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.

48

Also, 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.

Other Credit Agreements

The Company has entered into several foreign credit facilities which provide it with approximately $8
million of additional borrowing capacity. At December 31, 2015 and December 31, 2014, borrowings under the
foreign facilities totaled $0.0 million and $1.4 million, respectively.

Other Indebtedness

Additionally, we have entered into various capital leases for machinery and equipment. At December 31,
2015 and December 31, 2014 the balances of such leases were $2.4 million and $3.3 million, respectively. We
also have numerous non-cancelable operating leases for retail store sites, as well as several leases for offices,
distribution and manufacturing facilities, showrooms and equipment. These leases generally contain renewal
options and require us to pay real estate taxes, utilities and related insurance costs.

Liquidity

We expect that cash generated from operating activities and availability under our credit agreements will be
our principal sources of liquidity. Based on our current level of operations, we believe that these sources will be
adequate to meet our liquidity needs for at least the next 12 months. We cannot assure you, however, that our
business will generate sufficient cash flow from operations or that future borrowings will be available to us under
the ABL Facility and the Term Loan Credit Agreement in amounts sufficient to enable us to repay our
indebtedness or to fund our other liquidity needs. See “Risk Factors—We may not be able to generate sufficient
cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under
our indebtedness, which may not be successful.”

Cash Flow Data—Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net cash provided by operating activities totaled $80.2 million and $136.4 million during 2015 and 2014,
respectively. Net cash flows provided by operating activities before changes in operating assets and liabilities
were $140.8 million during 2015, compared to $163.5 million during 2014, with the variance due to increased
income from operations being more than offset by the refinancing costs discussed in Note 7 in Item 8, “Financial
Statements and Supplementary Data,” and the management agreement termination fee discussed in Note 9.
Changes in operating assets and liabilities during 2015 and 2014 resulted in the use of cash of $60.6 million and
$27.1 million, respectively. The variance was principally due to the timing of income tax payments.

Net cash used in investing activities totaled $100.1 million during 2015, as compared to $89.6 million
during 2014. Investing activities during 2015 included $22.6 million paid in connection with the acquisitions of
franchisees, ACIM and Travis. Capital expenditures during 2015 and 2014 were $78.8 million and $78.2 million,
respectively. Retail capital expenditures totaled $60.0 million during 2015 and principally related to store
conversions and new stores. Wholesale capital expenditures totaled $18.8 million and primarily related to
printing plates and dies, as well as machinery and equipment at the Company’s manufacturing operations.

Net cash provided by financing activities was $18.9 million during 2015, as compared to a use of $23.5

million during 2014. During 2015, the Company consummated an initial public offering of its common stock.
The net proceeds of the offering, $397.2 million after underwriter fees and other expenses directly related to the
offering, were used to, among other things, fully redeem the Nextco Notes. Additionally, during 2015, the
Company redeemed its $700 million of 8.875% senior notes and refinanced its existing $1,125 million senior
secured term loan facility and $400 million asset-based revolving credit 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.

49

Cash Flow Data—Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Net cash provided by operating activities totaled $136.4 million and $135.8 million during the years ended

December 31, 2014 and 2013, respectively. Net cash flows provided by operating activities before changes in
operating assets and liabilities were $163.5 million during 2014, compared to $121.9 million during 2013, with
the variance principally attributable to the increased profitability during 2014. Changes in operating assets and
liabilities during 2014 resulted in a use of cash of $27.1 million. Changes in operating assets and liabilities during
2013 resulted in a source of cash of $13.9 million. The variance was due to an increase in inventory in order to
support the higher sales levels and new merchandising programs.

Net cash used in investing activities totaled $89.6 million during 2014, as compared to $112.5 million
during 2013. Investing activities during 2014 included $10.2 million paid in connection with the acquisition of
U.S. Balloon. Investing activities during 2013 included $48.6 million paid in connection with the acquisitions of
iParty and Party Delights. Capital expenditures during 2014 and 2013 were $78.2 million and $61.2 million,
respectively. Retail capital expenditures totaled $50.6 million during 2014 and principally related to store
conversions and new stores. Wholesale capital expenditures totaled $27.6 million during 2014 and primarily
related to machinery and equipment at manufacturing operations, as well as printing plates and dies.

Net cash used in financing activities was $23.5 million during 2014, as compared to $18.4 million during

2013. During both February 2014 and February 2013, the Company amended the Old Term Loan Credit
Agreement. As all term loans outstanding at the time of the amendments were replaced with new term loans for
the same principal amount, the Company included the total principal amounts, $1,111.0 million and $1,122.2
million, respectively, in both the repayment of loans, notes payable and long-term obligations and the proceeds
from loans, notes payable and long-term obligations. Additionally, during 2013, the Company issued the Nextco
Notes and used the proceeds, net of expenses, to pay a dividend to its shareholders. Excluding the impact of the
issuance of the Nextco Notes, net repayments during 2014 were $5.9 million greater than during 2013 as the
increased profitability and lower cash used in investing activities more than offset the change in operating assets
and liabilities and interest payments on the Nextco Notes.

Tabular Disclosure of Contractual Obligations

Our contractual obligations at December 31, 2015 are summarized by the year in which the payments are

due in the following table:

Total

2016

2017

2018

2019

2020

Thereafter

Long-term debt obligations (a) . . . . . $1,658,259 $ 13,400 $ 13,400 $ 13,400 $ 13,400 $13,400 $1,591,259
1,152
Capital lease obligations (a) . . . . . . .
Operating lease obligations . . . . . . .
155,842
Minimum product royalty

269
116,776

—
221,839

2,414
806,649

807
139,602

12
80,385

174
92,205

obligations (a) . . . . . . . . . . . . . . . .

54,918

24,863

21,373

7,841

541

300

—

Total contractual obligations . . . . . . $2,522,240 $195,257 $175,182 $138,286 $106,320 $94,097 $1,813,098

(a) See Item 8, “Financial Statements and Supplementary Data,” for further detail.

Not included in the above table are borrowings under the ABL Facility and our foreign credit facilities.

Not included in the above table are $0.8 million of net potential cash obligations associated with
unrecognized tax benefits due to the high degree of uncertainty regarding the timing of future cash outflows
associated with such obligations. Refer to the notes to the consolidated financial statements which are included
elsewhere in this Annual Report on Form 10-K for further information related to unrecognized tax benefits.

50

Additionally, not included in the above table are expected interest payments associated with the Term Loan

Credit Agreement and the Senior Notes, of approximately $78.0 million in 2016, $77.5 million in 2017, $76.9
million in 2018, $76.3 million in 2019, $75.8 million in 2020 and $143.9 million thereafter. Interest payments are
estimates based on our debt’s scheduled maturities and stated interest rates or, for variable rate debt, interest rates
as of December 31, 2015. Our estimates do not reflect interest payments on the credit facilities or the possibility
of additional interest from the refinancing of our debt as such amounts are not determinable.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Effects of Inflation

Although we expect that our operating results will be influenced by general economic conditions, we do not

believe that inflation has had a material effect on our results of operations during the periods presented.
However, there can be no assurance that our business will not be affected by inflation in the future.

Critical Accounting Policies and Procedures

The preparation of financial statements in conformity with accounting principles generally accepted in the

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

We believe our application of accounting policies, and the estimates inherently required by these policies,
are reasonable. These accounting policies and estimates are constantly re-evaluated and adjustments are made
when facts and circumstances dictate a change. Historically, we have found the application of accounting policies
to be reasonable, and actual results generally do not differ materially from those determined using necessary
estimates.

Revenue Recognition

Our terms of sale to retailers and other distributors for substantially all of our sales is F.O.B. shipping point

and, accordingly, title and the risks and rewards of ownership are transferred to the customer, and revenue is
recognized, when goods are shipped. We estimate reductions to revenues for volume-based rebate programs at
the time sales are recognized.

Wholesale sales returns are not significant as, generally, we only accept the return of goods that were

shipped to retailers in error.

Revenue from retail store operations is recognized at the point of sale. Retail e-commerce sales are
recognized on a F.O.B. destination basis. We estimate future retail sales returns and record a provision in the
period that the related sales are recorded based on historical information. Retail sales are reported net of taxes
collected.

Franchise fee revenue is recognized upon the completion of our performance requirements and the opening

of the franchise store. In addition to the initial franchise fee, we also recognize royalty fees generally ranging
from 4% to 6% of net sales and advertising fund fees ranging from 1% to 2.25% of net sales based upon the
franchised stores’ reported gross retail sales. The terms of our franchise agreements also provide for payments to
franchisees based on domestic retail e-commerce sales originating from specified areas relating to the
franchisees’ contractual territory. The amounts paid vary based on several factors, including the profitability of
our e-commerce sales, and are expensed at the time of sale.

51

Store Closure Costs

We record estimated store closure costs, estimated lease commitment costs net of estimated sublease income

and other miscellaneous store closing costs when the liability is incurred.

Product Royalty Agreements

We enter into product royalty agreements that allow us to use licensed designs on certain of our products.

These contracts require us to pay royalties, generally based on the sales of such product and may require
guaranteed minimum royalties, a portion of which may be paid in advance. We match royalty expense with
revenue by recording royalties at the time of sale, at the greater of the contractual rate or an effective rate
calculated based on the guaranteed minimum royalty and our estimate of sales during the contract period.
Guaranteed minimum royalties paid in advance are recorded in the consolidated balance sheets in either prepaid
expenses and other current assets or other assets, depending on the nature of the royalties.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our
customers and franchisees to make required payments. A considerable amount of judgment is required in
assessing the ultimate realization of these receivables, including consideration of our history of receivable write-
offs, the level of past due accounts and the economic status of our customers. In an effort to identify adverse
trends relative to customer economic status, we assess the financial health of the markets we operate in and
perform periodic credit evaluations of our 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 doubtful accounts and occur only
after all collection efforts have been exhausted. Because we cannot predict future changes in economic
conditions and in the financial stability of our customers, actual future losses from uncollectible accounts may
differ from our estimates and could impact our allowance for doubtful accounts.

Inventories

Inventories are valued at the lower of cost or market. In assessing the ultimate realization of inventories, we

are required to make judgments regarding, among other things, future demand and market conditions, current
inventory levels and the impact of the possible discontinuation of product designs.

We principally determine the cost of inventory using the weighted average method.

We estimate retail inventory shortage for the period between physical inventory dates on a store-by-store

basis. Our inventory shortage estimate can be affected by changes in merchandise mix and changes in actual
shortage trends. The shrinkage rate from the most recent physical inventory, in combination with historical
experience, is the basis for estimating shrinkage.

Long-Lived and Intangible Assets (including Goodwill)

We review the recoverability of our long-lived assets, including finite-lived intangible assets, whenever

facts and circumstances indicate that the carrying amount may not be fully recoverable. For purposes of
recognizing and measuring impairment, we evaluate long-lived assets other than goodwill based upon the lowest
level of independent cash flows ascertainable to evaluate impairment. If the sum of the undiscounted future cash
flows expected over the remaining asset life is less than the carrying value of the assets, we may recognize an
impairment loss. The impairment related to long-lived assets is measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. When fair values are not readily available, we estimate
fair values using expected discounted future cash flows. Such estimates of fair value require significant
judgment, and actual fair value could differ due to changes in the expectations of cash flows or other
assumptions, including discount rates.

52

In the evaluation of the fair value and future benefits of finite long-lived assets attached to retail stores, we
perform our cash flow analysis on a store-by-store basis. Various factors including future sales growth and profit
margins are included in this analysis. To the extent these future projections or strategies change, the conclusion
regarding impairment may differ from the current estimates.

Goodwill is reviewed for potential impairment on an annual basis or more frequently if circumstances

indicate a possible impairment.

For purposes of testing goodwill for impairment, reporting units are determined by identifying individual

components within our organization which constitute a business for which discrete financial information is
available and is reviewed by management. Components within a segment are aggregated to the extent that they
have similar economic characteristics. Based on this evaluation, we have determined that our operating segments,
wholesale and retail, represent our reporting units for the purposes of our goodwill impairment test.

If it is concluded that it is more likely than not that our goodwill is impaired, we estimate the fair value of

each reporting unit using a combination of a market approach and an income approach. If the carrying amount of
a reporting unit exceeds its fair value, the excess, if any, of the fair value of the reporting unit over amounts
allocable to the unit’s other assets and liabilities is the implied fair value of goodwill. If the carrying amount of a
reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss will be recognized
in an amount equal to that excess. The fair value of a reporting unit refers to the amount at which the unit as a
whole could be sold in a current transaction between willing parties. The determination of such fair value is
subjective, and actual fair value could differ due to changes in the expectations of cash flows or other
assumptions including discount rates.

Insurance Accruals

Our consolidated balance sheet includes significant liabilities with respect to self-insured workers’

compensation, medical and general liability claims. We estimate the required liability for such claims based upon
various assumptions, which include, but are not limited to, our historical loss experience, projected loss
development factors, actual payroll and other data. The required liability is also subject to adjustment in the
future based upon changes in claims experience, including changes in the number of incidents (frequency) and
changes in the ultimate cost per incident (severity). Adjustments to earnings resulting from changes in historical
loss trends have been insignificant. Further, we do not anticipate any significant change in loss trends,
settlements or other costs that would cause a significant change in our earnings.

Income Taxes

Temporary differences arising from differing treatment of income and expense items for tax and financial

reporting purposes result in deferred tax assets and liabilities that are recorded on the balance sheet. These
balances, as well as income tax expense, are determined through management’s estimations, interpretation of tax
law for multiple jurisdictions and tax planning. However, inherent in the measurement of deferred balances are
certain judgments and interpretations of enacted tax laws and published guidance with respect to applicability to
our operations. If our actual results differ from estimated results due to changes in tax laws or tax planning, our
effective tax rate and tax balances could be affected. As such, these estimates may require adjustment in the
future as additional facts become known or as circumstances change.

During the ordinary course of business, there are many transactions and calculations for which the ultimate

tax determination is uncertain. A valuation allowance is established against deferred tax assets when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. These provisions prescribe a
comprehensive model of how a company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take on a tax return. In accordance
with these provisions, we recognize a tax benefit when a tax position is more-likely-than-not to be sustained upon
examination, based solely on its technical merits. We measure the recognized tax benefit as the largest amount of

53

tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing
authority. We reverse previously recognized tax benefits if we determine that the tax position no longer meets the
more-likely-than-not threshold of being sustained. We accrue interest and penalties related to unrecognized tax
benefits in income tax expense.

Stock-Based Compensation

As of December 31, 2015, there were 8,517,645 stock options outstanding.

Accounting for stock-based compensation requires measurement of compensation cost for all stock-based

awards at fair value on the date of grant and recognition of compensation over the service period for awards
expected to vest. The value of our stock-based awards is recognized as expense over the service period, net of
estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the
extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised. Actual results and future estimates may differ
substantially from our current estimates.

The Company granted stock options during 2013, prior to the Company’s stock being publicly traded. With

the assistance of an independent third-party valuation firm, we determined the fair value of the common stock
underlying such options by using a market approach and an income approach and taking the average of the two
approaches. The market approach involved estimating EBITDA multiples and the income approach involved
estimating future cash flows and determining the present value of such cash flows based on a discount rate. The
estimates are complex and subjective. See the footnotes of the consolidated financial statements, included in
Item 8, “Financial Statements and Supplementary Data,” for a discussion of additional inputs which were used
for purposes of determining the fair value of such stock options.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2016-02, “Leases”. The ASU requires that companies recognize on their balance sheets assets
and liabilities for the rights and obligations created by the companies’ leases. The update is effective for the
Company during the first quarter of 2019. The Company is in the process of evaluating the impact of the
pronouncement on the Company’s consolidated financial statements. See Notes 8 and 14 of Item 8, “Financial
Statements and Supplementary Data”, for a discussion of the Company’s existing leases.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and
Financial Liabilities”. The update impacts the accounting for equity investments and the recognition of changes
in fair value of financial liabilities when the fair value option is elected. The pronouncement will be effective for
the Company during the first quarter of 2018. 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 November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The

update requires companies to present all deferred tax assets and liabilities as noncurrent. As permitted by the
pronouncement, during the fourth quarter of 2015, the Company adopted early the update on a prospective basis.
The Company did not adjust its December 31, 2014 consolidated balance sheet in Item 8. and, accordingly,
prepaid expenses and other current assets as of such date include $28.1 million of net deferred tax assets.

In September 2015, the FASB issued 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.
The Company does not believe that it will have a material impact on the Company’s consolidated financial
statements.

54

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 requires 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 permitted by the pronouncement, during the fourth
quarter of 2015, the Company adopted early the update on a retrospective basis. Accordingly, loans and notes
payable and long-term obligations, excluding current portion, in the Company’s December 31, 2015 consolidated
balance sheet in Item 8. are net of deferred financing costs in the amounts of $3.8 million and $18.1 million,
respectively. Additionally, loans and notes payable and long-term obligations, excluding current portion, in the
Company’s December 31, 2014 consolidated balance sheet are net of deferred financing costs in the amounts of
$3.4 million and $41.0 million, respectively. Previously, such amounts had been recorded in other assets, net.

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.

Quarterly Results

Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product
lines and customer base and increased promotional activities, the impact of seasonality on the quarterly results of
our wholesale operations has been limited. However, due to Halloween and Christmas, the inventory balances of
our wholesale operations are slightly higher during the third quarter than during the remainder of the year.
Additionally, the promotional activities of our wholesale business, including special dating terms, particularly
with respect to Halloween products sold to retailers and other distributors, result in slightly higher accounts
receivable balances during the third quarter. Our retail operations are subject to significant seasonal variations.
Historically, our retail segment has realized a significant portion of its revenues, cash flow and net income in the
fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent, year-end
holiday sales.

55

The following table sets forth our historical revenues, gross profit, income (loss) from operations, net
income (loss), net income (loss) attributable to Party City Holdco Inc., net income (loss) per common share—
Basic, and net income (loss) per common share—Diluted for each of the last twelve quarters (dollars in
thousands):

March 31,

June 30,

September 30,

December 31,

For the Three Months Ended,

2015:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per common share—Basic . . . . . . . . .
Net (loss) income per common share—Diluted . . . . . . .

2014:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per common share—Basic . . . . . . . . .
Net (loss) income per common share—Diluted . . . . . . .

$458,195
3,910
163,921
24,004
(8,525)
(0.09) $
(0.09) $

$491,206
4,314
188,343
46,067
(23,050)(a)
(0.20)(a)
(0.20)(a)

$
$

$551,380
4,027
189,850
31,480
(44,489)(b)
(0.37)(b)
(0.37)(b)

$
$

$774,341
7,160
362,124
170,668
86,523
0.73
0.72

$
$

March 31,

June 30,

September 30,

December 31,

For the Three Months Ended,

$429,220
3,767
154,839
15,906
(19,912)

$
$

(0.21) $
(0.21) $

$487,182
4,392
182,664
40,305
2,456
0.03
0.03

$538,671
3,990
184,146
28,778
(5,410)
(0.06)
(0.06)

$
$

$796,516
7,519
354,234
158,153
78,989
0.84
0.83

$
$

March 31,

June 30,

September 30,

December 31,

For the Three Months Ended,

2013:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to Party City

$397,655
3,893
130,457
4,171
(27,100)

$441,976
4,253
154,599
14,598
(12,525)

Holdco Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per common share—Basic . . . . . . . . .
Net (loss) income per common share—Diluted . . . . . . .

(27,213)

$
$

(0.29) $
(0.29) $

(12,591)
(0.13)
(0.13)

$483,585
3,815
160,902
10,737
(11,875)

(11,920)
(0.13)
(0.13)

$
$

$703,056
6,880
321,126
132,096
55,743

55,743
0.59
0.59

$
$

(a) During the three months ended June 30, 2015, the Company consummated an initial public offering of its

common stock. The net proceeds of the offering were used to, among other things, fully redeem the Nextco
Notes (see Note 8 of Item 8, “Financial Statements and Supplementary Data,” for further discussion) and
pay a management agreement termination fee to affiliates of THL and Advent (see Note 9 of Item 8,
“Financial Statements and Supplementary Data,” for further discussion).

(b) During the three months ended September 30, 2015, the Company refinanced its debt. See Note 7 of Item 8,

“Financial Statements and Supplementary Data,” for further discussion.

56

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As a result of our variable rate ABL Facility and Term Loan Credit Agreement, our earnings are affected by

changes in interest rates.

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 December 31, 2015,
all outstanding borrowings were based on LIBOR and were at a rate of 4.25%. LIBOR was below the 1.00%
floor throughout 2015.

Assuming that: 1) the refinancing discussed in Note 7 in Item 8, “Financial Statements and Supplementary
Data,” occurred as of January 1, 2015, and 2) the Term Loan Credit Agreement did not have a LIBOR floor of
1.00%, if market interest rates for our variable rate indebtedness averaged 2% more than the actual market
interest rates during the year ended December 31, 2015, our interest expense for that period would have increased
by $32.1 million.

This amount is determined by considering the impact of the hypothetical interest rates on our borrowings.
This analysis does not consider the effects of the reduced level of overall economic activity that could exist in
such an environment. Further, in the event of a change of such magnitude, management could potentially take
action to mitigate our exposure to the change. However, due to the uncertainty of the specific actions that we
would take and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

Foreign Currency Risk

As a result of the sale of our products in foreign markets, our earnings are affected by fluctuations in the

value of the U.S. Dollar (“USD”) when compared to the values of foreign currencies. Specifically, foreign
currency fluctuations impact us in four ways:

1) Certain foreign subsidiaries purchase product in U.S. Dollars and sell such product in their local currencies.

To the extent that the subsidiaries cannot adjust their local currency selling prices to reflect the
strengthening of the U.S. Dollar, the subsidiaries’ gross margins are negatively impacted when the related
product is sold. The subsidiaries that are impacted by this risk principally operate in the Canadian dollar,
Euro, British Pound Sterling and Australian dollar. Canadian dollar-based subsidiaries purchase
approximately $40 million of USD-denominated product per year. Euro-based subsidiaries purchase
approximately $25 million of USD-denominated product per year. British Pound Sterling-based subsidiaries
and Australian Dollar-based subsidiaries purchase approximately $20 million and $10 million of USD-
denominated product per year, respectively.

2) Certain foreign subsidiaries sell product in U.S. Dollars and manufacture/purchase such product in their

local currencies. To the extent that the subsidiaries cannot adjust their selling prices to reflect the weakening
of the U.S. Dollar, the subsidiaries’ gross margins are negatively impacted when sales occur. The
subsidiaries that are impacted by this risk principally operate in the Malaysian Ringgit. Ringgit-based
subsidiaries sell approximately $20 million of product in U.S. Dollars on an annual basis.

We periodically enter into foreign currency forward contracts to hedge against a portion of the earnings
impact of the risks discussed in points 1. and 2. See Note 18 of Item 8, “Financial Statements and
Supplementary Data,” for further detail of our existing contracts. Although we periodically enter into such
contracts, we (1) may not be able to achieve hedge effectiveness in order to qualify for “hedge accounting”
treatment and, therefore, would record any gain or loss on the mark-to-market of open contracts in our
statement of income and (2) may not be able to hedge such risks completely or permanently.

57

3) During our financial statement close process, we adjust open receivables and payables that are not in the

functional currencies of our subsidiaries to the latest foreign currency exchange rates. These receivables and
payables are principally generated through the sales and inventory purchases discussed in points 1. and 2.
above. The gains and losses created by such adjustments are primarily recorded in our statement of income.
During the year ended December 31, 2015, we recorded $3.7 million of foreign currency transaction losses
in our statement of income.

4) Additionally, the financial statements of foreign subsidiaries with functional currencies other than the

U.S. Dollar are translated into U.S. Dollars during our financial statement close process. To the extent that
the U.S. Dollar fluctuates versus such functional currencies, our consolidated financial statements are
impacted. Based on the income from operations for such subsidiaries for the year ended December 31, 2015,
a uniform 10% change in such exchange rates versus the U.S. Dollar would have impacted our consolidated
income from operations for the year by approximately $0.5 million.

58

Item 8. Financial Statements and Supplementary Data

PARTY CITY HOLDCO INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2015 and December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income and Comprehensive (Loss) Income for the years ended December 31,

2015, December 31, 2014 and December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, December 31,

2014 and December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31, 2014 and

December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules for the years ended December 31, 2015, December 31, 2014 and

60
61

62

63

64
65

December 31, 2013:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule I—Condensed Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99
103

All other schedules for which provision is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have
been omitted.

59

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Party City Holdco Inc. and subsidiaries

We have audited the accompanying consolidated balance sheets of Party City Holdco Inc. and subsidiaries (the
“Company”) as of December 31, 2015 and 2014 and the related consolidated statements of income and
comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2015. Our audits also included the financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of
the Company’s internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Party City Holdco Inc. and subsidiaries at December 31, 2015 and 2014 and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2015,
in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.

/s/ Ernst & Young LLP

New York, New York
March 11, 2016

60

PARTY CITY HOLDCO INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

December 31, 2015

December 31, 2014
(adjusted, see Note 2)

ASSETS
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

42,919
132,287
564,259
50,450

789,915
272,420
1,562,515
568,712
89,157
9,684

$

47,214
140,663
582,230
77,232

847,339
248,684
1,557,250
569,343
107,010
6,865

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,292,403

$3,336,491

LIABILITIES, REDEEMABLE COMMON SECURITIES AND

STOCKHOLDERS’ EQUITY

Current liabilities:

Loans and notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term obligations . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations, excluding current portion . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 126,136
111,616
146,319
8,504
14,552

407,127
1,646,121
276,667
49,471

2,379,386

$

21,936
145,686
165,683
34,670
12,249

380,224
2,086,611
309,338
38,030

2,814,203

Redeemable common securities (3,088,630 shares issued and outstanding
at December 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

35,062

Commitments and contingencies

Stockholders’ equity:

Common stock (119,258,374 and 91,007,894 shares issued and
outstanding at December 31, 2015 and December 31, 2014,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities, redeemable common securities and

1,193
904,425
40,189
(32,790)

913,017

910
469,117
29,934
(12,735)

487,226

stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,292,403

$3,336,491

See accompanying notes to consolidated financial statements.

61

PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except share and per share data)

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

2,275,122
19,411

$ 2,251,589
19,668

$ 2,026,272
18,841

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,294,533

2,271,257

2,045,113

Expenses:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . .
Art and development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of Halloween City trade name . . . . . . . . . . . . . . . .

1,370,884
64,260
401,039
14,394
151,097
20,640
0

1,375,706
73,910
397,110
14,281
147,718
19,390
0

1,259,188
68,102
369,996
13,320
146,094
19,311
7,500

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,022,314

2,028,115

1,883,511

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax expense (benefit)

Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling interests . . . . . . . . .

Net income attributable to Party City Holdco Inc.

. . . . . .

Net income per common share—basic . . . . . . . . . . . . . . . . . . . . . . .

Net income per common share—diluted . . . . . . . . . . . . . . . . . . . . . .

Weighted-average number of common shares—basic . . . . . . . . . . .
Weighted-average number of common shares—diluted . . . . . . . . . .

Other comprehensive loss, net of tax:

Foreign currency adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss, net

. . . . . . . . . . . . . . . . .

Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . .

Less: comprehensive income attributable to noncontrolling

$

$

$

$

272,219

123,361
130,990

17,868
7,409

10,459
0

10,459

0.09

0.09

$

$

$

243,142

155,917
5,891

81,334
25,211

56,123
0

56,123

0.60

0.59

$

$

$

161,602

143,406
18,478

(282)
(4,525)

4,243
224

4,019

0.04

0.04

111,917,168
112,943,807

93,996,355
94,444,137

93,725,721
93,725,721

(20,432) $
377

(18,707) $
564

(20,055)

(9,596)

(18,143)

37,980

(71)
(105)

(176)

4,067

interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

0

201

Comprehensive (loss) income attributable to Party City

Holdco Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(9,596) $

37,980

$

3,866

See accompanying notes to consolidated financial statements.

62

PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2013, December 31, 2014 and December 31, 2015
(In thousands, except share data)

Common
Shares

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings
(Deficit)

Accumulated
Other
Comprehensive
(Loss) Income

Party City
Holdco Inc.
Stockholders’
Equity

Non-
controlling
Interests

Total

Balance at December 31,

2012 . . . . . . . . . . . . . . . . . . . 90,917,952 $ 909

Net income . . . . . . . . . . . .
Equity based

compensation . . . . . . . .
Adjustment of redeemable
common shares . . . . . . .

Acquisition of

noncontrolling
interest . . . . . . . . . . . . . .

Foreign currency

adjustments . . . . . . . . . .

Excess tax benefit from

stock options . . . . . . . . .
Dividend distribution . . . .
Impact of foreign

exchange contracts,
net . . . . . . . . . . . . . . . . .

Balance at December 31,

2013 . . . . . . . . . . . . . . . . . . . 90,917,952 $ 909

$ 808,016 $(30,208)
4,019

$ 6,200

$ 784,917
4,019

$ 2,533
224

$ 787,450
4,243

2,137

2,425

555

1,511
(338,015)

2,137

2,425

(84)

(48)

2,137

2,425

(2,734)

(2,818)

(23)

(71)

1,511
(338,015)

1,511
(338,015)

(639)

(48)

(105)

(105)

(105)

$ 476,629 $(26,189)
56,123

$ 5,408

$ 456,757
56,123

$

0

$ 456,757
56,123

Net income . . . . . . . . . . . .
Equity based

compensation . . . . . . . .
Adjustment of redeemable
common shares . . . . . . .

Exercise of stock

1,583

83,222

1

(9,714)

options . . . . . . . . . . . . . .

6,720

Foreign currency

adjustments . . . . . . . . . .

Excess tax benefit from

stock options . . . . . . . . .

Impact of foreign

exchange contracts,
net . . . . . . . . . . . . . . . . .

Balance at December 31,

2014 . . . . . . . . . . . . . . . . . . . 91,007,894 $ 910

37

582

Net income . . . . . . . . . . . .
Equity based

compensation . . . . . . . .
Adjustment of redeemable
common shares . . . . . . .

Issuance of common

3,042

3,088,630

31

35,031

stock . . . . . . . . . . . . . . . 25,156,250

252

396,907

Exercise of stock

options . . . . . . . . . . . . . .

5,600

Foreign currency

adjustments . . . . . . . . . .

Excess tax benefit from

stock options . . . . . . . . .
Spin-off of subsidiary . . . .
Impact of foreign

exchange contracts,
net . . . . . . . . . . . . . . . . .

Balance at December 31,

30

298

1,583

(9,713)

37

(18,707)

(18,707)

582

564

564

1,583

(9,713)

37

(18,707)

582

564

$ 469,117 $ 29,934
10,459

$(12,735)

$ 487,226
10,459

$

0

$ 487,226
10,459

3,042

35,062

397,159

30

(20,432)

(20,432)

(204)

298
(204)

377

377

3,042

35,062

397,159

30

(20,432)

298
(204)

377

2015 . . . . . . . . . . . . . . . . . . . 119,258,374 $1,193

$ 904,425 $ 40,189

$(32,790)

$ 913,017

$

0

$ 913,017

See accompanying notes to consolidated financial statements.

63

PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Cash flows provided by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Net income attributable to Party City Holdco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed loss in unconsolidated joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposal of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effects of acquired businesses:

Decrease (increase) in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in prepaid expenses and other current assets . . . . . . . . . . . . . .
(Decrease) increase in accounts payable, accrued expenses and income taxes

payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows used in investing activities:

Cash paid in connection with acquisitions, net of cash acquired . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .

10,459
0

10,459

80,515
40,516
223
(6,178)
13,407
562
852
0
(2,593)
3,042

6,868
15,515
(4,683)

(78,293)

80,212

(22,615)
(78,825)
1,304

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(100,136)

Cash flows provided by (used in) financing activities:

$

56,123
0

56,123

82,890
15,610
1,783
(13,758)
14,418
1,556
0
1,012
2,310
1,583

(7,202)
(55,786)
5,813

30,035

136,387

(12,377)
(78,241)
986

(89,632)

Repayment of loans, notes payable and long-term obligations . . . . . . . . . . . . . . . . .
Proceeds from loans, notes payable and long-term obligations . . . . . . . . . . . . . . . . .
Cash held in escrow in connection with acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .

Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,561,594)
2,198,600
(3,832)
298
30
397,159
0
(11,720)

18,941
(3,312)

(4,295)
47,214

(1,374,017)
1,349,197
0
582
1,080
0
0
(372)

(23,530)
(1,656)

21,569
25,645

$

4,243
224

4,019

94,624
20,211
1,079
(25,599)
17,055
172
7,500
322
388
2,137

(7,356)
(2,040)
(10,235)

33,541

135,818

(51,546)
(61,241)
265

(112,522)

(1,392,681)
1,720,253
0
1,511
0
750
(338,015)
(10,191)

(18,373)
(177)

4,746
20,899

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

42,919

$

47,214

$

25,645

Supplemental disclosure of cash flow information:

Cash paid during the period

Interest
Income taxes, net of (refunds)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

143,458
40,134

$
$

145,632
14,455

$
$

121,064
22,561

Supplemental information on non-cash activities:

Capital lease obligations of $223, $1,474, and $446 were incurred during the years ended December 31,

2015, December 31, 2014, and December 31, 2013, respectively.

See accompanying notes to consolidated financial statements.

64

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)

Note 1 — Organization, Description of Business and Basis of Presentation

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 over 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.

Note 2 — Summary of Significant Accounting Policies

Consolidated Financial Statements

The consolidated financial statements of the Company include the accounts of all majority-owned
subsidiaries and controlled entities. All intercompany balances and transactions have been eliminated.

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. The Company’s consolidated financial statements for the year ended December 31, 2014 include the
results of its retail operations for the 53-week Fiscal Year ended January 3, 2015.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally

accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates. Management periodically evaluates estimates used in the preparation of the consolidated financial
statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made
prospectively based on such periodic evaluations.

Cash Equivalents

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash

equivalents. All credit card transactions that process in less than seven days are classified as cash and cash
equivalents.

Inventories

Inventories are valued at the lower of cost or market.

65

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The Company principally determines the cost of inventory using the weighted average method.

The Company estimates retail inventory shortage 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.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability

of the Company’s customers to make required payments. A considerable amount of 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 doubtful accounts and occur only after all collection efforts have been exhausted. At December 31, 2015 and
December 31, 2014, the allowance for doubtful accounts was $2,343 and $2,889, respectively.

Long-Lived and Intangible Assets (including Goodwill)

Property, plant and equipment are stated at cost. Equipment under capital leases are stated at the present
value of the minimum lease payments at the inception of the lease. Depreciation is calculated principally on the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful life of the asset.

The Company reviews the recoverability of its finite long-lived assets, including finite-lived intangible
assets, whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. For
purposes of recognizing and measuring impairment, the Company evaluates long-lived assets other than goodwill
based upon the lowest level of independent cash flows ascertainable to evaluate impairment. If the sum of the
undiscounted future cash flows expected over the remaining asset life is less than the carrying value of the assets,
the Company may recognize an impairment loss. The impairment related to long-lived assets is measured as the
amount by which the carrying amount of the asset exceeds the fair value of the asset.

In the evaluation of the fair value and future benefits of finite long-lived assets attached to retail stores, the
Company performs its cash flow analysis on a store-by-store basis. Various factors including future sales growth
and profit margins are included in this analysis.

Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of
the net assets acquired. Goodwill and other intangibles with indefinite lives are not amortized, but are reviewed
for impairment annually or more frequently if certain indicators arise.

The Company evaluates the goodwill associated with its acquisitions, and other intangibles with indefinite

lives, for impairment as of the first day of its fourth quarter based on current and projected performance. For
purposes of testing goodwill for impairment, reporting units are determined by identifying individual components

66

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

within the Company’s organization which constitute a business for which discrete financial information is
available and is reviewed by management. Components within a segment are aggregated to the extent that they
have similar economic characteristics. Based on this evaluation, the Company has determined that its operating
segments, wholesale and retail, represent reporting units for the purposes of its goodwill impairment test.

If it is concluded that it is more likely than not that the Company’s goodwill is impaired, the Company
estimates the fair value of each reporting unit using a combination of a market approach and an income approach.
If the carrying amount of a reporting unit exceeds its fair value, the excess, if any, of the fair value of the
reporting unit over amounts allocable to the unit’s other assets and liabilities is the implied fair value of goodwill.
If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an
impairment loss will be recognized in an amount equal to that excess. The fair value of a reporting unit refers to
the amount at which the unit as a whole could be sold in a current transaction between willing parties.

Deferred Financing Costs

During the fourth quarter of 2015, the Company adopted Accounting Standards Update (“ASU”) 2015-03,

“Simplifying the Presentation of Debt Issuance Costs”. See “Recently Issued Accounting Pronouncements”
below for further discussion. Accordingly, deferred financing costs are netted against amounts outstanding under
the debt instruments. They are amortized to interest expense over the lives of the instruments using the effective
interest method.

Deferred Rent and Rental Expenses

The Company leases its retail stores under operating leases that generally have initial terms of ten years,
with two five year renewal options. The Company’s leases may have early cancellation clauses, which permit the
lease to be terminated if certain sales levels are not met in specific periods, and may provide for the payment of
contingent rent based on a percentage of the store’s net sales. The Company’s lease agreements generally have
defined escalating rent provisions, which are reported as a deferred rent liability and expensed on a straight-line
basis over the term of the related lease, commencing with the date of possession. In addition, the Company may
receive cash allowances from its landlords on certain properties, which are reported as deferred rent and
amortized to rent expense over the term of the lease, also commencing with the date of possession. Retail’s
deferred rent liability at December 31, 2015 and 2014 was $49,826 and $37,355, respectively.

Investments

The Company maintains a 49.9% interest in Convergram Mexico, a joint venture distributing metallic
balloons, principally in Mexico and Latin America. The Company accounts for its investment in the joint venture
using the equity method. The Company’s investment in the joint venture is included in other assets on the
consolidated balance sheet and the results of the joint venture’s operations are included in other expense
(income) on the consolidated statement of income and comprehensive income (loss) (see Note 10).

Insurance Accruals

The Company maintains certain self-insured workers’ compensation and general liability insurance plans.
The Company estimates the required liability for claims under such plans based upon various assumptions, which
include, but are not limited to, historical loss experience, projected loss development factors, actual payroll and
other data. The required liability is also subject to adjustment in the future based upon changes in claims
experience, including changes in the number of incidents (frequency) and changes in the ultimate cost per
incident (severity).

67

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Revenue Recognition

The Company’s terms of sale to retailers and other distributors for substantially all of its sales is free-on-

board (“F.O.B.”) shipping point and, accordingly, title and the risks and rewards of ownership are transferred to
the customer, and revenue is recognized, when goods are shipped. The Company estimates reductions to
revenues for volume-based rebate programs at the time sales are recognized. Wholesale sales returns are not
significant as, generally, we only accept the return of goods that were shipped to retailers in error. Revenue from
retail store operations is recognized at the point of sale. Retail e-commerce sales are recognized on a F.O.B
destination basis. The Company estimates future retail sales returns and records a provision in the period that the
related sales are recorded based on historical information. Retail sales are reported net of taxes collected.

Franchise fee revenue is recognized upon the completion of the Company’s performance requirements and

the opening of the franchise store. In addition to the initial franchise fee, the Company also recognizes royalty
fees generally ranging from 4% to 6% of net sales and advertising fund fees ranging from 1% to 2.25% of net
sales each based upon the franchised stores’ reported gross retail sales. Additionally, the terms of the Company’s
franchise agreements also provide for payments to franchisees based on e-commerce sales originating from
specified areas relating to the franchisees’ contractual territory. The amounts paid by the Company vary based on
several factors, including the profitability of the Company’s e-commerce sales, and are expensed at the time of
sale.

Revenues, and the related profit, on sales from the Company’s wholesale operations to its retail operations

are eliminated in consolidation.

Cost of Sales

Cost of sales at wholesale reflects the production costs (i.e., raw materials, labor and overhead) of
manufactured goods and the direct cost of purchased goods, inventory shrinkage at both retail and wholesale,
inventory adjustments, inbound freight to the Company’s manufacturing and distribution facilities, distribution
costs and outbound freight to transfer goods to the Company’s wholesale customers. At retail, cost of sales
reflects the direct cost of goods purchased from third parties and the production or purchase costs of goods
acquired from the Company’s 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 (i.e., procurement, handling and
distribution costs) associated with the Company’s e-commerce business.

Retail Operating Expenses

Retail operating expenses include the costs and expenses associated with the operation of the Company’s

retail stores, with the exception of occupancy costs included in cost of sales. Retail operating expenses
principally consist of employee compensation and benefits, advertising, supplies expense and credit card and
banking fees.

Shipping and Handling

Outbound shipping costs billed to customers are included in net sales. The costs of shipping and handling

incurred by the Company are included in cost of sales.

Restructuring and Store Closure Costs

The Company records estimated store closure costs, estimated lease commitment costs (net of estimated

sublease income) and other miscellaneous store closing costs when the liability is incurred.

68

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

During the year ended December 31, 2015, the Company recorded a $1,180 contract termination charge in

its consolidated statement of income and comprehensive income.

Product Royalty Agreements

The Company enters into product royalty agreements that allow the Company to use licensed designs on
certain of its products. These contracts require the Company to pay royalties, generally based on the sales of such
product, and may require guaranteed minimum royalties, a portion of which may be paid in advance. The
Company matches royalty expense with revenue by recording royalties at the time of sale, at the greater of the
contractual rate or an effective rate calculated based on the guaranteed minimum royalty and the Company’s
estimate of sales during the contract period. If a portion of the guaranteed minimum royalty is determined to be
unrecoverable, the unrecoverable portion is charged to expense at that time. Guaranteed minimum royalties paid
in advance are recorded in the consolidated balance sheets in either prepaid expenses and other current assets or
other assets, depending on the nature of the royalties.

Catalogue Costs

The Company expenses costs associated with the production of catalogues when incurred.

Advertising

Advertising costs are expensed as incurred. Retail advertising expenses for the years ended December 31,

2015, December 31, 2014, and December 31, 2013 were $62,495, $64,816, and $68,134, respectively.

Art and Development Costs

Art and development costs are primarily internal costs that are not easily associated with specific designs,

some of which may not reach commercial production. Accordingly, the Company expenses these costs as
incurred.

Derivative Financial Instruments

Accounting Standards Codification (“ASC”) Topic 815, “Accounting for Derivative Instruments and
Hedging Activities”, requires that all derivative financial instruments be recognized on the balance sheet at fair
value and establishes criteria for both the designation and effectiveness of hedging activities. The Company uses
derivatives in the management of interest rate and foreign currency exposure. ASC Topic 815 requires the
Company to formally document the assets, liabilities or other transactions the Company designates as hedged
items, the risk being hedged and the relationship between the hedged items and the hedging instruments. The
Company must measure the effectiveness of the hedging relationship at the inception of the hedge and on an on-
going basis.

If derivative financial instruments qualify as fair value hedges, the gain or loss on the instrument and the
offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in net income during the
period of the change in fair values. For derivative financial instruments that qualify as cash flow hedges (i.e.,
hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into net income in the same period or periods during which the hedged
transaction affects earnings. The ineffective portion of a cash flow hedge, if any, is determined based on the
dollar-offset method (i.e., the gain or loss on the derivative financial instrument in excess of the cumulative

69

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

change in the present value of future cash flows of the hedged item) and is recognized in net income during the
period of change. As long as hedge effectiveness is maintained, interest rate swap arrangements and foreign
currency exchange agreements qualify for hedge accounting as cash flow hedges (see Note 18).

Income Taxes

Deferred tax assets and liabilities are determined based on the difference between the financial statement
and tax bases of assets and liabilities (and operating loss and tax credit carryforwards) applying enacted statutory
tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance when, in the judgment of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.

Stock-Based Compensation

Accounting for stock-based compensation requires measurement of compensation cost for all stock-based

awards at fair value on the date of grant and recognition of compensation expense over the service period for
awards expected to vest.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the Company’s foreign currency adjustments and the

impact of interest rate swap and foreign exchange contracts that qualify as hedges (see Notes 18 and 19).

Foreign Currency Transactions and Translation

The functional currencies of the Company’s foreign operations are the local currencies in which they
operate. Foreign currency exchange gains or losses resulting from receivables or payables in currencies other
than the functional currencies generally are credited or charged to operations. The balance sheets of foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect on the balance sheet date. The results
of operations of foreign subsidiaries are translated into U.S. dollars at the average exchange rates effective for the
periods presented. The differences from historical exchange rates are recorded as comprehensive income (loss)
and are included as a component of accumulated other comprehensive loss.

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 per share is as follows:

Net income attributable to Party City Holdco Inc.: . . .
Weighted average shares — Basic: . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Effect of dilutive stock options:

$
10,459
111,917,168
1,026,639

Year Ended
December 31,
2015

Year Ended
December 31,
2014

$
56,123
93,996,355
447,782

Year Ended
December 31,
2013

$

4,019
93,725,721
0

Weighted average shares — Diluted:

. . . . . . . . . . . . .

112,943,807

94,444,137

93,725,721

Net income per common share — Basic: . . . . . . . . . .

Net income per common share — Diluted: . . . . . . . . .

$

$

0.09

0.09

$

$

0.60

0.59

$

$

0.04

0.04

70

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

All earnings per share amounts, and the 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 the years ended December 31, 2015, December 31, 2014 and December 31, 2013, 1,991,965 stock
options, 0 stock options and 2,853,200 stock options, respectively, were excluded from the calculations of Net
income per common share — Diluted as they were anti-dilutive.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases”. The
ASU requires that companies recognize on their balance sheets assets and liabilities for the rights and obligations
created by the companies’ leases. The update is effective for the Company during the first quarter of 2019. The
Company is in the process of evaluating the impact of the pronouncement on the Company’s consolidated
financial statements. See Notes 8 and 14 for a discussion of the Company’s existing leases.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and
Financial Liabilities”. The update impacts the accounting for equity investments and the recognition of changes
in fair value of financial liabilities when the fair value option is elected. The pronouncement will be effective for
the Company during the first quarter of 2018. 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 November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The

update requires companies to present all deferred tax assets and liabilities as noncurrent. As permitted by the
pronouncement, during the fourth quarter of 2015, the Company adopted early the update on a prospective basis.
The Company did not adjust its December 31, 2014 consolidated balance sheet and, accordingly, prepaid
expenses and other current assets as of such date include $28,060 of net deferred tax assets.

In September 2015, the FASB issued 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. The Company 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 requires 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 permitted by the pronouncement, during the fourth
quarter of 2015, the Company adopted early the update on a retrospective basis. Accordingly, loans and notes
payable and long-term obligations, excluding current portion, in the Company’s December 31, 2015 consolidated
balance sheet are net of deferred financing costs in the amounts of $3,839 and $18,144, respectively.
Additionally, loans and notes payable and long-term obligations, excluding current portion, in the Company’s
December 31, 2014 consolidated balance sheet are net of deferred financing costs in the amounts of $3,400 and
$40,972, respectively. Previously, such amounts had been recorded in other assets, net.

71

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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, Net

Inventories consisted of the following:

Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$532,606
21,278
10,375

$550,975
22,093
9,162

$564,259

$582,230

December 31,

2015

2014

Note 4 — Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following:

Machinery and equipment . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: accumulated depreciation . . . . . . . . . . . . . . . .

December 31,

2015

2014

Useful lives

3-15 years
40 years
3-5 years
1-10 years
5-10 years

$ 135,004
67,727
41,674
91,067
141,089
9,294

$ 116,613
66,797
31,893
65,882
117,602
9,449

485,855
(213,435)

408,236
(159,552)

$ 272,420

$ 248,684

Depreciation and amortization expense related to property, plant and equipment, including assets under
capital leases, was $61,630, $60,695, and $67,627, for the years ended December 31, 2015, December 31, 2014,
and December 31, 2013, respectively.

72

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Note 5 — Acquisitions

During March 2015, the Company acquired all of the stock of Travis Designs Limited (“Travis”), a United
Kingdom-based entity with costume design and sourcing capabilities, for total consideration of $10,298, net of
cash acquired. The following summarizes the fair values of the major classes of assets acquired and liabilities
assumed: accounts receivable of $594, inventories of $1,082, prepaid expenses and other current assets of $497,
property, plant and equipment of $38, customer lists and relationships intangible assets of $1,285, a trade name
intangible asset of $259, accrued expenses of $255, income taxes payable of $383 and deferred income tax
liabilities in the amount of $308. $7,489 has been recorded as goodwill. The allocation of the purchase price is
based on the Company’s estimate of the fair value of the assets acquired and liabilities assumed. Goodwill, which
is not tax-deductible, arose from the acquisition due to the synergies that will be generated: 1) by selling Travis’
costumes in the Company’s approximately 700 Party City stores and approximately 300 Halloween City stores,
and 2) through Travis benefitting from the Company’s existing costumes sourcing relationships.

The seller of Travis will receive contingent consideration based on the sales of the business through the end

of 2016. The Company’s estimate of such payment as of the acquisition date, $3,832, is included in the total
consideration above. Additionally, the amount is included in “cash held in escrow in connection with
acquisitions” in the Company’s consolidated statement of cash flows.

During August 2015, the Company acquired 75% of the operations of Accurate Custom Injection Molding
Inc. (“ACIM”) for total consideration of $10,095. The following summarizes the fair values of the major classes
of assets acquired and liabilities assumed: inventories of $952, property, plant and equipment of $10,172,
accounts payable of $277 and goodwill of $548. The allocation of the purchase price is based on the Company’s
estimate of the fair value of the assets acquired. Goodwill, which is tax-deductible, arose from the acquisition due
to synergies which will principally be generated by selling the business’ injection molding products in the
Company’s approximately 700 Party City stores.

Based on the terms of the acquisition agreement, the Company will acquire the remaining 25% interest in

ACIM over the next nine years and the Company has recorded a liability in its consolidated balance sheet for the
estimated purchase price of such interest.

Additionally, during 2015 the Company acquired the assets of six franchise stores for $5,981.

73

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Goodwill Changes by Reporting Segment

For the years ended December 31, 2015 and December 31, 2014 goodwill changes, by reporting segment,

were as follows:

Wholesale segment:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travis acquisition . . . . . . . . . . . . . . . . . . . . . . . .
ACIM acquisition . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Foreign currency impact

Year Ended
December 31,
2015

Year Ended
December 31,
2014

$ 492,096
7,489
548
(5,834)

$ 496,375
0
0
(4,279)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

494,299

492,096

Retail segment:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Store acquisitions . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Foreign currency impact

1,065,154
4,028
(966)

1,065,332
1,671
(1,849)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,068,216

1,065,154

Total ending balance, both segments . . . . . . . . .

$1,562,515

$1,557,250

Note 6 — Intangible Assets

The Company had the following other identifiable intangible assets:

Retail franchise licenses . . . . . . . . . . . . . . . . . . .
Customer lists and relationships . . . . . . . . . . . .
Copyrights and designs . . . . . . . . . . . . . . . . . . .
Leasehold interests . . . . . . . . . . . . . . . . . . . . . . .
Design licenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . .

Cost

$ 67,000
56,459
29,030
16,045
2,469
500

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$171,503

Retail franchise licenses . . . . . . . . . . . . . . . . . . .
Customer lists and relationships . . . . . . . . . . . .
Copyrights and designs . . . . . . . . . . . . . . . . . . .
Leasehold interests . . . . . . . . . . . . . . . . . . . . . . .
Design licenses . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

$ 67,000
55,770
29,000
16,005
2,469

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$170,244

74

December 31, 2015

Accumulated
Amortization

$20,900
25,592
20,352
13,174
2,328
0

$82,346

Net
Carrying
Value

$ 46,100
30,867
8,678
2,871
141
500

$ 89,157

December 31, 2014

Accumulated
Amortization

$15,400
19,392
15,342
11,020
2,080

$63,234

Net
Carrying
Value

$ 51,600
36,378
13,658
4,985
389

$107,010

Useful lives

19 years
20 years
5-7 years
1-11 years
1-4 years
5 years

Useful lives

19 years
20 years
5-7 years
1-11 years
1-4 years

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The Company is amortizing the majority of its intangible assets utilizing accelerated patterns based on the

discounted cash flows that were used to value such assets.

The amortization expense for finite-lived intangible assets for the years ended December 31,

2015, December 31, 2014, and December 31, 2013 was $18,885, $22,195, and $26,997, respectively. Estimated
amortization expense for each of the next five years will be approximately $16,262, $13,031, $9,657, $8,489, and
$7,389, respectively.

In addition to the Company’s finite-lived intangible assets, the Company has recorded an indefinite-lived
asset for the Party City trade name, in the amount of $519,000, an indefinite-lived asset for the Amscan trade
name, in the amount of $26,000, and an indefinite-lived asset for the Halloween City trade name, in the amount
of $10,500.

Note 7 — Loans and Notes Payable

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 consolidated statement of income and comprehensive loss. The remaining deferred
financing costs of $9,308 and the remaining original discount of $3,592 are being 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 banker and legal fees, $9,758 of which was recorded in other expense.
The rest of the costs are being 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 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 consolidated statement of income and
comprehensive loss and included in amortization of deferred financing costs and original issuance discount in the
Company’s consolidated statement of cash flows. The remaining costs are being 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 consolidated statement of income 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 consolidated statement of
income and comprehensive loss and included in amortization of deferred financing costs and original issuance
discount in the Company’s consolidated statement of cash flows.

75

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Below is a discussion of the ABL Facility and other credit agreements. See Note 8 for a discussion of the

Company’s long-term obligations.

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:

•

•

•

•

•

•

incur additional indebtedness;

pay dividends on capital stock or redeem, repurchase or retire capital stock;

make certain investments, loans, advances and acquisitions;

engage in transactions with affiliates;

create liens; and

transfer or sell certain assets.

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.

76

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

In connection with entering into the ABL Facility, the Company incurred and capitalized 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 and are included in loans and
notes payable in the Company’s consolidated balance sheet (see Note 2 for further discussion).

Borrowings under the ABL Facility totaled $129,975 at December 31, 2015. The weighted average interest
rate for such borrowings was 3.70% at December 31, 2015. Outstanding standby letters of credit totaled $24,769
at December 31, 2015 and, after considering borrowing base restrictions, at December 31, 2015 PCHI had
$349,099 of available borrowing capacity under the terms of the facility.

Other Credit Agreements

The Company’s subsidiaries have also entered into several foreign asset-based and overdraft credit facilities

that provide the Company with additional borrowing capacity. At December 31, 2015 and December 31, 2014,
there were $0 and $1,361 borrowings outstanding under the foreign facilities, respectively. The facilities contain
customary affirmative and negative covenants.

Note 8 — Long-Term Obligations

Long-term obligations consisted of the following:

December 31,

2015

2014

Old Term Loan Credit Agreement
. . . . . . . . . . . . . . .
Term Loan Credit Agreement (a) . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . .
Old Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$350,000 PIK Notes (“Nextco Notes”) (c) . . . . . . . . .

$

0
1,314,538
2,414
0
343,721
0

$1,076,050
0
3,274
678,804
0
340,732

Total long-term obligations . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . .

1,660,673
(14,552)

2,098,860
(12,249)

Long-term obligations, excluding current portion . . .

$1,646,121

$2,086,611

Term Loan Credit Agreement

(a) 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 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 Note 7 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 December 31, 2015,
all outstanding borrowings were based on LIBOR and were at a rate of 4.25%.

77

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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. 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:

•

•

incur additional indebtedness;

pay dividends on capital stock or redeem, repurchase or retire capital stock;

• make certain investments, loans, advances and acquisitions;

•

•

•

engage in transactions with affiliates;

create liens; and

transfer or sell certain assets.

In connection with entering into the Term Loan Credit Agreement, the Company incurred and capitalized

third-party costs. Additionally, certain existing deferred financing costs will continue to be capitalized (see
Note 7 for further discussion). All capitalized costs are being amortized over the life of the new debt and are
included in long-term obligations, excluding current portion, in the Company’s consolidated balance sheet (see
Note 2 for further discussion).

At December 31, 2015, the outstanding principal amount of term loans under the Term Loan Credit
Agreement was $1,314,538, which is net of an original issue discount, a call premium and deferred financing
costs aggregating to $22,112 at December 31, 2015.

Senior Notes

(b) 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.

78

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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:

•

•

•

•

•

•

•

incur additional indebtedness or issue certain disqualified stock and preferred stock;

pay dividends or distributions, redeem or repurchase equity;

prepay subordinated debt or make certain investments;

engage in transactions with affiliates;

consolidate, merge or transfer all or substantially all of PCHI’s assets;

create liens; and

transfer or sell certain assets.

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):

Twelve-month period beginning on August 15,

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage

103.063%
101.531%
100.000%

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.

Also, 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 issuing the Senior Notes, the Company incurred and capitalized third-party costs.
Capitalized costs are being amortized over the life of the new debt and are included in long-term obligations,
excluding current portion, in the Company’s consolidated balance sheet (see Note 2 for further discussion). At
December 31, 2015, $6,279 of costs were capitalized.

Nextco Notes

(c) On April 21, 2015, the Company consummated an initial public offering of its common stock. The net
proceeds of the offering were used to, among other things, fully redeem the Nextco Notes and pay a management
agreement termination fee to affiliates of Thomas H. Lee Partners, L.P. (“THL”) and Advent International
Corporation (“Advent”).

79

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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 consolidated statement of income and
comprehensive loss for the year ended December 31, 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 consolidated statement of
income and comprehensive loss for the year ended December 31, 2015 and it was recorded in amortization of
deferred financing costs and original issuance discounts in the Company’s consolidated statement of cash flows.

Subject to certain exceptions, PCHI may not make certain payments, including the payment of dividends to

its shareholders (“restricted payments”), unless certain conditions are met under the terms of the indenture
governing the Senior Notes, the ABL Facility and the Term Loan Credit Agreement. As of December 31, 2015,
the most restrictive of these conditions existed in the indenture for the Senior Notes and in the Term Loan Credit
Agreement, which both limit restricted payments based on PCHI’s consolidated net income and leverage ratios.
As of December 31, 2015, PCHI had $225,418 of capacity under the two debt instruments to make restricted
payments. PCHI’s parent companies, PC Intermediate, PC Nextco and Party City Holdco, have no assets or
operations other than their investments in their subsidiaries and income from those subsidiaries.

At December 31, 2015, maturities of long-term obligations consisted of the following:

Long-Term Debt
Obligations

Capital Lease
Obligations

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$

13,400
13,400
13,400
13,400
13,400
1,591,259

Long-term obligations . . . . . . . . . . . . . . . . . .

$1,658,259

$1,152
807
269
174
12
0

$2,414

Totals

$

14,552
14,207
13,669
13,574
13,412
1,591,259

$1,660,673

Note 9 — Capital Stock

At December 31, 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 Nextco Notes (see Note 8) and
pay a management agreement termination fee to affiliates of THL and Advent.

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 consolidated statement of income and comprehensive loss for the year ended December 31, 2015.

80

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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
were reclassified to common stock and additional paid-in capital.

A summary of the changes in redeemable common securities during the years ended December 31, 2015,

2014 and 2013 follows:

Balance as of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance as of December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares reclassified to additional paid-in capital due to employee

Number of Common
Shares

2,487,016
422,800
0

2,909,816
262,037
0

Total
Redeemable
Common
Securities

$ 22,205
3,775
(2,425)

$ 23,555
1,794
10,387

terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(83,222)

(674)

Balance as of December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Impact of stockholders’ agreement amendment

3,088,631
0
(3,088,631)

$ 35,062
5,893
(40,955)

Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

$

0

On August 1, 2013, PC Nextco issued the Nextco Notes (see Note 8). The proceeds, net of expenses, were

used to pay a dividend to the shareholders of Party City Holdco in the amount of $3.60/share.

81

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Note 10 — Other Expense, net

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Other expense, net consists of the following:

Undistributed loss in unconsolidated joint

venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss . . . . . . . . . . . . . . . . . . . . . . . .
Debt refinancings (a) . . . . . . . . . . . . . . . . . . . . . . . . .
Management agreement termination fee (b) . . . . . . .
Corporate development expenses . . . . . . . . . . . . . . .
Business interruption proceeds . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

562
3,691
94,607
30,697
1,786
0
(353)

Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$130,990

$ 1,556
1,447
4,396
0
700
(4,514)
2,306

$ 5,891

$

172
1,581
12,295
0
2,960
0
1,470

$18,478

(a)

(b)

In August 2015, the Company refinanced its debt. See Note 7 for further discussion. Additionally, during
April 2015, the Company consummated an initial public offering of its common stock and the net proceeds
of the offering were used to, among other things, fully redeem the Nextco Notes. See Note 8 for further
discussion.
In conjunction with the initial public offering, the Company paid a management agreement termination fee
to affiliates of THL and Advent. See Note 9 for further discussion.

Note 11 — Employee Benefit Plans

Certain subsidiaries of the Company maintain defined contribution plans for eligible employees. The plans
require the subsidiaries to match from approximately 11% to 100% of voluntary employee contributions to the
plans, not to exceed a maximum amount of the employee’s annual salary, ranging from 5% to 6%. Expense for
the plans for the years ended December 31, 2015, December 31, 2014, and December 31, 2013 totaled $5,196,
$6,179, and $4,899, respectively.

Note 12 — Equity Incentive Plans

Party City Holdco has adopted the Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012

Plan”) under which it can grant incentive awards in the form of stock appreciation rights, restricted stock and
common stock options to certain directors, officers, employees and consultants of Party City Holdco and its
affiliates. A committee of Party City Holdco’s Board of Directors, or the Board itself in the absence of a
committee, is authorized to make grants and various other decisions under the 2012 Plan. The maximum number
of shares reserved under the 2012 Plan is 15,316,000 shares.

Time-based options

Party City Holdco grants time-based options to key eligible employees and outside directors. In conjunction

with the options, the Company recorded compensation expense of $3,042, $1,583, and $2,137 during the years
ended December 31, 2015, December 31, 2014, and December 31, 2013, respectively.

82

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The fair value of time-based options granted during the year ended December 31, 2015 was estimated on the

grant date using a Black-Scholes option valuation model based on the assumptions in the following table:

Expected dividend rate . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option term . . . . . . . . . . . . . . . . . . . . . .

0%
1.57% to 1.93%
30.00%
5.5 years – 6.5 years

The fair value of time-based options granted during the year ended December 31, 2013 was estimated on the

grant date using a Black-Scholes option valuation model based on the assumptions in the following table:

Expected dividend rate . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option term . . . . . . . . . . . . . . . . . . . . . .

0%
1.03% to 2.07%
35.00%
6.2 years – 6.5 years

No time-based options were granted during the year ended December 31, 2014.

As Party City Holdco’s stock only recently started trading publicly, the Company determined volatility
based on the average historical volatility of guideline companies. Additionally, as there is not sufficient historical
exercise data to provide a reasonable basis for determining the expected term, the Company estimated the
expected term using the “simplified” method.

The Company based its estimated forfeiture rate of 13.4% on historical forfeitures for time-based options
that were granted by PCHI between 2004 and 2012 as the number of options given to each of the various levels
of management is principally consistent with historical grants and forfeitures are expected to be materially
consistent with past experience.

Most of the time-based options that were granted during 2013 vested 20% on July 27, 2013 and vest 20%

each July 27th thereafter. The Company’s other time-based options principally vest 20% on each anniversary
date. The Company records compensation expense for such options on a straight-line basis. As of December 31,
2015, there was $13,058 of unrecognized compensation cost which will be recognized over a weighted-average
period of approximately 34 months.

Performance-based options

During 2013, Party City Holdco granted performance-based stock options to key employees and
independent directors. For performance-based options, vesting is contingent upon THL achieving specified
investment returns when it sells its ownership stake in Party City Holdco. Since the sale of THL’s shares cannot
be assessed as probable before it occurs, no compensation expense has been recorded for the performance-based
options that have been granted. As of December 31, 2015, 4,015,200 performance-based options were
outstanding.

83

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The following table summarizes the changes in outstanding stock options for the years ended December 31,

2013, December 31, 2014 and December 31, 2015.

Average
Exercise
Price

Options

Average Fair
Value of
Time-Based
Options at
Grant Date

Aggregate
Intrinsic
Value

Weighted
Average
Remaining
Contractual
Term
(Years)

Outstanding at December 31, 2012 . . . . . . . . . . . . . . .

0

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5.33

7,232,400
0
(100,800) $ 5.33

$3.15

Outstanding at December 31, 2013 . . . . . . . . . . . . . . .

7,131,600

$ 5.33

$19,739

9.2

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0
(202,720) $ 5.33
(242,480) $ 5.33

Outstanding at December 31, 2014 . . . . . . . . . . . . . . .

6,686,400

$ 5.33

40,282

8.3

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,013,764

$17.97
(5,600) $ 5.33
(176,919) $ 7.36

$6.04

Outstanding at December 31, 2015 . . . . . . . . . . . . . . .

8,517,645

$ 8.28

Exercisable at December 31, 2015 . . . . . . . . . . . . . . .

1,393,280

$ 5.33

39,453

10,560

7.8

7.3

Expected to vest at December 31, 2015 (excluding

performance-based options) . . . . . . . . . . . . . . . . . .

3,109,165

$13.40

(1,537)

8.6

The intrinsic value of options exercised was $60, $561, and $0 for the years ended December 31,

2015, December 31, 2014, and December 31, 2013, respectively. The fair value of options vested was $1,726,
$1,769, and $1,676, during the years ended December 31, 2015, December 31, 2014, and December 31, 2013,
respectively.

Note 13 — Income Taxes

A summary of domestic and foreign income (loss) before income taxes and including noncontrolling interest

follows:

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,180
10,688

$17,868

$67,000
14,334

$81,334

$(5,479)
5,197

$ (282)

84

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The income tax expense (benefit) consisted of the following:

Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current expense . . . . . . . . . . . .

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred benefit

. . . . . . . . . . . .

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

$ 8,137
2,652
2,798

13,587

(6,710)
(1,086)
1,618

(6,178)

$ 28,735
5,954
4,280

38,969

(11,522)
(2,838)
602

(13,758)

$ 15,259
2,285
3,530

21,074

(19,519)
(5,675)
(405)

(25,599)

Income tax expense (benefit)

. . . . . . . . . . . . . .

$ 7,409

$ 25,211

$ (4,525)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Deferred income tax assets and liabilities consisted of the following:

December 31,

2015

2014

Deferred income tax assets:

Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
State tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

9,794
678
10,891
3,829
1,161
14,778
1,418
10,955
294

$ 10,746
1,079
8,835
4,943
1,517
13,586
1,637
5,407
1,681

Deferred income tax assets before valuation

allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53,798
(15,817)

49,431
(13,479)

Deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . .

$ 37,981

$ 35,952

Deferred income tax liabilities:

. . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill and other assets . . . . . . . . . . . . . . . .
Foreign earnings expected to be repatriated . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,810
218,636
61,786
7,178
4,072

$ 15,984
218,623
68,026
8,844
5,753

Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . .

$313,482

$317,230

85

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

In the Company’s consolidated balance sheet $1,166 is included in other assets, net and $276,667 is
included in deferred income tax liabilities at December 31, 2015; while $28,060 is included in prepaid expenses
and other current assets, and $309,338 is included in deferred income tax liabilities at December 31, 2014.
Certain December 31, 2014 amounts in the table above were reclassified to conform to December 31, 2015
presentation.

Management assesses the available positive and negative evidence to estimate if sufficient taxable income

will be generated to realize existing deferred tax assets. On the basis of this evaluation, a valuation allowance
was recorded to reduce the total deferred tax assets to an amount that will, more-likely-than-not, be realized in
the future. The valuation allowance and the net change during the year, relates primarily to foreign net operating
loss carryforwards.

As of December 31, 2015, the Company had foreign tax-effected net operating loss carryforwards in

Germany of $7,586, the United Kingdom (“U.K.”) of $5,097, and Australia of $1,635, all of which have an
unlimited carryforward, as well as $460 from other foreign countries, which expire at different dates. In addition,
the U.S. Federal net operating loss carryforwards begin to expire in 2019, the U.S. state net operating loss
carryforwards, expire beginning in 2018, and the foreign tax credit carryforwards, expire beginning in 2020.

When the Company acquired Christy’s By Design Limited, Christy’s Garments & Accessories Limited and
Riethmuller GmbH in 2010 and 2011, respectively, it chose to treat the entities as if they were U.S. branches in
order to achieve certain U.S. tax benefits then available. At the time of the acquisitions, these foreign entities had
pre-acquisition foreign net operating loss carryforwards. These pre-acquisition losses can be carried forward
indefinitely in both countries. However, any future foreign earnings that would utilize these losses will still be
taxed in the U.S. at the U.S. income tax rate. The Company has established a full valuation allowance on the
Riethmuller GmbH pre-acquisition loss carryforwards of $746, but expects the Christy’s By Design Limited, and
Christy’s Garments & Accessories Limited pre-acquisition loss carryforwards at December 31, 2015 of $1,065
and $577, respectively, to be fully realizable. However, because their future earnings will not result in future
taxes paid until the loss carryforwards are utilized, a deferred tax liability is recognized in an amount equal to the
recognized pre-acquisition losses. Once the pre-acquisition loss carryforwards of the U.S. branches have been
utilized, the future foreign earnings will be taxed in both the foreign jurisdiction and in the U.S., and the
Company’s total income tax expense related to those earnings will depend on whether foreign taxes paid on those
earnings can be used as foreign tax credits in the Company’s federal income tax return.

86

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The difference between the Company’s effective income tax rate and the U.S. statutory income tax rate is as

follows:

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Tax provision at U.S. statutory income tax

rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, net of federal income tax . . .
Domestic production activities deduction . . . . .
Deferred tax adjustments . . . . . . . . . . . . . . . . . .
Contingent consideration adjustment
. . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . .
Work Opportunity Tax Credit . . . . . . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . .
Foreign earnings . . . . . . . . . . . . . . . . . . . . . . . .
U.S. — foreign rate differential
. . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effective income tax rate . . . . . . . . . . . . . . . . . .

35.0%
5.7
(5.1)
0.0
(6.0)
0.0
(3.2)
21.7
9.1
(13.7)
(2.0)

41.5%

35.0%
2.5
(1.9)
(0.2)
0.0
(6.9)
(0.4)
0.5
4.9
(3.4)
0.9

31.0%

35.0%

1,299.0
460.3
244.0
0.0
(131.2)
(53.2)
(588.7)
(367.7)
483.4
223.7

1,604.6%

Transaction costs: In 2012, the Company incurred $24,564 of expenses related to the acquisition of the

Company. These expenses were capitalized for tax purposes. During 2014, the Company determined that
$15,876 of these expenses qualified for amortization over time for tax purposes. The Company filed an automatic
method change with its 2014 tax return in order to deduct these expenses for tax purposes. The tax benefit of
$5,918, realized over 15 years, has been reflected in the Company’s 2014 consolidated statement of income and
comprehensive income.

State income tax: During 2013, the Company recorded a $2,247 state income tax benefit principally due to a

reduction in a deferred income tax liability on trade names, which was caused by the impact of apportionment
changes on future state income taxes. Additionally, during 2013, the Company recorded a state income tax credit
in the amount of $1,441 due to a write-off of a deferred tax liability related to state bonus depreciation.

Deferred tax adjustments: During 2013, the Company wrote-off deferred tax liabilities related primarily to

deferred finance charges and the federal deduction for state taxes.

Foreign earnings: During 2015, 2014 and 2013, the U.S. tax effect on foreign earnings which are expected
to be remitted in the future was provided without consideration of offsetting foreign tax credits due to projected
future foreign source income being insufficient to utilize any available foreign tax credits.

Other differences between the effective income tax rate and the federal statutory income tax rate are
composed primarily of favorable permanent differences related to inventory contributions, offset by non-
deductible meals and entertainment expenses.

At December 31, 2015, the cumulative undistributed earnings of any foreign subsidiaries whose earnings are

considered permanently reinvested were approximately $19,672. No provision has been made for U.S. or
additional foreign taxes on the undistributed earnings of these subsidiaries as such earnings have been reinvested
indefinitely in the subsidiaries’ operations. It is not practical to calculate the potential deferred income tax impact
that may arise from the distribution of these earnings, as there is a significant amount of uncertainty with respect

87

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

to determining the amount of foreign tax credits, additional local withholding tax and other indirect tax
consequences at the time of such event.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits:

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Balance as of beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current period tax positions . . . . . . . . . . . . . . .
Increases related to prior period tax positions . . . . . . . . . . . . . . . . .
Decrease related to settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to lapsing of statutes of limitations . . . . . . . . . .

Balance as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$798
130
0
(92)
(71)

$765

$ 285
763
0
(193)
(57)

$ 798

$ 529
0
0
0
(244)

$ 285

The Company’s total net unrecognized tax benefits that, if recognized, would impact the Company’s
effective tax rate were $765 and $798 at December 31, 2015 and 2014, respectively. As of December 31, 2015,
we do not believe that there are any positions for which it is reasonably possible that the total amount of
unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax

expense. The Company has accrued $15 and $22 for the potential payment of interest and penalties at
December 31, 2015 and 2014, respectively.

For federal income tax purposes, the year ended December 31, 2014, is currently under IRS examination. In

2015, the IRS concluded an examination of the years ended December 31, 2012 and December 31, 2013, which
resulted in a tax payment of $1,271. For U.S. state income tax purposes, tax years 2011-2015 generally remain
open, whereas for non-U.S. income tax purposes tax years 2010-2015 generally remain open.

Note 14 — Commitments, Contingencies and Related Party Transactions

Lease Agreements

The Company has non-cancelable operating leases for its numerous retail store sites, as well as for its
corporate offices, certain distribution and manufacturing facilities, showrooms, and warehouse equipment that
expire on various dates, principally through 2030. These leases generally contain renewal options and require the
Company to pay real estate taxes, utilities and related insurance.

At December 31, 2015, future minimum lease payments under all operating leases consisted of the

following:

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

88

Future Minimum
Operating Lease
Payments

$155,842
139,602
116,776
92,205
80,385
221,839

$806,649

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The future minimum lease payments included in the above table also do not include contingent rent based

upon sales volumes or other variable costs, such as maintenance, insurance and taxes.

Rent expense for the years ended December 31, 2015, December 31, 2014, and December 31, 2013 was
$225,543, $216,572, and $200,544, respectively, and included immaterial amounts of rent expense related to
contingent rent.

Litigation

On November 18, 2015, a putative class action complaint was filed in the U.S. District Court for the
Southern District of New York, naming Party City Holdco Inc. and certain executives as defendants. The
complaint alleges violations of Section 11 of the Securities Act of 1933 in connection with public filings related
to the Company’s April 2015 initial public offering. The plaintiff seeks to represent a class of shareholders who
purchased stock in the initial public offering or who can trace their shares to that offering. The complaint seeks
unspecified damages and costs. The Company intends to vigorously defend itself against this action. The
Company is unable, at this time, to determine whether the outcome of the litigation would have a material impact
on its results of operations, financial condition or cash flows.

Product Royalty Agreements

The Company has entered into product royalty agreements, with various licensors of copyrighted and
trademarked characters and designs, which are used on the Company’s products, which require royalty payments
based on sales of the Company’s products, and, in some cases, include annual minimum royalties.

At December 31, 2015, the Company’s commitment to pay future minimum product royalties was as

follows:

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

Future Minimum
Royalty
Payments

$24,863
21,373
7,841
541
300
0

$54,918

Product royalty expense for the years ended December 31, 2015, December 31, 2014, and December 31,

2013 was $45,710, $42,679, and $30,968, respectively.

Legal Proceedings

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.

89

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Related Party Transactions

During 2012, Party City Holdco and PCHI entered into a management agreement with THL and Advent
under which THL and Advent provided advice on, among other things, financing, operations, acquisitions and
dispositions. Under the agreement, THL and Advent were paid, in aggregate, an annual management fee in the
amount of the greater of $3,000 or 1.0% of Adjusted EBITDA, as defined in PCHI’s debt agreements. THL and
Advent received annual management fees in the amounts of $692 and $238, respectively, during the year ended
December 31, 2015, $2,498 and $858, respectively, during the year ended December 31, 2014, and $2,233 and
$767, respectively, during the year ended December 31, 2013. Such amounts were recorded in general and
administrative expenses in the Company’s consolidated statement of income and comprehensive income (loss).
In the case of an initial public offering or a change in control, as defined in Party City Holdco’s stockholders’
agreement, at the time of such event the Company was required to pay THL and Advent the net present value of
the remaining annual management fees that were payable over the agreement’s ten year term. Therefore, during
April 2015, in conjunction with the Company’s initial public offering, the Company paid a management
agreement termination fee of $30,697. See Note 9 for further discussion.

Note 15 — 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.

90

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The Company’s industry segment data for the years ended December 31, 2015, December 31, 2014, and

December 31, 2013 are as follows:

Year Ended December 31, 2015
Revenues:

Wholesale

Retail

Consolidated

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,226,989
0

$1,621,524
19,411

$2,848,513
19,411

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,226,989
(573,391)

1,640,935
0

2,867,924
(573,391)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 653,598

$1,640,935

$2,294,533

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

85,728

$ 186,491

$ 272,219

Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123,361
130,990

17,868

80,515

78,825

$

$

$

$

$

29,352

18,849

$

$

51,163

59,976

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 864,698

$2,427,705

$3,292,403

Wholesale

Retail

Consolidated

Year Ended December 31, 2014
Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,213,024
0

$1,605,228
19,668

$2,818,252
19,668

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,213,024
(566,663)

1,624,896
0

2,837,920
(566,663)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 646,361

$1,624,896

$2,271,257

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

74,177

$ 168,965

$ 243,142

Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

32,446

27,651

$

$

50,444

50,590

155,917
5,891

81,334

82,890

78,241

$

$

$

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,095,803

$2,240,688

$3,336,491

91

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Wholesale

Retail

Consolidated

Year Ended December 31, 2013
Revenues:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,080,740
0

$1,433,522
18,841

$2,514,262
18,841

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,080,740
(487,990)

1,452,363
0

2,533,103
(487,990)

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 592,750

$1,452,363

$2,045,113

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

65,997

$

95,605

$ 161,602

Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

40,789

15,796

$

$

53,835

45,445

143,406
18,478

(282)

94,624

61,241

$

$

$

Geographic Segments

Export sales of metallic balloons of $22,803, $22,023, and $20,140 during the years ended December 31,
2015, December 31, 2014, and December 31, 2013, respectively, are included in domestic sales to unaffiliated
customers below. Intercompany sales between geographic areas primarily consist of sales of finished goods and
are generally made at cost plus a share of operating profit.

The Company’s geographic area data follows:

Year Ended December 31, 2015
Revenues:

Domestic

Foreign

Eliminations Consolidated

Net sales to unaffiliated customers . . . . . . . . . . . . . . . . .
Net sales between geographic areas . . . . . . . . . . . . . . . .

$1,937,793
47,752

$337,329
74,974

$
0
(122,726)

$2,275,122
0

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .

1,985,545
19,411

412,303
0

(122,726)
0

2,275,122
19,411

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .

$2,004,956

$412,303

$(122,726) $2,294,533

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 267,209

$

5,010

$

0

$ 272,219

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .

$

74,849

$

5,666

123,361
130,990

17,868

80,515

$

$

Total long-lived assets (excluding goodwill, trade names and
other intangible assets, net) . . . . . . . . . . . . . . . . . . . . . . . . .

$ 251,328

$ 30,776

$ 282,104

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,093,949

$198,454

$

0

$3,292,403

92

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Domestic

Foreign

Eliminations Consolidated

Year Ended December 31, 2014
Revenues:

Net sales to unaffiliated customers . . . . . . . . . . . . . . . . .
Net sales between geographic areas . . . . . . . . . . . . . . . .

$1,930,270
44,903

$321,319
75,462

$
0
(120,365)

$2,251,589
0

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .

1,975,173
19,668

396,781
0

(120,365)
0

2,251,589
19,668

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .

$1,994,841

$396,781

$(120,365) $2,271,257

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 236,495

$

6,647

$

0

$ 243,142

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .

$

77,445

$

5,445

155,917
5,891

81,334

82,890

$

$

Total long-lived assets (excluding goodwill, trade names and
other intangible assets, net) . . . . . . . . . . . . . . . . . . . . . . . . .

$ 231,820

$ 23,729

$ 255,549

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,352,865

$324,817

$(341,191) $3,336,491

Domestic

Foreign

Eliminations Consolidated

Year Ended December 31, 2013
Revenues:

Net sales to unaffiliated customers . . . . . . . . . . . . . . . . .
Net sales between geographic areas . . . . . . . . . . . . . . . .

$1,756,375
34,146

$269,897
54,996

$
0
(89,142)

$2,026,272
0

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . .

1,790,521
18,841

324,893
0

(89,142)
0

2,026,272
18,841

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .

$1,809,362

$324,893

$(89,142)

$2,045,113

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 159,481

$

2,121

$

0

$ 161,602

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before income taxes . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .

$

89,839

$

4,785

143,406
18,478

$

$

(282)

94,624

Note 16 — Quarterly Results (Unaudited)

Despite a concentration of holidays in the fourth quarter of the year, as a result of the Company’s expansive

product lines and customer base and increased promotional activities, the impact of seasonality on the quarterly
results of the Company’s wholesale operations has been limited. However, due to Halloween and Christmas, the
inventory balances of the Company’s wholesale operations are slightly higher during the third quarter than
during the remainder of the year. Additionally, the promotional activities of the Company’s wholesale business,
including special dating terms, particularly with respect to Halloween products sold to retailers and other
distributors, result in slightly higher accounts receivable balances during the third quarter. The Company’s retail
operations are subject to significant seasonal variations. Historically, the Company’s retail operations have
realized a significant portion of their revenues, cash flow and net income in the fourth quarter of the year,
principally due to Halloween sales in October and, to a lesser extent, year-end holiday sales.

93

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

The following table sets forth our historical revenues, gross profit, income (loss) from operations, net
income (loss), net income (loss) attributable to Party City Holdco Inc., net income (loss) per common share —
Basic, and net income (loss) per common share—Diluted for each of the following periods:

2015:

Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per common share — Basic . . . . . . . . .
Net (loss) income per common share — Diluted . . . . . . .

2014:

Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and franchise fees . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per common share — Basic . . . . . . . . .
Net (loss) income per common share — Diluted . . . . . . .

For the Three Months Ended,

March 31,

June 30,

September 30,

December 31,

$458,195
3,910
163,921
24,004
(8,525)
(0.09) $
(0.09) $

$491,206
4,314
188,343
46,067
(23,050)(a)
(0.20)(a)
(0.20)(a)

$
$

$551,380
4,027
189,850
31,480
(44,489)(b)
(0.37)(b)
(0.37)(b)

$
$

$774,341
7,160
362,124
170,668
86,523
0.73
0.72

$
$

For the Three Months Ended,

March 31,

June 30,

September 30,

December 31,

$429,220
3,767
154,839
15,906
(19,912)

$
$

(0.21) $
(0.21) $

$487,182
4,392
182,664
40,305
2,456
0.03
0.03

$538,671
3,990
184,146
28,778
(5,410)
(0.06)
(0.06)

$
$

$796,516
7,519
354,234
158,153
78,989
0.84
0.83

$
$

(a) During the three months ended June 30, 2015, the Company consummated an initial public offering of its

common stock. The net proceeds of the offering were used to, among other things, fully redeem the Nextco
Notes (see Note 8) and pay a management agreement termination fee to affiliates of THL and Advent (see
Note 9).

(b) During the three months ended September 30, 2015, the Company refinanced its debt. See Note 7 for further

discussion.

Note 17 — Fair Value Measurements

The provisions of ASC Topic 820, “Fair Value Measurement”, define fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date.
ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.
This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable
inputs. The three levels of inputs used to measure fair value are as follows:

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

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for

similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities
in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data.

94

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are

significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted
cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table shows assets and liabilities as of December 31, 2015 that are measured at fair value on a

recurring basis:

Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .

$0
0

$773
391

$0
0

$773
391

Level 1

Level 2

Level 3

Total as of
December 31,
2015

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

recurring basis:

Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .

$0
0

$

0
476

$0
0

$
0
476

Level 1

Level 2

Level 3

Total as of
December 31,
2014

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 December 31, 2015 because of the short-term maturities of the instruments and/or their variable rates of
interest.

The carrying amounts and fair values of borrowings under the Term Loan Credit Agreement and the Senior

Notes as of December 31, 2015 are as follows:

Term Loan Credit Agreement . . . . . . . . . . . . . . . .
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,314,538
343,721

$1,295,722
340,375

Carrying Amount

Fair Value

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 December 31, 2015 based on the discounted future cash flows of each instrument at
rates currently offered for similar debt instruments of comparable maturity.

Note 18 — 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.

95

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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 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 years ended December 31,
2015, December 31, 2014 or December 31, 2013.

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 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 December 31, 2015 and 2014, the Company had foreign currency
exchange contracts that qualified for hedge accounting. No components of these agreements were excluded in the
measurement of hedge effectiveness. As these hedges are 100% effective, there is no current impact on earnings
due to hedge ineffectiveness. The Company anticipates that substantially all unrealized gains and losses in
accumulated other comprehensive income (loss) related to these foreign currency exchange contracts will be
reclassified into earnings by June 2017.

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

December 31, 2014:

Balance
Sheet
Line

Derivative Assets

Fair
Value

Balance
Sheet
Line

Derivative Liabilities

Fair
Value

Balance
Sheet
Line

Fair
Value

Balance
Sheet
Line

Fair
Value

Derivative Instrument

December 31, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Foreign Exchange Contracts . . . . . .

(a) PP

$773

(a) PP

$0

(b) AE $391

(b) AE $476

(a) PP = Prepaid expenses and other current assets
(b) AE = Accrued expenses

96

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

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

December 31, 2014:

Derivative Instrument

December 31,
2015

December 31,
2014

Foreign Exchange Contracts . . . . . . . . . . . . . . . . . . .

$23,028

$8,900

Note 19—Changes in Accumulated Other Comprehensive (Loss) Income

The changes in accumulated other comprehensive (loss) income attributable to Party City Holdco Inc.

consisted of the following:

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income before reclassifications, net of

Year Ended December 31, 2015

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total, Net
of Taxes

$(12,969)

$ 234

$(12,735)

income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20,432)

675

(19,757)

Amounts reclassified from accumulated other comprehensive loss to the
consolidated statement of income and comprehensive loss, net of
income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

Net current-period other comprehensive (loss) income . . . . . . . . . . . . . . . . .

(20,432)

(298)

377

(298)

(20,055)

Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(33,401)

$ 611

$(32,790)

Year Ended December 31, 2014

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total, Net
of Taxes

$ 5,738

$(330)

$ 5,408

(18,707)

336

(18,371)

Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income before reclassifications, net of

income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive income (loss)
to the consolidated statement of income and comprehensive income, net
of income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

228

564

228

(18,143)

Net current-period other comprehensive (loss) income . . . . . . . . . . . . . . . . .

(18,707)

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(12,969)

$ 234

$(12,735)

97

PARTY CITY HOLDCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share)

Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications, net of income tax . . . . . . .
Amounts reclassified from accumulated other comprehensive income (loss)

to the consolidated statement of income and comprehensive income, net of
income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net current-period other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31, 2013

Foreign
Currency
Adjustments

Impact of
Foreign
Exchange
Contracts,
Net of Taxes

Total,
Net of
Taxes

$6,425
(48)

$(225)
(306)

$6,200
(354)

0

(48)
(639)

201

(105)
0

201

(153)
(639)

Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,738

$(330)

$5,408

Note 20—Subsequent Events

During January 2016, the Company acquired 19 franchise stores located in Arizona and New Mexico for

total consideration of approximately $27,500.

98

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARTY CITY HOLDCO INC.

(Parent company only)

CONDENSED BALANCE SHEETS
(Dollars in thousands)

December 31, 2015 December 31, 2014

ASSETS

Other assets (principally investment in and amounts due from wholly-

owned subsidiaries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$913,017

$913,017

$522,288

$522,288

LIABILITIES, REDEEMABLE COMMON SECURITIES AND

STOCKHOLDERS’ EQUITY

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable common securities (3,088,630 shares issued and outstanding at
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2014)

$

0

0

$

0

35,062

Commitments and contingencies

Stockholders’ equity:
Common stock ($0.01 par value; 119,258,374 and 91,007,894 shares issued

and outstanding at December 31, 2015 and December 31, 2014,
respectively)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities, redeemable common securities and stockholders’

1,193
904,425
40,189
(32,790)

913,017

910
469,117
29,934
(12,735)

487,226

equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$913,017

$522,288

See accompanying notes to these condensed financial statements.

99

PARTY CITY HOLDCO INC. (Parent company only)
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0
10,459

$ 10,459
(20,055)

$ 5,918
50,205

$ 56,123
(18,143)

Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (9,596)

$ 37,980

$
0
4,019

$4,019
(153)

$3,866

See accompanying notes to these condensed financial statements.

100

PARTY CITY HOLDCO INC. (Parent company only)

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Cash flows (used in) provided by operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash (used in)

provided by operating activities:

Year Ended
December 31,
2015

Year Ended
December 31,
2014

Year Ended
December 31,
2013

$ 10,459

$ 56,123

$

4,019

Equity in net income of subsidiaries . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in due to/from affiliates and income taxes

(10,459)
0

(50,205)
0

payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(397,189)

Net cash (used in) provided by operating activities . . . . . . . . . . . .

(397,189)

Cash flows provided by (used in) financing activities:

Dividend distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . .

0
397,159
30

397,189

(6,998)

(1,080)

0
0
1,080

1,080

(4,019)
338,015

(750)

337,265

(338,015)
750
0

(337,265)

Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . .

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . .

$

0
0

0

$

0
0

0

$

0
0

0

See accompanying notes to these condensed financial statements.

101

PARTY CITY HOLDCO INC. (Parent company only)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 1 — Basis of presentation and description of registrant

Party City Holdco Inc. (“Party City Holdco”) Schedule I Condensed Financial Information provides all
parent company information that is required to be presented in accordance with the SEC rules and regulations for
financial statement schedules. The consolidated financial statements of Party City Holdco are included
elsewhere. The parent-company financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto.

Party City Holdco conducts no separate operations and acts only as a holding company. Its share of the net

income of its unconsolidated subsidiaries is included in its statements of income using the equity method.

Since all material stock requirements, dividends and guarantees of the registrant have been disclosed in the

consolidated financial statements, the information is not required to be repeated in this schedule.

Note 2 — Dividends from subsidiaries

On August 1, 2013, PC Nextco Holdings, LLC issued $350,000 of 8.75% notes. The proceeds, net of
expenses, were used to pay a dividend to Party City Holdco, which then paid a dividend to its shareholders. The
total amount of the dividend was $338,015. No cash dividends were paid to Party City Holdco by its subsidiaries
during the other periods included in these financial statements.

102

SCHEDULE II

PARTY CITY HOLDCO INC.
VALUATION AND QUALIFYING ACCOUNTS
The Years Ended December 31, 2015, December 31, 2014, and December 31, 2013
(Dollars in thousands)

Allowance for Doubtful Accounts:
For the year ended December 31, 2013 . . . . . . . . . . . . .
For the year ended December 31, 2014 . . . . . . . . . . . . .
For the year ended December 31, 2015 . . . . . . . . . . . . .

Sales Returns and Allowances:
For the year ended December 31, 2013 . . . . . . . . . . . . .
For the year ended December 31, 2014 . . . . . . . . . . . . .
For the year ended December 31, 2015 . . . . . . . . . . . . .

Beginning
Balance

Write-Offs

Additions

706
1,362
2,889

371
326
526

423
256
769

81,692
83,750
78,219

1,079
1,783
223

81,647
83,950
78,348

Ending
Balance

1,362
2,889
2,343

326
526
655

103

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,

evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation
of our disclosure controls and procedures as of December 31, 2015, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal
control over financial reporting or an attestation report of our independent registered public accounting firm due
to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and

15d-15(f) under the Act) during the quarter ended December 31, 2015 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

104

Item 10. Directors, Executive Officers and Corporate Governance

Executive Officers of the Registrant

PART III

Set forth below is certain information about our executive officers. Ages are as of February 29, 2016.

Gerald C. Rittenberg, age 63, became our Executive Chairman in January 2014. From 1997 until January

2014, Mr. Rittenberg served as our Chief Executive Officer. From May 1997 until December 1997,
Mr. Rittenberg served as acting Chairman of the Board. From October 1996 until May 1997, Mr. Rittenberg
served as our President. Mr. Rittenberg’s extensive experience in the decorated party goods industry, his lengthy
tenure and his prior experience as our Chief Executive Officer make him a valuable asset to our management and
our board of directors.

James M. Harrison, age 64, became our Chief Executive Officer in January 2014. Mr. Harrison served as
our President from December 1997 until January 2015. From March 2002 to July 2012, Mr. Harrison served as
our Chief Operating Officer. From February 1997 to March 2002, Mr. Harrison also served as our Chief
Financial Officer and Treasurer. From February 1997 to December 1997, Mr. Harrison served as our Secretary.
Mr. Harrison’s extensive experience in the decorated party goods industry, his lengthy tenure and his role as our
Chief Executive Officer make him a valuable asset to our management and our board of directors.

Michael A. Correale, age 58, became our Chief Financial Officer in March 2002. Prior to that time,

Mr. Correale served as our Vice President — Finance, from May 1997 to March 2002. Prior to joining the
Company, Mr. Correale was the Director of Financial Reporting for Ultramar Corporation and also worked for
Ernst & Young LLP.

Gregg A. Melnick, age 46, became our President in January 2015 and became President of Party City
Holdings Inc. in October 2014. From March 2011 to September 2014, Mr. Melnick was President of the Party
City Retail Group. From May 2010 to February 2011, Mr. Melnick was President of Party City Corporation.
Previously, he was Chief Operating Officer from October 2007 to April 2010 and Chief Financial Officer of
Party City Corporation from September 2004 to September 2007.

The remaining information required by this item will be set forth in our proxy statement for our 2016
Annual Meeting of shareholders (to be filed within 120 days after December 31, 2015) (the “Proxy Statement”),
and is incorporated herein by reference.

Item 11. Executive Compensation

Information required by this item will be set forth in our Proxy Statement, and is incorporated herein by

reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Information required by this item will be set forth in our Proxy Statement, and is incorporated herein by

reference.

Item 13. Certain Relationships and Related Party Transactions and Director Independence

Information required by this item will be set forth in our Proxy Statement, and is incorporated herein by

reference.

Item 14. Principal Accountant Fees and Services

Information required by this item will be set forth in our Proxy Statement, and is incorporated herein by

reference.

105

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report.

1.

2.

Financial Statements. The financial statements are set forth under Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K.

Financial Statement Schedules. Schedule I, Condensed Financial Information of Registrant, and
Schedule II, Valuation and Qualifying Accounts, is filed as part of this Annual Report on Form 10-K
and should be read in conjunction with the financial statements and notes thereto contained in Item 8,
“Financial Statements and Supplementary Data.”

All other financial statements and financial statement schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related instruction, are not material
or are not applicable and, therefore, have been omitted.

3.

Exhibits.

Exhibit
Number

2.1

3.1

3.2

4.1

4.2

4.3

4.4

4.5

Exhibit Index

Description

Agreement and Plan of Merger, dated June 4, 2012, by and among Party City Holdings Inc., PC
Merger Sub, Inc., Party City Holdco Inc. (formerly PC Topco Holdings, Inc.) and the Stockholders’
Representatives party thereto (incorporated by reference to Exhibit 2.1 to Party City Holdings Inc.’s
Registration Statement on Form S-4 dated June 21, 2013)

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Party
City Holdco Inc.’s Form 8-K dated April 21, 2015)

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Party City Holdco Inc.’s
Form 8-K dated April 21, 2015)

Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to Party City Holdco
Inc.’s Registration Statement on Form S-1 dated March 26, 2015)

Indenture, dated as of August 19, 2015, among Party City Holdings Inc., as Issuer, and Wilmington
Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 of Party City
Holdco Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 21, 2015)

First Supplemental Indenture, dated as of August 19, 2015, among the Guarantors named therein and
Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.2 of
Party City Holdco Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 21, 2015)

Form of 6.125% Senior Notes due 2023 (incorporated by reference to Exhibit 4.3 of Party City
Holdco Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 21, 2015)

Form of Amended and Restated Stockholders Agreement among Party City Holdco Inc., THL PC
Topco, L.P., Advent-Party City Acquisition Limited Partnership and certain other stockholders of
Party City Holdco Inc. (incorporated by reference to Exhibit 4.2 to Party City Holdco Inc.’s
Form 8-K dated April 21, 2015)

106

Exhibit
Number

4.6

10.1

10.2†

10.3†

10.4†

10.5

10.6

10.7

10.8

10.9

Description

Form of Amended and Restated Registration Rights Agreement among Party City Holdco Inc., THL
PC Topco, L.P., Advent-Party City Acquisition Limited Partnership and certain other stockholders of
Party City Holdco Inc. (incorporated by reference to Exhibit 4.1 to Party City Holdco Inc.’s
Form 8-K dated April 21, 2015)

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to Party City Holdco
Inc.’s Registration Statement on Form S-1 dated March 26, 2015)

Employment Agreement between Party City Holdings Inc., Party City Holdco. Inc. and Gerald
C. Rittenberg, dated December 30, 2014 (incorporated by reference to Exhibit 10.3 to Party City
Holdco Inc.’s Registration Statement on Form S-1 dated February 13, 2015)

Employment Agreement between Party City Holdings Inc., Party City Holdco. Inc. and James
M. Harrison, dated December 30, 2014 (incorporated by reference to Exhibit 10.4 to Party City
Holdco Inc.’s Registration Statement on Form S-1 dated February 13, 2015)

Employment Agreement between Party City Holdings Inc., Party City Holdco. Inc. and Michael
Correale, dated March 24, 2015 (incorporated by reference to Exhibit 10.5 to Party City Holdco
Inc.’s Registration Statement on Form S-1 dated March 26, 2015)

Term Loan Credit Agreement, dated as of August 19, 2015, among PC Intermediate Holdings, Inc.,
Party City Holdings Inc., Party City Corporation, the subsidiaries of the borrowers from time to time
party thereto, the financial institutions party thereto, as the Lenders, and Deutsche Bank AG New
York Branch, as Administrative Agent (incorporated by reference to Exhibit 10.1 of Party City
Holdco Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 21, 2015)

Pledge and Security Agreement, dated as of August 19, 2015, among Party City Holdings Inc., Party
City Corporation, PC Intermediate Holdings, Inc., the Subsidiary Parties from time to time party
thereto and Deutsche Bank AG New York Branch, in its capacity as administrative agent and
collateral agent for the lenders party to the Term Loan Credit Agreement (incorporated by reference
to Exhibit 10.2 of Party City Holdco Inc.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 21, 2015)

ABL Credit Agreement, dated as of August 19, 2015, among PC Intermediate Holdings, Inc., Party
City Holdings Inc., Party City Corporation, the subsidiaries of the borrowers from time to time party
thereto, the financial institutions party thereto, as the Lenders, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.3 of Party City Holdco Inc.’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on August 21, 2015)

Pledge and Security Agreement, dated as of August 19, 2015, among Party City Holdings Inc., Party
City Corporation, PC Intermediate Holdings, Inc., the Subsidiary Parties from time to time party
thereto and JPMorgan Chase Bank, N.A., in its capacity as administrative agent and collateral agent
for the lenders party to the ABL Credit Agreement (incorporated by reference to Exhibit 10.4 of
Party City Holdco Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 21, 2015)

Intercreditor Agreement, dated as of August 19, 2015, among PC Intermediate Holdings, Inc., Party
City Holdings Inc., Party City Corporation, the other Grantors from time to time party thereto,
JPMorgan Chase Bank, N.A., as ABL Facility Agent, and Deutsche Bank AG New York Branch, as
Term Loan Agent (incorporated by reference to Exhibit 10.5 of Party City Holdco Inc.’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on August 21, 2015)

10.10†

Party City Holdco Amended and Restated 2012 Omnibus Equity Incentive Plan (incorporated by
reference to Exhibit 10.17 to Party City Holdco Inc.’s Registration Statement on Form S-1 dated
April 6, 2015)

107

Exhibit
Number

10.11†

10.12†

10.13†

10.14†

10.15†

21.1*

23.1*

31.1*

31.2*

32.1*

32.2*

101*

Description

Employment Agreement between Party City Holdings Inc., Party City Holdco Inc. and Gregg
A. Melnick, dated December 30, 2014 (incorporated by reference to Exhibit 10.3 to Party City
Holdco Inc.’s Registration Statement on Form S-1 dated February 13, 2015)

Party City Holdco Inc. Executive Annual Incentive Plan (incorporated by reference to Exhibit 10.21
to Party City Holdco Inc.’s Registration Statement on Form S-1 dated March 26, 2015)

Party City Holdco Inc. Non-Employee Director Compensation Program (incorporated by reference
to Exhibit 10.22 to Party City Holdco Inc.’s Registration Statement on Form S-1 dated March 26,
2015)

Form of Nonqualified Stock Option Award Agreement (Non-Employee Directors) under the Party
City Holdco Inc. Amended and Restated 2012 Omnibus Equity Incentive Plan (incorporated by
reference to Exhibit 10.23 to Party City Holdco Inc.’s Registration Statement on Form S-1 dated
March 26, 2015)

Form of Nonqualified Stock Option Award Agreement (Employees) under the Party City Holdco
Inc. Amended and Restated 2012 Omnibus Equity Incentive Plan (incorporated by reference to
Exhibit 10.24 to Party City Holdco Inc.’s Registration Statement on Form S-1 dated March 26,
2015)

List of Subsidiaries of Party City Holdco Inc.

Consent of Independent Registered Public Accounting Firm

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets
at December 31, 2015 and December 31, 2014; (ii) the Consolidated Statements of Income and
Comprehensive (Loss) Income for the years ended December 31, 2015, 2014 and 2013; (iii) the
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and
2013; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014
and 2013; and (v) the Notes to the Consolidated Financial Statements.

† Management contract of compensatory plan or arrangement
*

Filed herewith.

108

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant

has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SIGNATURES

PARTY CITY HOLDCO INC.

By:

/s/ Michael A. Correale

Michael A. Correale
Chief Financial Officer

Date: March 11, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature

Title

Date

/s/ James M. Harrison

James M. Harrison

/s/ Michael A. Correale

Michael A. Correale

/s/ Gerald C. Rittenberg

Gerald C. Rittenberg

/s/ Todd M. Abbrecht

Todd M. Abbrecht

/s/ Jefferson M. Case

Jefferson M. Case

/s/ Steven J. Collins

Steven J. Collins

/s/ William S. Creekmuir
William S. Creekmuir

/s/ Uttam K. Jain

Uttam K. Jain

/s/ Lisa K. Klinger

Lisa K. Klinger

/s/ Norman S. Matthews

Norman S. Matthews

Chief Executive Officer and Director
(Principal Executive Officer)

March 11, 2016

Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)

March 11, 2016

Executive Chairman and Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

109

Signature

/s/ Lawrence P. Molloy

Lawrence P. Molloy

/s/ Joshua M. Nelson

Joshua M. Nelson

/s/ Morry Weiss

Morry Weiss

Title

Director

Date

March 11, 2016

Director

March 11, 2016

Director

March 11, 2016

110

ANNUAL REPORT 
2015

010

CORPORATE  
OFFICES

(cid:27)(cid:19)(cid:3)(cid:42)(cid:85)(cid:68)(cid:86)(cid:86)(cid:79)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:53)(cid:82)(cid:68)(cid:71) 
(cid:40)(cid:79)(cid:80)(cid:86)(cid:73)(cid:82)(cid:85)(cid:71)(cid:15)(cid:3)(cid:49)(cid:60)(cid:3)(cid:20)(cid:19)(cid:24)(cid:21)(cid:22)

ANNUAL MEETING

(cid:55)(cid:75)(cid:72)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:51)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)(cid:3)(cid:43)(cid:82)(cid:79)(cid:71)(cid:70)(cid:82)(cid:3)(cid:918)(cid:81)(cid:70)(cid:17)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:29)

JUNE 15, 2016  
(cid:20)(cid:19)(cid:29)(cid:19)(cid:19)(cid:3)(cid:36)(cid:17)(cid:48)(cid:3)(cid:47)(cid:50)(cid:38)(cid:36)(cid:47)(cid:3)(cid:55)(cid:918)(cid:48)(cid:40)(cid:3) 
THE WESTCHESTER MARRIOTT 
(cid:25)(cid:26)(cid:19)(cid:3)(cid:58)(cid:43)(cid:918)(cid:55)(cid:40)(cid:3)(cid:51)(cid:47)(cid:36)(cid:918)(cid:49)(cid:54)(cid:3)(cid:53)(cid:50)(cid:36)(cid:39)(cid:15)(cid:3) 
(cid:55)(cid:36)(cid:53)(cid:53)(cid:60)(cid:55)(cid:50)(cid:58)(cid:49)(cid:15)(cid:3)(cid:49)(cid:60)(cid:3)(cid:20)(cid:19)(cid:24)(cid:28)(cid:20)

TRANSFER AGENT AND 
REGISTRAR

Computershare

STOCK

(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:519)(cid:86)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:82)(cid:909)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:82)(cid:81)(cid:3)(cid:36)(cid:83)(cid:85)(cid:76)(cid:79)(cid:3)(cid:20)(cid:25)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:60)(cid:54)(cid:40)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71) 
(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:522)(cid:51)(cid:53)(cid:55)(cid:60)(cid:523)

INDEPENDENT 
REGISTERED PUBLIC 
ACCOUNTING FIRM

(cid:40)(cid:85)(cid:81)(cid:86)(cid:87)(cid:3)(cid:9)(cid:3)(cid:60)(cid:82)(cid:88)(cid:81)(cid:74)(cid:3)(cid:47)(cid:47)(cid:51) 
(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:15)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)

INVESTOR RELATIONS

(cid:918)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:35)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:70)(cid:76)(cid:87)(cid:92)(cid:17)(cid:70)(cid:82)(cid:80)

CORPORTATE 
INFORMATION

BOARD OF 
DIRECTORS

EXECUTIVE 
MANAGEMENT

GERALD C. RITTENBERG 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)
JAMES M. HARRISON 
Director and Chief (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
MICHAEL A. CORREALE  

(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
GREGG A. MELNICK  
President

GERALD C. RITTENBERG 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)
JAMES M. HARRISON 
Director and Chief (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
TODD M. ABBRECHT 
Director 
JEFFERSON M. CASE 
Director
STEVEN J. COLLINS 
Director
WILLIAM S. CREEKMUIR 
Director
UTTAM K. JAIN 
Director
LISA K. KLINGER 
Director 
NORMAN S. MATTHEWS 
Director
LAWRENCE P. MOLLOY 
Director
JOSHUA M. NELSON 
Director
MORRY J. WEISS 
Director

(cid:80)
(cid:82)
(cid:70)
(cid:17)
(cid:80)
(cid:88)
(cid:75)
(cid:70)
(cid:87)
(cid:72)
(cid:78)
(cid:90)
(cid:90)
(cid:90)

(cid:17)

(cid:3)
(cid:18)
(cid:3)

(cid:80)
(cid:88)
(cid:75)
(cid:70)
(cid:87)
(cid:72)
(cid:46)
(cid:3)
(cid:92)
(cid:69)
(cid:71)
(cid:72)
(cid:81)
(cid:74)
(cid:86)
(cid:72)
(cid:39)

(cid:3)

(cid:76)

W W W. PA R T Y C I T Y. C O M