##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
 
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    13-3911462(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)80 Grasslands Road Elmsford, NY
    
    10523(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 Securities Registered Pursuant to Section 12(b) of the Act: None
 Securities Registered Pursuant to Section 12(g) of the Act: None
 o þ
 þ o
 þ o
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-K
 December 31, 2008
 TABLE OF CONTENTS
 PagePART IItem 1
    
    Business
    
    
    3Item 1A
    
    Risk Factors
    
    
    12Item 1B
    
    Unresolved Staff Comments
    
    
    15Item 2
    
    Properties
    
    
    15Item 3
    
    Legal Proceedings
    
    
    18Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    18Item 6
    
    Selected Consolidated Financial Data
    
    
    20Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 8
    
    Financial Statements and Supplementary Data
    
    
    40Item 9
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    40Item 9A
    
    Controls and Procedures
    
    
    40Item 9B
    
    Other Information
    
    
    41PART IIIItem 10
    
    Directors and Executive Officers of the Registrant
    
    
    41Item 11
    
    Executive Compensation
    
    
    43Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    51Item 13
    
    Certain Relationships and Related Transactions
    
    
    53Item 14
    
    Principal Accountant Fees and Services
    
    
    53PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    5457SignaturesEX-11: STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23: CONSENT OF ERNST & YOUNG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION
   http://www.sec.gov.
 2




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##### Table of Contents



PART I
 
 Item 1. Business
  Wholesale Operations
   Retail Operations
  Retail Acquisitions and Transactions:
 The Factory Card & Party Outlet Acquisition
  3




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##### Table of Contents



Party City Franchise Group Transaction
   The Party America Acquisition
      Summary Financial Information about the Company
  4




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##### Table of Contents



Wholesale Operations
  Retail Operations
   Our Business Strategy
  Wholesale Operations
 
    
    Build upon our Position as a Leading Provider to Party Goods
Retailers.We will continue to offer convenient one-stop shopping
for both large party superstores and smaller party goods retailers. We
will seek to grow our sales to existing stores by increasing our share
of sales volume and shelf space, continuing to develop innovative new
products and helping retailers promote coordinated ensembles that
increase average purchase volume per consumer through add-on or
impulse purchases.
    
    Capitalize on Investments in Infrastructure.We intend to increase
our net sales and profitability by leveraging the significant
investments we have made in our infrastructure. We believe that our
state-of-the-art 896,000 square foot distribution facility provides us
with warehousing and distribution capabilities to serve anticipated
future growth.
    
    Expand International Presence.We believe there is an opportunity to
expand our international business, which represented approximately 14%
of our net sales at wholesale in each of the years in the three-year
period ended December 31, 2008. We currently have a presence in
Europe, Mexico, Canada, Asia and Australia. We have our own sales
force in the United Kingdom, Mexico and Canada, and operate through
third-party sales representatives elsewhere. The market for decorative
party goods outside the U.S. is less mature due to lower consumer
awareness of party products and less developed retail distribution
channels. Our strategies include broadening our distribution network,
increasing accessorization and customization of our products to local
tastes and holidays and continuing to deepen retail penetration.
    
    Increase Penetration in Independent Retail Distribution Channel.We
believe there is an opportunity to expand our sales to card and gift
and other independent retailers. We have made significant investments
in management, customer service and marketing infrastructure to
support our sales effort. As we update and expand our product lines,
we expect to increase sales and profitability from this distribution
channel as sales growth is achieved with relatively fixed support
costs.
 5




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##### Table of Contents




    
    Continued Growth Through Targeted Acquisitions.We believe that
there will be, from time to time, opportunities to make acquisitions
of complementary businesses. Through such businesses, we can leverage
our existing marketing, distribution and production capabilities,
expand our presence in the various retail distribution channels,
further broaden and deepen our product lines and increase our
penetration in international markets.
 Retail Operations
 
    
    Offer a Broad Selection of Merchandise.We will continue to provide
customers with convenient one-stop shopping for party supplies by
offering what we believe is one of the most extensive selections of
party supplies available. The typical retail store offers a broad
selection of Amscan and other brand merchandise consisting of more
than 20,000 active SKUs.
    
    Maintain Value Price Position.We will continue to use the aggregate
buying power of over 900 company-owned and franchise stores, which
allows us to offer a broad line of high quality merchandise at low
prices. We believe we reinforce customers expectations of value
through our advertising and marketing campaigns.
    
    Store Layout and Product Selection.We have a standardized product
assortment and continually evaluate our aisle layouts, where
appropriate, to allow customers to navigate the store more easily, and
to provide increased availability of Amscan and other desired
products.
    
    Expand Network of Convenient Store Locations.Although we believe
that our stores typically are destination shopping locations, we seek
to maximize customer traffic and quickly build the visibility of new
stores by situating our stores in high traffic areas. Site selection
criteria include: population density, demographics, traffic counts,
location of complementary retailers, storefront visibility and
presence (either in a stand-alone building or in dominant strip
shopping centers), competition, lease rates and accessible parking. We
believe there are an extensive number of suitable domestic locations
available for future stores, and we plan to open up over 5 new
company-owned retail stores and anticipate that our franchisees will
open between 5 and 10 franchise stores during 2009. In addition, we
will continue our evaluation of the potential for growth through
acquisition, and through temporary Halloween stores under the
Halloween USA brand.
    
    Provide Excellent Customer Service.We view the quality of our
customers shopping experience as critical to our continued success,
and we are committed to making shopping in our stores an enjoyable
experience. For example, at Halloween, our most important selling
season, each store significantly increases the number of sales
associates available to assist customers. We hire and train qualified
store managers and other personnel committed to serving our customers
and compensate them based on specific performance measures in order to
ensure a customer-service oriented culture in our stores.
    
    Information Systems.In recent years our retail segment upgraded a
number of its information systems which will allow us to continue to
use technology to enhance our business practices. During 2008, we
implemented software systems that align all retail store POS systems
and further automate the merchandise forecasting and planning
functions.
 Innovative Product Development and Design Capabilities
  6




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##### Table of Contents



Product Lines
  Party Goods and Stationery
    
    Metallic Balloons
    
    GiftDecorative and Solid Color Tableware
    
    Baby and Wedding Memory Books
    
    Bouquets
    
    Ceramic GiftwareCandles
    
    Decorative Tissues
    
    18 Inch Standard
    
    Decorative CandlesCascades and Centerpieces
    
    Gift Wrap, Bows and Bags
    
    Sing-A-Tune SuperShapes
    
    Decorative FramesCrepe
    
    Invitations, Notes and Stationery
    
    Weights
    
    MugsCutouts
    
    Photograph AlbumsFlags and Banners
    
    RibbonsLatex Balloons
    
    Stickers and ConfettiNovelty GiftsParty FavorsPiñatasScene SettersWearables
  2008
    
    2007
    
    2006Party Goods and Stationery
    
    
    77
    %
    
    
    77
    %
    
    
    71
    %Metallic Balloons
    
    
    20
    
    
    
    19
    
    
    
    24Gift
    
    
    3
    
    
    
    4
    
    
    
    5100
    %
    
    
    100
    %
    
    
    100
    %
  Seasonal
    
    Themes
    
    EverydayNew Years
    
    Bachelorette
    
    BirthdaysValentines Day
    
    Casino
    
    Bridal/Baby ShowersSt. Patricks Day
    
    Card Party
    
    GraduationsEaster
    
    Chinatown
    
    WeddingsPassover
    
    Cocktail Party
    
    AnniversariesFourth of July
    
    Disco
    
    First CommunionsHalloween
    
    Fiesta
    
    ConfirmationsFall
    
    Fifties Rock and Roll
    
    RetirementsThanksgiving
    
    Hawaiian Luau
    
    ChristeningsHanukkah
    
    Hollywood
    
    Bar MitzvahsChristmas
    
    Mardi GrasMasqueradePatrioticReligiousSportsSummer BarbequeWestern
 7




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##### Table of Contents



Manufactured Products
 i.e.
 Purchased Products
  Raw Materials
  Wholesale Sales and Marketing
    Wholesale Distribution and Systems
  8




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##### Table of Contents



Wholesale Customers
   Competition at Wholesale
   Retail Merchandising
    9




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##### Table of Contents



Retailer Suppliers
    Retail Advertising and Marketing
  Franchise Operations
     10




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##### Table of Contents



Competition at Retail
   Government Regulation
      11




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##### Table of Contents



Copyrights and Trademarks
   Information Systems
  Employees
  
 Item 1A. Risk Factors
 Consumer Demands and Preferences
  
    
    we are unable to identify and respond to emerging trends;
    
    we miscalculate either the market for the merchandise in our stores or our customers purchasing habits; or
    
    consumer demand dramatically shifts away from disposable party supplies;
  Competition
  12




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##### Table of Contents



Raw Material and Production Costs
   Interest Rates
  Exchange Rates
  Execution of Key Initiatives
   Franchise Program
  13




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##### Table of Contents



Economic Downturn
  Key Vendors
   Additional Capital Requirements
  Seasonal and Quarterly Fluctuations
  14




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##### Table of Contents



Key Personnel
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Owned or Leased(WithPrincipal
    
    Square
    
    ExpirationLocation
    
    Activity
    
    Feet
    
    Date)Elmsford, New York
    
    Executive offices,
show rooms, design
and art production
for party products
    
    119,555 square feet
    
    Leased (expiration
date: December 31,
2014)Harriman, New York
    
    Manufacture of
paper napkins
    
    74,400 square feet
    
    Leased (expiration
date: March 31,
2011)Newburgh, New York
    
    Manufacture of
paper napkins and
cups
    
    53,000 square feet
    
    Leased (expiration
date: May 31, 2010)Narragansett, Rhode Island
    
    Manufacture and
distribution of
plastic plates,
cups and bowls
    
    277,689 square feet
    
    Leased (expiration
date: April 26,
2011)Louisville, Kentucky
    
    Manufacture and
distribution of
paper plates
    
    189,175 square feet
    
    Leased (expiration
date: March 31,
2013)Eden Prairie, Minnesota
    
    Manufacture of
metallic balloons
and accessories
    
    115,600 square feet
    
    OwnedEden Prairie, Minnesota
    
    Manufacture of
retail, trade show
and showroom
fixtures
    
    15,324 square feet
    
    Leased (expiration
date: June 30,
2009)Tijuana, Mexico
    
    Manufacture and
distribution of
party products
    
    100,000 square feet
    
    Leased (expiration
date: August 15,
2012)Chester, New York(1)
    
    Distribution of
party and gift
products
    
    896,000 square feet
    
    OwnedMilton Keynes, 
   Buckinghamshire, England
    
    Distribution of
party products
throughout Europe
    
    110,000 square feet
    
    Leased (expiration
date: June 30,
2017)Edina, Minnesota
    
    Distribution of
metallic balloons
and accessories
    
    122,312 square feet
    
    Leased (expiration
date: December 31,
2010)
 15




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##### Table of Contents



(1)
    
    Property is subject to a lien mortgage note in the original principal
amount of $10.0 million with the New York State Job Development
Authority. The lien mortgage note bears interest at a rate of 4.89%,
subject to change under certain conditions. The mortgage note is for a
term of 96 months and requires monthly payments based on a 180-month
amortization period with a balloon payment upon maturity in January
2010. At December 31, 2008, the principal amount outstanding under the
lien mortgage note is approximately $6.3 million.       2008
    
    2007
    
    2006Company-owned:Stores open at beginning of year
    
    
    673
    
    
    
    630
    
    
    
    662Stores opened
    
    
    19
    
    
    
    6
    
    
    
    13Stores closed / sold
    
    
    (55
    )
    
    
    (28
    )
    
    
    (45
    )Stores acquired
    
    
    6
    
    
    
    65
    
    
    
    0Stores open at end of year
    
    
    643
    
    
    
    673
    
    
    
    630Franchise:Stores open at beginning of year
    
    
    283
    
    
    
    324
    
    
    
    315Stores opened
    
    
    13
    
    
    
    22
    
    
    
    16Stores acquired
    
    
    7
    
    
    
    7
    
    
    
    2Stores closed / sold
    
    
    (30
    )
    
    
    (70
    )
    
    
    (9
    )Stores open at end of year
    
    
    273
    
    
    
    283
    
    
    
    324Total company-owned and franchise stores
    
    
    916
    
    
    
    956
    
    
    
    954
 16




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##### Table of Contents



State

    
    
    Company-owned
    
    
    
    Franchise
    
    
    
    Chain-wideAlabama
    
    
    4
    
    
    
    8
    
    
    
    12Arizona
    
    
    1
    
    
    
    23
    
    
    
    24Arkansas
    
    
    1
    
    
    
    3
    
    
    
    4California
    
    
    90
    
    
    
    22
    
    
    
    112Colorado
    
    
    15
    
    
    
    3
    
    
    
    18Connecticut
    
    
    5
    
    
    
    3
    
    
    
    8Delaware
    
    
    1
    
    
    
    1
    
    
    
    2Dubai
    
    
    0
    
    
    
    1
    
    
    
    1Florida
    
    
    56
    
    
    
    13
    
    
    
    69Georgia
    
    
    28
    
    
    
    2
    
    
    
    30Hawaii
    
    
    0
    
    
    
    1
    
    
    
    1Idaho
    
    
    1
    
    
    
    0
    
    
    
    1Illinois
    
    
    65
    
    
    
    0
    
    
    
    65Indiana
    
    
    27
    
    
    
    0
    
    
    
    27Iowa
    
    
    9
    
    
    
    1
    
    
    
    10Kansas
    
    
    3
    
    
    
    6
    
    
    
    9Kentucky
    
    
    9
    
    
    
    0
    
    
    
    9Louisiana
    
    
    4
    
    
    
    8
    
    
    
    12Maryland
    
    
    16
    
    
    
    12
    
    
    
    28Michigan
    
    
    39
    
    
    
    0
    
    
    
    39Minnesota
    
    
    1
    
    
    
    25
    
    
    
    26Mississippi
    
    
    3
    
    
    
    3
    
    
    
    6Missouri
    
    
    25
    
    
    
    4
    
    
    
    29Montana
    
    
    0
    
    
    
    2
    
    
    
    2Nebraska
    
    
    7
    
    
    
    1
    
    
    
    8Nevada
    
    
    6
    
    
    
    0
    
    
    
    6New Hampshire
    
    
    2
    
    
    
    0
    
    
    
    2New Jersey
    
    
    14
    
    
    
    14
    
    
    
    28New Mexico
    
    
    0
    
    
    
    3
    
    
    
    3New York
    
    
    43
    
    
    
    14
    
    
    
    57North Carolina
    
    
    4
    
    
    
    19
    
    
    
    23North Dakota
    
    
    0
    
    
    
    4
    
    
    
    4Ohio
    
    
    35
    
    
    
    0
    
    
    
    35Oklahoma
    
    
    3
    
    
    
    0
    
    
    
    3Oregon
    
    
    4
    
    
    
    6
    
    
    
    10Pennsylvania
    
    
    20
    
    
    
    12
    
    
    
    32Puerto Rico
    
    
    0
    
    
    
    5
    
    
    
    5South Carolina
    
    
    3
    
    
    
    6
    
    
    
    9South Dakota
    
    
    0
    
    
    
    2
    
    
    
    2Tennessee
    
    
    9
    
    
    
    10
    
    
    
    19Texas
    
    
    37
    
    
    
    24
    
    
    
    61Vermont
    
    
    1
    
    
    
    0
    
    
    
    1Virginia
    
    
    12
    
    
    
    10
    
    
    
    22Washington
    
    
    17
    
    
    
    2
    
    
    
    19West Virginia
    
    
    2
    
    
    
    0
    
    
    
    2Wisconsin
    
    
    21
    
    
    
    0
    
    
    
    21Total
    
    
    643
    
    
    
    273
    
    
    
    916
 17




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##### Table of Contents



Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities
   Dividends
  Issuer Purchases of Equity Securities
  18




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##### Table of Contents



Equity Compensation Plan Information
  (a)
    
    (b)
    
    (c)Number of
    
    
    
    
    
    Number of SecuritiesSecurities to be
    
    
    
    
    
    Remaining AvailableIssued Upon
    
    Weighted-Average
    
    for Future IssuanceExercise of
    
    Exercise Price of
    
    Under EquityOutstanding
    
    Outstanding
    
    Compensation PlansOptions, Warrants
    
    Options, Warrants
    
    (Excluding Securitiesand Rights
    
    and Rights
    
    Reflected in Column (a))Equity compensation
plans approved by
security holders
    
    
    2,932.60
    
    
    $
    13,242
    
    
    
    48.47Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,932.60
    
    
    $
    13,242
    
    
    
    48.47
 
 (1)
    
    See Note 15 to our consolidated financial statements included herein for a description of our equity incentive plan. 19




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##### Table of Contents



Item 6. Selected Consolidated Financial Data
  Eight Months
    
    
    
    Four MonthsEnded
    
    
    
    EndedYear Ended December 31,
    
    
    December 31,
    
    
    
    April 30,2008
    
    
    2007(1)
    
    
    2006(2)
    
    
    2005(3)
    
    
    2004
        


 
    2004(Dollars in thousands)
    
    
    
    (Predecessor)Statement of Operations Data:Revenues:Net sales
    
    $
    1,537,641
    
    
    $
    1,221,516
    
    
    $
    993,342
    
    
    $
    417,226
    
    
    $
    265,556
    
    
    
    $
    133,660Royalties and franchise fees
    
    
    22,020
    
    
    
    25,888
    
    
    
    21,746
    
    
    
    509
    
    
    
    
    
    
    
    
    Total revenues
    
    
    1,559,661
    
    
    
    1,247,404
    
    
    
    1,015,088
    
    
    
    417,735
    
    
    
    265,556
    
    
    
    
    133,660Expenses:Cost of sales
    
    
    966,426
    
    
    
    777,586
    
    
    
    676,527
    
    
    
    281,632
    
    
    
    178,210
    
    
    
    
    88,247Selling expenses
    
    
    41,894
    
    
    
    41,899
    
    
    
    39,449
    
    
    
    36,181
    
    
    
    23,529
    
    
    
    
    12,430Retail operating expenses
    
    
    273,627
    
    
    
    191,423
    
    
    
    126,224
    
    
    
    1,824
    
    
    
    
    
    
    
    
    Franchise expenses
    
    
    13,686
    
    
    
    12,883
    
    
    
    13,009
    
    
    
    779
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    120,272
    
    
    
    105,707
    
    
    
    84,836
    
    
    
    36,026
    
    
    
    22,718
    
    
    
    
    10,874Art and development costs
    
    
    12,462
    
    
    
    12,149
    
    
    
    10,338
    
    
    
    8,941
    
    
    
    6,713
    
    
    
    
    3,332Impairment of trade name(4)



 17,376




 




 




 




 






 Income from operations
    
    
    113,918
    
    
    
    105,757
    
    
    
    64,705
    
    
    
    52,352
    
    
    
    34,386
    
    
    
    
    7,020Interest expense, net
    
    
    50,915
    
    
    
    54,590
    
    
    
    54,887
    
    
    
    31,907
    
    
    
    19,124
    
    
    
    
    8,384Other
(income) expense, net
(5),(6),(7)
    
    
    (818
    )
    
    
    18,214
    
    
    
    (1,000
    )
    
    
    3,224
    
    
    
    882
    
    
    
    
    31Income (loss) before income taxes
and minority interests
    
    
    63,821
    
    
    
    32,953
    
    
    
    10,818
    
    
    
    17,221
    
    
    
    14,380
    
    
    
    
    (1,395
    )Income tax expense (benefit)
    
    
    24,188
    
    
    
    13,246
    
    
    
    4,295
    
    
    
    4,940
    
    
    
    5,679
    
    
    
    
    (551
    )Minority interests
    
    
    (877
    )
    
    
    446
    
    
    
    83
    
    
    
    21
    
    
    
    137
    
    
    
    
    46Net income (loss)
    
    
    40,510
    
    
    
    19,261
    
    
    
    6,440
    
    
    
    12,260
    
    
    
    8,564
    
    
    
    
    (890
    )Dividend on redeemable convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136Net income (loss) applicable to
common shares
    
    $
    40,510
    
    
    $
    19,261
    
    
    $
    6,440
    
    
    $
    12,260
    
    
    $
    8,564
    
    
    
    $
    (1,026
    )
 20




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##### Table of Contents



Eight Months
    
    
    
    Four MonthsEnded
    
    
    
    EndedYear Ended December 31,
    
    
    December 31,
    
    
    
    April 30,2008
    
    
    2007(1)
    
    
    2006(2)
    
    
    2005(3)
    
    
    2004
    


    
    2004(Dollars in thousands)
    
    
    
    
    (Predecessor)Other Financial Data:Capital expenditures,
including assets
under capital leases
    
    $
    53,701
    
    
    $
    36,648
    
    
    $
    40,376
    
    
    $
    17,051
    
    
    $
    7,910
    
    
    
    $
    3,757Depreciation and
amortization
    
    
    47,278
    
    
    
    38,093
    
    
    
    38,619
    
    
    
    18,602
    
    
    
    9,519
    
    
    
    
    5,296Ratio of earnings to
fixed charges(8)
    
    
    1.6
    x
    
    
    1.4
    x
    
    
    1.1
    x
    
    
    1.5
    x
    
    
    1.7
    x
    
    
    
    0.9
    x
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Balance Sheet Data:Working capital
    
    $
    87,726
    
    
    $
    108,374
    
    
    $
    167,561
    
    
    $
    157,139
    
    
    $
    126,372Total assets(10)(11)(12)
    
    
    1,507,977
    
    
    
    1,498,845
    
    
    
    1,217,371
    
    
    
    1,118,947
    
    
    
    647,266Short-term obligations(9)
    
    
    170,880
    
    
    
    161,790
    
    
    
    8,633
    
    
    
    2,643
    
    
    
    4,832Long-term
obligations(10)(11)(12)
    
    
    550,755
    
    
    
    584,336
    
    
    
    558,372
    
    
    
    561,567
    
    
    
    384,993Total obligations
    
    $
    721,635
    
    
    $
    746,126
    
    
    $
    567,005
    
    
    $
    564,210
    
    
    $
    389,825Redeemable common
securities(10)(13)(14)
    
    $
    18,171
    
    
    $
    33,782
    
    
    $
    9,343
    
    
    $
    6,821
    
    
    $
    3,705Stockholders equity (10)
(11) (12) (13) (14)
    
    $
    410,228
    
    
    $
    375,586
    
    
    $
    359,839
    
    
    $
    320,810
    
    
    $
    146,728
 
 (1)
    
    FCPO and PCFG are included in the balance sheet data as of December
31, 2007, and the statement of operations and other financial data
from Party City Franchise Group Transaction Date (November 2, 2007)
and the Factory Card & Party Outlet Acquisition Date (November 16,
2007), respectively.(2)
    
    Party America is included in the balance sheet data beginning with
December 31, 2006, and the statement of operations and other financial
data from the Party America Acquisition Date (September 29, 2006).(3)
    
    Party City is included in the balance sheet data beginning with
December 31, 2005 and the statement of operations and other financial
data from the Party City Acquisition Date (December 23, 2005).(4)
    
    During the fourth quarter of 2008, the Company instituted a program to
convert its company-owned and franchised Party America stores to Party
City stores and recorded a $17.4 million charge for the impairment of
the Party America trade name(5)
    
    In connection with the refinancing of debt in May 2007, the Company
recorded non-recurring expenses of $16.2 million, including $6.2
million of debt retirement costs, $6.3 million write off of deferred
finance costs, and a $3.7 million write-off of original issue discount
associated with the repayment of debt.(6)
    
    In connection with the Party City Acquisition in December 2005 and the
2004 Transactions in April 2004, the Company recorded non-recurring
expenses of $4.0 million and $11.8 million, respectively, including
$6.2 million of debt retirement costs in 2004 and the write-off of
$4.0 million and $5.6 million of deferred financing costs associated
with the repayment of debt in 2005 and 2004, respectively. 21




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##### Table of Contents



(7)
    
    During 2004, we sold common stock of a customer received in connection
with the customers reorganization in bankruptcy, receiving net
proceeds of approximately $0.07 million and recognizing a gain of
approximately $0.05 million.(8)
    
    For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes and minority
interests plus fixed charges. Fixed charges consist of interest
expense on all obligations, amortization of deferred financing costs
and an estimate of the rental expense on operating leases representing
that portion of rental expense deemed by the Company to be
attributable to interest.(9)
    
    Short-term obligations consist primarily of borrowings under bank
lines of credit and the current portion of long-term debt. At December
31, 2008, the current portion of long-term debt includes $27.5 million
of PCFG term debt that has been classified as current due to the
PCFGs noncompliance with the loan agreements financial covenants.
See Liquidity and Capital Resources.(10)
    
    Common stock issued to consummate the Party America Acquisition
totaled $29.7 million. Cash also paid to consummate the acquisition
included $1.1 million for transaction costs, and $12.6 million to
repay Party America senior debt.(11)
    
    Cash paid to consummate the Party City Acquisition totaled $567.0
million. Financing for the acquisition, including the repayment of
borrowings under the Companys 2004 Senior Secured Credit Facility,
was provided by: (i) the $166.4 million Equity Investment in the
Companys parent, AAH, (ii) the $325 million First Term Loan (net of
an original issue discount of $3.25 million), (iii) the $60 million
Second Term Loan (net of an original issue discount of $1.5 million)
and (iv) cash on-hand of $20.4 million.(12)
    
    Cash paid to consummate the 2004 Transactions in April 2004 totaled
$530.0 million and was financed with initial borrowings (before
deducting deferred financing costs of $13.1 million) consisting of a
$205.0 million term loan under a new senior secured credit facility,
the proceeds from the issuance of $175.0 million of 8.75% senior
subordinated notes due 2014, an equity contribution by the Principal
Investors and employee stockholders of $140.5 million, borrowings
under the revolver of $23.6 million and available cash on hand.(13)
    
    Under the terms of the Predecessors amended and restated
stockholders agreement, dated February 20, 2002 and the AAH
stockholders agreement dated April 30, 2004, we have an option to
purchase all of the shares of common stock held by former management
stockholders, as defined, and, under certain circumstances, including
death and disability, former management stockholders can require us to
purchase all of the shares held by the former associates. The purchase
price as prescribed in the stockholders agreements is to be
determined through a market valuation of the minority-held shares or,
under certain circumstances, based on cost, as defined therein. The
aggregate amount that may be payable by us to all management
stockholders based on fully paid and vested shares is classified as
redeemable common securities(14)
    
    In connection with the 2004 Transactions, our Chief Executive Officer
and our President exchanged 5.4945 and 2.7472 shares of Company Common
Stock for 100 and 50 shares of AAH Common Stock with an equivalent
value of $1.0 million and $0.5 million, respectively. In addition, our
Chief Executive Officer and our President exchanged 5.607 and 2.804
vested options, respectively, to purchase shares of Company Common
Stock, which had intrinsic values of $0.6 million and $0.3 million,
respectively, for vested options to purchase 65.455 and 32.727 shares
of AAH Common Stock under the new equity incentive plan with intrinsic
values of $0.5 million and $0.2 million and estimated fair values of
$0.6 million and $0.3 million, respectively. The fair value of the AAH
options was included in the equity contribution related to the 2004
Transactions; however, as the AAH options are options to purchase
redeemable common stock, their estimated redemption value is
classified as redeemable common securities on the consolidated balance
sheet. 22




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
  Results of Operations
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Percentage of Total Revenues
 Year Ended December 31,2008
    
    2007Revenues:Net sales
    
    
    98.6
    %
    
    
    97.9
    %Royalties and franchise fees
    
    
    1.4
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.0
    
    
    
    62.3Selling expenses
    
    
    2.7
    
    
    
    3.4Retail operating expenses
    
    
    17.5
    
    
    
    15.3Franchise expenses
    
    
    0.9
    
    
    
    1.0General and administrative expenses
    
    
    7.7
    
    
    
    8.5Art and development costs
    
    
    0.8
    
    
    
    1.0Impairment of trade name
    
    
    1.1
    
    
    
    Total expenses
    
    
    92.7
    
    
    
    91.5Income from operations
    
    
    7.3
    
    
    
    8.5Interest expense, net
    
    
    3.3
    
    
    
    4.4Other (income) expense, net
    
    
    (0.1
    )
    
    
    1.5Income before income taxes and minority
interests
    
    
    4.1
    
    
    
    2.6Income tax expense
    
    
    1.6
    
    
    
    1.1Minority interests
    
    
    (0.1
    )
    
    
    0.0Net income
    
    
    2.6
    %
    
    
    1.5
    %
 23




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##### Table of Contents



Total Revenues
  Year Ended December 31,2008
    
    2007Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    653,403
    
    
    
    41.9
    %
    
    $
    626,476
    
    
    
    50.2
    %Eliminations
    
    
    (214,898
    )
    
    
    (13.8
    )
    
    
    (173,143
    )
    
    
    (13.9
    )Net wholesale
    
    
    438,505
    
    
    
    28.1
    
    
    
    453,333
    
    
    
    36.3Retail
    
    
    1,099,136
    
    
    
    70.5
    
    
    
    768,183
    
    
    
    61.6Total net sales
    
    
    1,537,641
    
    
    
    98.6
    
    
    
    1,221,516
    
    
    
    97.9Franchise related
    
    
    22,020
    
    
    
    1.4
    
    
    
    25,888
    
    
    
    2.1Total revenues
    
    $
    1,559,661
    
    
    
    100.0
    %
    
    $
    1,247,404
    
    
    
    100.0
    %
 Wholesale
   Retail
  i.e. rd
 Royalties and franchise fees
  24




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##### Table of Contents



Gross Profit
  Year Ended December 31,2008
    
    2007Dollars in
    
    % of associated
    
    Dollars in
    
    % of associatedThousands
    
    sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    142,438
    
    
    
    32.5
    %
    
    $
    131,674
    
    
    
    29.0
    %Net Retail
    
    
    428,777
    
    
    
    39.0
    %
    
    
    312,256
    
    
    
    40.6
    %Total Gross Profit
    
    $
    571,215
    
    
    
    37.1
    %
    
    $
    443,930
    
    
    
    36.3
    %
   Operating expenses
      Interest expense, net
  Other
(income) expense, net
  25




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##### Table of Contents



Income tax expense
  Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Percentage of Total Revenues
 Twelve Months EndedDecember 31,2007
    
    2006Revenues:Net sales
    
    
    97.9
    %
    
    
    97.9
    %Royalties and franchise fees
    
    
    2.1
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.3
    
    
    
    66.6Selling expenses
    
    
    3.4
    
    
    
    3.9Retail operating expenses
    
    
    15.3
    
    
    
    12.4Franchise expenses
    
    
    1.0
    
    
    
    1.3General and administrative expenses
    
    
    8.5
    
    
    
    8.4Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    91.5
    
    
    
    93.6Income from operations
    
    
    8.5
    
    
    
    6.4Interest expense, net
    
    
    4.4
    
    
    
    5.4Other expense (income), net
    
    
    1.5
    
    
    
    (0.1
    )Income before income taxes and minority
interests
    
    
    2.6
    
    
    
    1.1Income tax expense
    
    
    1.1
    
    
    
    0.5Minority interests
    
    
    0.0
    
    
    
    0.0Net income
    
    
    1.5
    %
    
    
    0.6
    %
 Total Revenues
  Year
Ended December 31,2007
    

2006Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    626,476
    
    
    
    50.2
    %
    
    $
    508,486
    
    
    
    50.1
    %Eliminations
    
    
    (173,143
    )
    
    
    (13.9
    )
    
    
    (75,952
    )
    
    
    (7.5
    )Net wholesale
    
    
    453,333
    
    
    
    36.3
    
    
    
    432,534
    
    
    
    42.6Retail
    
    
    768,183
    
    
    
    61.6
    
    
    
    560,808
    
    
    
    55.2Total net sales
    
    
    1,221,516
    
    
    
    97.9
    
    
    
    993,342
    
    
    
    97.9Franchise related
    
    
    25,888
    
    
    
    2.1
    
    
    
    21,746
    
    
    
    2.1Total revenues
    
    $
    1,247,404
    
    
    
    100.0
    %
    
    $
    1,015,088
    
    
    
    100.0
    %
 26




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##### Table of Contents



Wholesale
   Retail
   Royalties and franchise fees
  Gross Profit
  Twelve Months Ended December 31,2007
    
    2006Dollars in
    
    % of associated
    
    Dollars in
    
    % of associatedThousands
    

sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    131,674
    
    
    
    29.0
    %
    
    $
    118,699
    
    
    
    27.4
    %Net Retail
    
    
    312,256
    
    
    
    40.6
    %
    
    
    198,116
    
    
    
    35.3
    %Total Gross Profit
    
    $
    443,930
    
    
    
    36.3
    %
    
    $
    316,815
    
    
    
    31.9
    %
  27




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##### Table of Contents



Operating expenses
     Interest expense, net
  Other expense (income), net
  Income taxes
  28




---



##### Table of Contents



Liquidity and Capital Resources
 Capital Structure
  Term Loan Credit Agreement
          ABL Credit Agreement
   29




---



##### Table of Contents



Unrestricted Subsidiary Credit Agreement
  PCFG Credit Agreement
  Interest Rate and Fees
 1 2
 30




---



##### Table of Contents



Prepayments
  Amortization
  Guarantee and Security
  Certain Covenants
  Event of Default under PCFG Credit Agreement
 i.e.
  Other Credit Agreements
   31




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##### Table of Contents



Cash Flow Data  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
  32




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##### Table of Contents



Cash Flow Data  Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
    33




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##### Table of Contents



Tabular Disclosure of Contractual Obligations
  Total
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterLong-term debt obligations(a)
    
    $
    577,222
    
    
    $
    31,916
    
    
    $
    9,369
    
    
    $
    3,750
    
    
    $
    3,750
    
    
    $
    3,750
    
    
    $
    524,687Capital lease obligations(a)
    
    
    7,535
    
    
    
    2,086
    
    
    
    2,029
    
    
    
    1,997
    
    
    
    1,411
    
    
    
    12
    
    
    
    Operating lease obligations(b)
    
    
    478,007
    
    
    
    114,539
    
    
    
    99,215
    
    
    
    83,732
    
    
    
    68,505
    
    
    
    42,288
    
    
    
    69,728Merchandise purchase
commitments(c)
    
    
    15,983
    
    
    
    5,694
    
    
    
    4,575
    
    
    
    4,576
    
    
    
    1,138
    
    
    
    
    
    
    
    Minimum product royalty
obligations
    
    
    16,099
    
    
    
    4,022
    
    
    
    4,732
    
    
    
    4,848
    
    
    
    1,375
    
    
    
    1,122
    
    
    
    Total contractual obligations
    
    $
    1,094,846
    
    
    $
    158,257
    
    
    $
    119,920
    
    
    $
    98,903
    
    
    $
    76,179
    
    
    $
    47,172
    
    
    $
    594,415
 
 (a)
    
    See Note 8 to our Consolidated Financial Statements which are included in
this report beginning on page F-2.(b)
    
    We are also an assignor with continuing lease liability for six stores sold
to franchisees that expire through 2011. The assigned lease obligations
continue until the applicable leases expire. The maximum amount of the assigned
lease obligations may vary, but is limited to the sum of the total amount due
under the lease. At December 31, 2008, the maximum amount of the assigned lease
obligations was approximately $3.8 million and is not included in the table
above.The operating lease obligations included in the above table also do not include
contingent rent based upon sales volume (which represented less than 1% of
minimum lease obligations in 2008), or other variable costs such as
maintenance, insurance and taxes.. See Note 17 to our Consolidated Financial
Statements which are included in this report beginning on page F-2.(c)
    
    The Company has certain purchase commitments with vendors requiring minimum
purchase commitments through 2011.    Off-Balance Sheet Arrangements
  34




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##### Table of Contents



Effects of Inflation
  Critical Accounting Policies and Estimates
   Revenue Recognition
   Store Closure Costs
  Product Royalty Agreements
  Doubtful Accounts
  35




---



##### Table of Contents



Inventories
   Long-Lived and Intangible Assets
    Insurance accruals
  Income Taxes
  36




---



##### Table of Contents



Stock-Based Compensation
 Accounting for Stock-Based Compensation  Transition and Disclosure Accounting for Stock Issued to Employees
   Legal Proceedings
  Income Taxes
  Recently Issued Accounting Standards
  The Fair Value Option for Financial Assets and Financial Liabilities
 37




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##### Table of Contents



Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
 Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
  Quarterly Results (Unaudited)
  38




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##### Table of Contents



For the Three Months Ended,March 31,
    
    June 30,
    
    September 30,
    
    December 31,(Dollars in thousands)2008Revenues:Net sales
    
    $
    325,032
    
    
    $
    365,174
    
    
    $
    356,231
    
    
    $
    491,204Royalties and
franchise fees
    
    
    5,342
    
    
    
    6,350
    
    
    
    5,863
    
    
    
    4,465Gross profit
    
    
    110,347
    
    
    
    139,414
    
    
    
    125,311
    
    
    
    196,143Income from operations
    
    
    8,778
    
    
    
    35,511
    
    
    
    18,573
    
    
    
    51,056
    (a)Net income (loss)
    
    
    (2,537
    )
    
    
    14,669
    
    
    
    4,563
    
    
    
    23,815
    (a)2007Revenues:Net sales
    
    $
    243,529
    
    
    
    273,424
    
    
    
    277,564
    
    
    
    426,999
    (b)Royalties and
franchise fees
    
    
    4,895
    
    
    
    5,747
    
    
    
    5,783
    
    
    
    9,463
    (b)Gross profit
    
    
    77,706
    
    
    
    98,399
    
    
    
    96,783
    
    
    
    171,042
    (b)Income from operations
    
    
    6,837
    
    
    
    25,887
    
    
    
    14,500
    
    
    
    58,533
    (b)Net income (loss)
    
    
    (4,402
    )
    
    
    (2,458
    )
    
    
    424
    
    
    
    25,697
    (b)
 
 (a)
    

During the fourth quarter of 2008, the Company instituted a program to convert its
company-owned and franchised Party America stores to Party City stores and
recorded a $17.4 million charge for the impairment of the Party America trade name.(b)
    
    The results of operations for 2007 include the results of FCPO for the
period from November 16, 2007 through December
29, 2007, and the results of PCFG for the period from November 2,
2007 through December 31, 2007. 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  39




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
        40




---



##### Table of Contents




    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of Amscan;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of the consolidated financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of Amscan are being
made only in accordance with authorizations of management and directors of Amscan; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Amscans assets that could have a material effect on
the consolidated financial statements.
    Item 9(A)(T)
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  Name
    
    Age
    
    PositionGerald C. Rittenberg
    
    
    57
    
    
    Chief Executive Officer and DirectorJames M. Harrison
    
    
    57
    
    
    President, Chief Operating Officer and DirectorMichael A. Correale
    
    
    51
    
    
    Chief Financial OfficerRobert J. Small
    
    
    42
    
    
    Chairman of the Board of DirectorsSteven J. Collins
    
    
    40
    
    
    DirectorMichael F. Cronin
    
    
    55
    
    
    DirectorKevin M. Hayes
    
    
    40
    
    
    DirectorJordan A. Kahn
    
    
    67
    
    
    DirectorRichard K. Lubin
    
    
    62
    
    
    DirectorCarol M. Meyrowitz
    
    
    55
    
    
    DirectorDavid M. Mussafer
    
    
    45
    
    
    Director
  41




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##### Table of Contents



Board of Directors
   42




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##### Table of Contents



Audit Committee
    Compensation Committee
  Code of Ethics
  Section 16(a) Beneficial Ownership Reporting Compliance
  
 Item 11. Executive Compensation
 Compensation Discussion and Analysis
  Compensation Committee
  43




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##### Table of Contents



Compensation Philosophy
  
    
    linking pay to performance to create incentives to perform;
    
    ensuring compensation levels and components are actively managed; and
    
    using equity compensation to align employees long-term interests with those of the stockholders.
 Compensation
   Components of Compensation
   Base Salary
  44




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##### Table of Contents



Annual Cash Bonus Plan
  Stock-based Incentive Program
      Other Compensation
  45




---



##### Table of Contents



Accounting and Tax Treatment
 Accounting Treatment
 Share-based Payment Awards,
  Tax Treatment
   Incentive stock-options.
 Non-qualified stock-options.
 46




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##### Table of Contents



Restricted Stock.
 Summary of Compensation
 Summary Compensation Table
 Option
    
    OtherName and Principal Position
    
    Year
    
    Salary (a)
    
    Bonus (b)
    
    Awards (c)
    
    Compensation (d)
    
    TotalGerald C, Rittenberg
    
    
    2008
    
    
    $
    1,000,000
    
    
    $
    1,066,000
    
    
    $
    1,642,000
    
    
    $
    21,400
    
    
    $
    3,729,400Chief Executive Officer
    
    
    2007
    
    
    
    825,000
    
    
    
    879,000
    
    
    
    346,200
    
    
    
    27,100
    
    
    
    2,077,3002006
    
    
    
    750,000
    
    
    
    750,000
    
    
    
    258,800
    
    
    
    45,700
    
    
    
    1,804,500James M. Harrison
    
    
    2008
    
    
    $
    850,000
    
    
    $
    858,600
    
    
    $
    1,180,600
    
    
    $
    19,800
    
    
    $
    2,909,000President and
    
    
    2007
    
    
    
    742,500
    
    
    
    791,100
    
    
    
    259,800
    
    
    
    24,700
    
    
    
    1,818,100Chief Operating Officer
    
    
    2006
    
    
    
    675,000
    
    
    
    675,000
    
    
    
    202,500
    
    
    
    36,800
    
    
    
    1,589,400Michael A. Correale
    
    
    2008
    
    
    $
    325,000
    
    
    $
    93,100
    
    
    $
    211,200
    
    
    $
    37,400
    
    
    $
    666,700Chief Financial Officer
    
    
    2007
    
    
    
    300,000
    
    
    
    128,000
    
    
    
    48,000
    
    
    
    33,300
    
    
    
    509,3002006
    
    
    
    257,700
    
    
    
    100,000
    
    
    
    40,300
    
    
    
    35,400
    
    
    
    433,400
 
 (a)
    
    Amounts include executives contribution to profit sharing plans(b)
    
    Represents annual bonuses earned with respect to the years indicated,
whether paid or accrued, and, in 2008, deferred compensation for
Messrs. Rittenberg and Harrison of $350,000 and $250,000,
respectively.(c)
    
    The dollar values shown reflect the compensation cost of the
time-based stock option awards, before reflecting forfeitures, over
the requisite service period, as described in SFAS No. 123(R) and SFAS
No. 123, and , in 2008, compensation expense arising from the
settlement of performance-base stock options in connection with the
sale of approximately 38% of the Companys outstanding common stock to
Advent International Corporation (See Grants of Plan Based Awards
below)(d)
    
    Represents contributions by the Company under a profit sharing and
savings plan, insurance premiums paid by the Company with respect to
term life insurance for the benefit of the named executive officer and
automobile-related compensation. 47




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##### Table of Contents



Grants of Plan Based Awards
  Number ofSecurities
    
    Exercise Price
    
    Grant DateUnderlying
    
    of Option
    
    Fair Value ofName
    
    Grant Date
    
    Options
    
    Awards ($/Share)
    
    Option AwardsGerald C. Rittenberg
    
    4/1/06
    
    
    50.000
    
    
    
    12,000
    
    
    
    203,100James M. Harrison
    
    4/1/06
    
    
    45.000
    
    
    
    12,000
    
    
    
    182,800Michael A. Correale
    

    4/1/06
    
    
    15.000
    
    
    
    12,000
    
    
    
    60,900
  Number ofSecurities
    
    Exercise PriceUnderlying
    
    of OptionName
    
    Grant Date
    
    Options
    
    Awards ($/Share)Gerald C. Rittenberg
    
    
    3/6/08
    
    
    
    100.000
    
    
    
    22,3404/1/06
    
    
    
    150.000
    
    
    
    12,000James M. Harrison
    
    
    3/6/08
    
    
    
    75.000
    
    
    
    22,3404/1/06
    
    
    
    135.000
    
    
    
    12,000Michael A. Correale
    
    
    4/1/06
    
    
    
    30.000
    
    
    
    12,000
  Potential Payments upon Change in Control
  48




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##### Table of Contents



Options Exercised
  Option AwardsNumber of
    
    Value RealizedShares Acquired
    
    Upon ExerciseName of Executive Officer
    
    on Exercise
    
    ($)Gerald C. Rittenberg
    
    
    193.90
    
    
    
    3,576,000James M. Harrison
    
    
    132.21
    
    
    
    2,391,000Michael A. Correale
    
    
    19.00
    
    
    
    324,000
  Outstanding Equity Awards
  Number of Securities
    
    Option
    
    OptionUnderlying Unexercised Options
    
    Exercise
    
    ExpirationName
    
    No. Exercisable
    
    No. Unexercisable
    
    Price ($/Share)
    
    DateGerald C. Rittenberg
    
    
    
    
    
    
    100.00
    
    
    
    22,340
    
    
    
    3/6/1822.40
    
    
    
    147.20
    
    
    
    12,000
    
    
    
    4/1/2016110.11
    
    
    
    207.26
    
    
    
    10,000
    
    
    
    4/1/201540.58
    
    
    
    
    
    
    
    2,500
    
    
    
    4/30/2014James M. Harrison
    
    
    
    
    
    
    75.00
    
    
    
    22,340
    
    
    
    3/6/1820.16
    
    
    
    132.48
    
    
    
    12,000
    
    
    
    4/1/201673.41
    
    
    
    138.18
    
    
    
    10,000
    
    
    
    4/1/201520.29
    
    
    
    
    
    
    
    2,500
    
    
    
    4/30/2014Michael A. Correale
    
    
    6.72
    
    
    
    31.44
    
    
    
    12,000
    
    
    
    4/1/20167.44
    
    
    
    20.40
    
    
    
    10,000
    
    
    
    4/1/2015
 Director Compensation
 Annual Compensation
  49




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##### Table of Contents



Director Compensation
 Fees Earned or
    
    OptionName
    
    Paid in Cash
    
    Awards(a)
    
    TotalJordan A. Kahn
    
    $
    24,500
    
    
    $
    600
    
    
    $
    25,100Carol M. Meyrowitz
    
    $
    26,000
    
    
    $
    2,000
    
    
    $
    28,000
 
 (a)
    
    The dollar values shown reflect the compensation cost of the awards, before
reflecting forfeitures, over the requisite service period, as described in
SFAS No. 123(R) and SFAS No 123.  Number of
    
    OptionSecurities
    
    Exercise
    
    Grant DateUnderlying
    
    Price
    
    Fair Value ofName
    
    Grant Date
    
    Options
    
    ($/Share)
    
    Option AwardsCarol M. Meyrowitz
    
    
    6/9/2006
    
    
    
    2.5
    
    
    $
    12,000
    
    
    $
    10,200
   Compensation Committee Interlocks and Insider Participation
  Report of Compensation Committee on Executive Compensation
   
  50




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##### Table of Contents



Employment Arrangements
 Employment Agreement with Gerald C. Rittenberg.
   Employment Agreement with James M. Harrison.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  51




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##### Table of Contents



Shares of Company
    
    PercentageCommon Stock
    
    of ClassName of Beneficial Owner
    
    Beneficially Owned
    
    OutstandingAdvent International  (1)
    
    
    11,918.71
    
    
    
    38.68
    %Berkshire Partners LLC(2)
    
    
    11,210.31
    
    
    
    36.38
    %Weston Presidio(3)
    
    
    5,605.16
    
    
    
    18.19
    %GB Holdings I LLC
    
    
    1,118.01
    
    
    
    3.6
    %Steven J. Collins(4)
    
    
    11,918.71
    
    
    
    38.68
    %Michael A. Correale(5)
    
    
    27.66
    
    
    

    
    *Michael F. Cronin(6)
    
    
    5,605.16
    
    
    
    18.19
    %James M. Harrison(7), 
    
    
    189.71
    
    
    
    
    *Kevin M. Hayes(6)
    
    
    5,605.16
    
    
    
    18.19
    %Jordan A. Kahn(8) 
    
    
    58.83
    
    
    
    
    *Richard K. Lubin(9)
    
    
    11,210.31
    
    
    
    36.38
    %Carol M. Meyrowitz(10) 
    
    
    26.45
    
    
    
    
    *David M. Mussafer (4) 
    
    
    11,918.71
    
    
    
    38.68
    %Gerald C. Rittenberg(11), 
    
    
    334.29
    
    
    
    1.08
    %Robert J. Small(9)
    
    
    11,210.31
    
    
    
    36.38
    %All directors and executive officers as a group (11 persons)
    
    
    29,371.12
    
    
    
    94.39
    %
 
 *
    
    Less than 1%
    
    Director
    
    Named Executive Officer(1)
    
    Consists of 11,918.71 shares held by Advent-Amscan Acquisition LLC(2)
    
    Consists of (i) 2,553.36 shares of common stock owned by Berkshire Fund V, Limited Partnership, (ii)
8,290.22 shares of common stock owned by Berkshire Fund VI, Limited Partnership, (iii) 19.51 shares of
common stock owned by Berkshire Investors III LLC and (iv) 347.22 shares of common stock owned by
Berkshire Investors LLC. The address of Berkshire Partners LLC is One Boston Place, Suite 3300, Boston,
Massachusetts 02108.(3)
    
    Consists of (i) 5,517.82 shares of common stock owned by Weston Presidio Capital IV, L.P. and (ii) 87.34
shares owned by WPC Entrepreneur Fund II, L.P.(4)
    
    Mr. Collins is a Managing Director and Mr. Mussafer is a Managing Partner of Advent International. Mr. Collins and
Mr. Mussafer each disclaims beneficial ownership of the shares held by Advent International Corporation,
except to the extent of his pecuniary interest therein. Their addresses are 75 State Street, Boston,
Massachusetts 02109.(5)
    
    Includes 14.60 shares which could be acquired by Mr. Correale within 60 days upon exercise of options.(6)
    
    Mr. Cronin is a Managing Partner of Weston Presidio and Mr. Hayes is a General Partner of Weston
Presidio. Mr. Cronin and Mr. Hayes each disclaims beneficial ownership of the shares held by Weston
Presidio, except to the extent of his pecuniary interest therein. Their addresses are 200 Clarendon
Street, 50th Floor, Boston, Massachusetts 02116. 52




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##### Table of Contents



(7)
    
    Includes 113.86 shares which could be acquired by Mr. Harrison within 60 days upon exercise of options.(8)
    
    Includes 2.0 shares which could be acquired by Mr. Kahn within 60 days upon exercise of options.(9)
    
    Mr. Lubin and Mr. Small are Managing Directors of Berkshire Partners LLC. Mr. Lubin and Mr. Small each disclaims
beneficial ownership of the shares held by Berkshire Partners LLC, except to the extent of his pecuniary interest
therein. Their addresses are One Boston Place, Suite 3300, Boston, Massachusetts 02108.(10)
    
    Includes 0.46 shares which could be acquired by Ms. Meyrowitz within 60 days upon exercise of options.(11)
    
    Includes 173.09 shares which could be acquired by Mr. Rittenberg within 60 days upon exercise of options. Stockholders Agreement
 (
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
 Audit Fees
  Audit-Related Fees
  53




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##### Table of Contents



Tax Fees
  All Other Fees
   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
     ExhibitNumber
    
    Description2
    
    Party City Acquisition Merger Agreement, dated as of September 26, 2005
(incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form
8-K dated September 27, 2005)3(1)
    
    Certificate of Incorporation of Amscan Holdings, Inc., dated October 3, 1996, as
amended to March 30, 2001 (incorporated by reference to Exhibit 3(a) to the
Registrants Annual Report on Form 10-K for the year ended December 31, 2000
(Commission File No. 000-21827))3(2)
    
    Amended By-Laws of Amscan Holdings, Inc. (incorporated by reference to Exhibit 3.2
to the Registrants Registration Statement on Form S-4 (Registration No.
333-45457))3(3)
    
    Amended Articles of Incorporation of Anagram International, Inc. (incorporated by
reference to Exhibit 3(1) to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004 (Commission File No. 000-21827))3(4)
    
    By-Laws of Anagram
International, Inc.
(incorporated by reference to
Exhibit 3(2) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(5)
    
    Articles of Incorporation of
Anagram International Holdings,
Inc. (incorporated by reference
to Exhibit 3(3) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(6)
    
    By-Laws of Anagram
International Holdings, Inc.
(incorporated by reference to
Exhibit 3(4) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(7)
    
    Articles of Organization of
Anagram International, LLC
(incorporated by reference to
Exhibit 3(5) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(8)
    
    Operating Agreement of Anagram
International, LLC
(incorporated by reference to
Exhibit 3(6) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(9)
    
    Certificate of Formation of
Anagram Eden Prairie Property
Holdings LLC (incorporated by
reference to Exhibit 3(7) to
the Registrants Quarterly
Report on Form 10-Q for the
quarter ended June 30, 2004
(Commission File No.
000-21827))3(10)
    
    Plan of Merger of Am-Source,
Inc. into Am-Source, LLC dated
February 28, 2000 and Articles
of Organization of Am-Source,
LLC (incorporated by reference
to Exhibit 3(8) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))3(11)
    
    Operating Agreement of
Am-Source, LLC (incorporated by
reference to Exhibit 3(9) to
the Registrants Quarterly
Report on Form 10-Q for the
quarter ended June 30, 2004
(Commission File No.
000-21827))3(12)
    
    Certificate of Incorporation of
M&D Industries, Inc.
(incorporated by reference to
Exhibit 3(10) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))
 54




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##### Table of Contents



ExhibitNumber
    
    Description3(13)
    
    By-Laws of M&D Industries, Inc.
(incorporated by reference to
Exhibit 3(11) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))4(1)
    
    Indenture, dated as of April
30, 2004, by and among the
Company, the Guarantors named
therein and The Bank of New
York with respect to the 8.75%
Senior Subordinated Notes due
2014. (incorporated by
reference to Exhibit 4(1) to
the Registrants Quarterly
Report on Form 10-Q for the
quarter ended June 30, 2004
(Commission File No.
000-21827))4(2)
    
    First Supplemental Indenture,
dated as of June 21, 2004 by
and among the Company, the
Guarantors named therein and
The Bank of New York with
respect to the 8.75% Senior
Subordinated Notes due 2014
(incorporated by reference to
Exhibit 4(2) to the
Registrants Quarterly Report
on Form 10-Q for the quarter
ended June 30, 2004 (Commission
File No. 000-21827))10(1)
    
    Purchase Agreement dated April 27, 2004 by and among AAH Holdings
Corporation, Amscan Holdings, Inc., the Guarantors named therein and
Goldman, Sachs & Co. and Credit Suisse First Boston LLC.
(incorporated by reference to Exhibit 10(3) to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
(Commission File No. 000-21827))10(2)
    
    Stockholders Agreement of AAH Holdings Corporation dated as of April
30, 2004 (incorporated by reference to Exhibit 10(4) to the
Registrants Quarterly Report on Form 10-Q for the quarter ended June
30, 2004 (Commission File No. 000-21827))10(3)
    
    Amendment No. 1 to the Stockholders Agreement of AAH Holdings
Corporation dated as of May 24, 2004 (incorporated by reference to
Exhibit 10(5) to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004 (Commission File No. 000-21827))10(4)
    
    Amendment No. 2 to the Stockholders Agreement of AAH Holdings
Corporation dated as of December 21, 2005 (incorporated by reference
to Exhibit 10-1 to the Registrants Current Report on Form 8-K dated
October 5, 2006 (Commission File No. 000-21827))10(5)
    
    Amendment No. 3 to the Stockholders Agreement of AAH Holdings
Corporation dated as of September 29, 2006 (incorporated by reference
to Exhibit 10-1 to the Registrants Current Report on Form 8-K dated
October 5, 2006 (Commission File No. 000-21827))10(6)
    
    2004 Equity Incentive Plan of AAH Holdings Corporation (incorporated
by reference to Exhibit 10(6) to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004 (Commission File No.
000-21827))10(7)
    
    The MetLife Capital Corporation Master Lease Purchase Agreement
between MetLife Capital Corporation and Amscan Inc., Deco Paper
Products, Inc., Kookaburra USA Ltd., and Trisar, Inc., dated November
21, 1991, as amended (incorporated by reference to Exhibit 10(n) to
Amendment No. 2 to the Registrants Registration Statement on Form
S-1 (Registration No. 333-14107))10(8)
    
    Form of Indemnification Agreement between the Company and each of the
directors of the Company (incorporated by reference to Exhibit 10(o)
to Amendment No. 2 to the Registrants Registration Statement on Form
S-1 (Registration No. 333-14107))
 55




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##### Table of Contents



ExhibitNumber
    
    Description10(9)
    
    Agreement and Plan of Merger, dated as of March 26, 2004, by and
among Amscan Holdings, Inc., AAH Holdings Corporation and AAH
Acquisition Corporation (incorporated by reference to Exhibit 2.1 to
the Registrants Current Report on Form 8-K dated March 29, 2004
(Commission File No. 000-21827))10(10)
    
    Form of Support Agreement, dated as of March 26, 2004, by and among
AAH Holdings Corporation and Stockholder (incorporated by reference
to Exhibit 2.2 to the Registrants Current Report on Form 8-K dated
March 29, 2004 (Commission File No. 000-21827))11
    
    Statement re: computation of ratio of earnings to fixed charges14
    
    Code of Business Conduct (incorporated by reference to Exhibit 14 to
the Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 (Commission File No. 000-21827))21
    
    Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to the Registrants Registration Statement on Form S-1
(Registration No. 333-90404))23
    
    Consent of Ernst & Young LLP31.1
    
    Section 302 Certifications31.2
    
    Section 302 Certifications32
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley
Act of 2002)
 Supplemental Information to be Furnished with Reports Filed Pursuant to
 Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
  56




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##### Table of Contents



SIGNATURES
  AMSCAN HOLDINGS, INC.By:
    /s/  Michael A. CorrealeMichael A. CorrealeChief Financial Officer
(on behalf of the Company and
as principal financial officer)   Signature
    
    Title
    
    Date/s/ Robert J. Small
Robert J. Small
    
    Chairman of the Board of Directors
    
    March 31, 2009/s/ Steven J. Collins
Steven J. Collins
    
    Director
    
    March 31, 2009/s/ Michael F. Cronin
Michael F. Cronin
    
    Director
    
    March 31, 2009/s/ Kevin M. Hayes
Kevin M. Hayes
    
    Director
    
    March 31, 2009/s/ Jordan A. Kahn 
Jordan A. Kahn
    
    Director
    
    March 31, 2009/s/ Richard K. Lubin
Richard K. Lubin
    
    Director
    
    March 31, 2009/s/ Carol M. Meyrowitz
Carol M. Meyrowitz
    
    Director
    
    March 31, 2009/s/ David M. Mussafer
David M. Mussafer
    
    Director
    
    March 31, 2009/s/ Gerald C. Rittenberg
Gerald C. Rittenberg
    
    Chief Executive Officer and Director
    
    March 31, 2009/s/ James M. Harrison
James M. Harrison
    
    President, Chief Operating Officer and
Director
    
    March 31, 2009
 57




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 FORM 10-K
Item 8, Item 15(a) 1 and 2
 AMSCAN HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
 Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at December 31, 2008 and 2007
    
    
    F-2Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006
    
    
    F-3Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2008, 2007 and 2006
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6Financial Statement Schedule for the Years Ended December 31, 2008, 2007 and 2006:Schedule II  Valuation and Qualifying Accounts
    
    
    F-43




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F1




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in Thousands, except per share amounts)
 December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,058
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    89,443
    
    
    
    98,425Inventories, net of allowances
    
    
    366,965
    
    
    
    319,621Prepaid expenses and other current assets
    
    
    47,812
    
    
    
    62,046Total current assets
    
    
    517,278
    
    
    
    497,366Property, plant and equipment, net
    
    
    187,026
    
    
    
    174,198Goodwill
    
    
    543,731
    
    
    
    558,943Trade names
    
    
    157,283
    
    
    
    186,187Other intangible assets, net
    
    
    61,626
    
    
    
    42,526Other assets, net
    
    
    41,033
    
    
    
    39,625Total assets
    
    $
    1,507,977
    
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    136,878
    
    
    $
    153,170Accounts payable
    
    
    126,638
    
    
    
    120,293Accrued expenses
    
    
    87,985
    
    
    
    94,328Income taxes payable
    
    
    28,605
    
    
    
    12,581Redeemable warrants
    
    
    15,444
    
    
    
    Current portion of long-term obligations
    
    
    34,002
    
    
    
    8,620Total current liabilities
    
    
    429,552
    
    
    
    388,992Long-term obligations, excluding current portion
    
    
    550,755
    
    
    
    584,336Deferred income tax liabilities
    
    
    87,824
    
    
    
    94,360Deferred rent and other long-term liabilities
    
    
    11,447
    
    
    
    21,789Total liabilities
    
    
    1,079,578
    
    
    
    1,089,477Redeemable common securities (including 585.15 and 893.79 common shares issued and
outstanding at December 31, 2008 and December 31, 2007, respectively)
    
    
    18,171
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50 and
29,543.16 shares
issued and outstanding at December 31, 2008 and December 31, 2007, respectively)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    335,076
    
    
    
    326,741Retained earnings
    
    
    87,004
    
    
    
    46,494Accumulated other comprehensive (loss) income
    
    
    (11,852
    )
    
    
    2,351Total stockholders equity
    
    
    410,228
    
    
    
    375,586Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,507,977
    
    
    $
    1,498,845
  F2




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AMSCAN HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in Thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenues:Net sales
    
    $
    1,537,641
    
    
    $
    1,221,516
    
    
    $
    993,342Royalties and franchise fees
    
    
    22,020
    
    
    
    25,888
    
    
    
    21,746Total revenues
    
    
    1,559,661
    
    
    
    1,247,404
    
    
    
    1,015,088Expenses:Cost of sales
    
    
    966,426
    
    
    
    777,586
    
    
    
    676,527Selling expenses
    
    
    41,894
    
    
    
    41,899
    
    
    
    39,449Retail operating expenses
    
    
    273,627
    
    
    
    191,423
    
    
    
    126,224Franchise expenses
    
    
    13,686
    
    
    
    12,883
    
    
    
    13,009General and administrative expenses
    
    
    120,272
    
    
    
    105,707
    
    
    
    84,836Art and development costs
    
    
    12,462
    
    
    
    12,149
    
    
    
    10,338Impairment
of trade name
    

    

    17,376
    

    
    
    
    
    
    
    Total expenses
    
    
    1,445,743
    
    
    
    1,141,647
    
    
    
    950,383Income from operations
    
    
    113,918
    
    
    
    105,757
    
    
    
    64,705Interest expense, net
    
    
    50,915
    
    
    
    54,590
    
    
    
    54,887Other (income) expense, net
    
    
    (818
    )
    
    
    18,214
    
    
    
    (1,000
    )Income before income taxes and minority interests
    
    
    63,821
    
    
    
    32,953
    
    
    
    10,818Income tax expense
    
    
    24,188
    
    
    
    13,246
    
    
    
    4,295Minority interests
    
    
    (877
    )
    
    
    446
    
    
    
    83Net income
    
    $
    40,510
    
    
    $
    19,261
    
    
    $
    6,440
  F3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 For the Years Ended December 31, 2006, 2007 and 2008
 (Dollars in Thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income(Loss)
    
    
    TotalBalance at December 31, 2005
    
    
    27,392.05
    
    
    $
    
    
    
    $
    300,983
    
    
    $
    20,824
    
    
    $
    (997
    )
    
    $
    320,810Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,440
    
    
    
    
    
    
    
    6,440Net change in cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,446
    
    
    
    2,446Change in fair value of interest rate swap and
foreign exchange contracts, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,900Issuances of shares of common stock
    
    
    154.66
    
    
    
    
    
    
    
    1,899
    
    
    
    
    
    
    
    
    
    
    
    1,899Issuances of shares of common stock in
connection with the Party America Acquisition
    
    
    1,979.36
    
    
    
    
    
    
    
    26,881
    
    
    
    
    
    
    
    
    
    
    
    26,881Rollover options issued in connection with the
Party America Acquisitions
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    142Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,208
    
    
    
    
    
    
    
    
    
    
    
    1,208Balance at December 31, 2006
    
    
    29,526.07
    
    
    $
    
    
    
    $
    331,113
    
    
    $
    27,264
    
    
    $
    1,463
    
    
    $
    359,840Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,261
    
    
    
    
    
    
    
    19,261Cumulative change from adoption of FIN 48 (see
Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Net change in cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,633
    
    
    
    1,633Change in fair value of interest rate swap
contracts,
net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514
    )
    
    
    (514
    )Change in fair value of foreign exchange
contracts,
net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )
    
    
    (231
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,118Issuance of shares of common stock
    
    
    22.71
    
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    222Revaluation of common stock
    
    
    
    
    
    
    
    
    
    
    (6,442
    )
    
    
    
    
    
    
    
    
    
    
    (6,442
    )Purchase and retirement of common stock
    
    
    (5.62
    )
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (80
    )Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,928
    
    
    
    
    
    
    
    
    
    
    
    1,928Balance at December 31, 2007
    
    
    29,543.16
    
    
    $
    
    
    
    $
    326,741
    
    
    $
    46,494
    
    
    $
    2,351
    
    
    $
    375,586Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,510
    
    
    
    
    
    
    
    40,510Net change in cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,338
    )
    
    
    (11,338
    )Change in fair value of interest rate swap
contracts, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,855
    )
    
    
    (4,855
    )Change in fair value of foreign exchange
contracts, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,990
    
    
    
    1,990Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,307Purchase and revaluation of redeemable common
securities
    
    
    308.64
    
    
    
    
    
    
    
    2,155
    
    
    
    
    
    
    
    
    
    
    
    2,155Tax benefit on exercised options
    
    
    397.30
    
    
    
    
    
    
    
    1,823
    
    
    
    
    
    
    
    
    
    
    
    1,823Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,357
    
    
    
    
    
    
    
    
    
    
    
    4,357Other
    
    
    (22.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,076
    
    
    $
    87,004
    
    
    $
    (11,852
    )
    
    $
    410,228
  F4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows provided by operating activities:Net income
    
    $
    40,510
    
    
    $
    19,261
    
    
    $
    6,440Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization expense
    
    
    47,278
    
    
    
    38,093
    
    
    
    38,619Amortization of deferred financing costs
    
    
    2,221
    
    
    
    2,142
    
    
    
    2,661Provision for doubtful accounts
    
    
    1,092
    
    
    
    1,290
    
    
    
    1,668Deferred income tax benefit
    
    
    (7,885
    )
    
    
    (5,973
    )
    
    
    (6,326
    )Deferred rent
    
    
    1,202
    
    
    
    1,165
    
    
    
    3,019Undistributed income in unconsolidated joint venture
    
    
    (538
    )
    
    
    (628
    )
    
    
    (429
    )Impairment of trade name
    
    
    17,376
    
    
    
    2,005
    
    
    
    (Gain) loss on disposal of equipment
    
    
    (1,195
    )
    
    
    1,452
    
    
    
    (879
    )Equity based compensation
    
    
    4,357
    
    
    
    1,928
    
    
    
    1,208Tax benefit on exercised options
    
    
    (1,823
    )
    
    
    
    
    
    
    Debt retirement costs
    
    
    
    
    
    
    3,781
    
    
    
    Write-off of deferred financing costs
    
    
    
    
    
    
    6,333
    
    
    
    Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    8,237
    
    
    
    1,981
    
    
    
    (23,745
    )Increase in inventories
    
    
    (52,347
    )
    
    
    (22,914
    )
    
    
    (7,128
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    31,240
    
    
    
    (14,219
    )
    
    
    12,672(Decrease) increase in accounts payable, accrued expenses and income taxes
payable
    
    
    (9,796
    )
    
    
    (26,053
    )
    
    
    3,225Net cash provided by operating activities
    
    
    79,929
    
    
    
    9,644
    
    
    
    31,005Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (1,616
    )
    
    
    (106,123
    )
    
    
    (14,634
    )Capital expenditures
    
    
    (53,001
    )
    
    
    (27,445
    )
    
    
    (40,376
    )Proceeds from disposal of property and equipment
    
    
    3,418
    
    
    
    162
    
    
    
    14,891Net cash used in investing activities
    
    
    (51,199
    )
    
    
    (133,406
    )
    
    
    (40,119
    )Cash flows (used in) provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (26,842
    )
    
    
    (387,549
    )
    
    
    (3,392
    )Proceeds from loans, notes payable and long-term obligations, net of debt
issuance costs
    
    
    
    
    
    
    523,609
    
    
    
    5,149Tax benefit on exercised options
    
    
    1,823
    
    
    
    
    
    
    
    Debt retirement costs
    
    
    
    
    
    
    (6,218
    )
    
    
    Sale of additional interest to minority shareholder
    
    
    2,500Purchase and retirement of redeemable common stock
    
    
    (514
    )Capital contributions and proceeds from issuance of common stock and
exercise of options, net of retirements
    
    
    
    
    
    
    4,734
    
    
    
    1,785Net cash (used in) provided by financing activities
    
    
    (23,033
    )
    
    
    134,576
    
    
    
    3,542Effect of exchange rate changes on cash and cash equivalents
    
    
    (9,913
    )
    
    
    1,494
    
    
    
    1,793Net (decrease) increase in cash and cash equivalents
    
    
    (4,216
    )
    
    
    12,308
    
    
    
    (3,779
    )Cash and cash equivalents at beginning of period
    
    
    17,274
    
    
    
    4,966
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    13,058
    
    
    $
    17,274
    
    
    $
    4,966
    F5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share)
 Note 1  Organization and Description of Business
  Recent Acquisitions and Transactions :
 Factory Card & Party Outlet
   Party City Franchise Group
   Party America
  F6




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 2  Summary of Significant Accounting Policies
 Consolidated Financial Statements
     Use of Estimates
   Cash Equivalents
  Inventories
   Allowance for Doubtful Accounts
  F7




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Long-Lived and Intangible Assets
    Deferred Financing Costs
  Investments
   Insurance Accruals
  Revenue Recognition
   F8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Shipping and Handling
  Store Closure Costs
  Product Royalty Agreements
  Catalogue Costs
  Art and Development Costs
  Derivative Financial Instruments
   F9




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Income Taxes
  Stock-Based Compensation
 Accounting for Stock-Based Compensation  Transition and
Disclosure Accounting for Stock Issued to Employees,
   Accumulated Other Comprehensive Income (Loss)
  Foreign Currency Transactions and Translation
  F10




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Recently Issued Accounting Standards
     SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    UnobservableIdentical Assets or
    
    Inputs
    
    InputsLiabilities level 1
    
    Level 2
    
    Level 3Derivative assets
    
    
    

    
    $
    2,695
    
    
    
        Derivative
liabilities
    
    
        

    
    
    (8,403
    )
    
    
    
 The Fair Value Option for Financial Assets and Financial Liabilities
  Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
  Note 3  Inventories
  December 31,2008
    
    
    2007Finished goods
    
    $
    353,713
    
    
    $
    309,852Raw materials
    
    
    13,756
    
    
    
    13,690Work in process
    
    
    7,814
    
    
    
    6,495375,283
    
    
    
    330,037Less: reserve for slow moving and obsolete inventory
    
    
    (8,318
    )
    
    
    (10,416
    )$
    366,965
    
    
    $
    319,621
 F11




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 4  Property, Plant and Equipment, Net
  December 31,2008
    
    
    2007Machinery and equipment
    
    $
    109,841
    
    
    $
    96,987Buildings
    
    
    47,809
    
    
    
    47,726Data processing
    
    
    48,555
    
    
    
    68,384Leasehold improvements
    
    
    61,999
    
    
    
    52,597Furniture and fixtures
    
    
    85,586
    
    
    
    70,695Land
    
    
    5,923
    
    
    
    5,923359,713
    
    
    
    342,312Less: accumulated depreciation
    
    
    (172,687
    )
    
    
    (168,114
    )$
    187,026
    
    
    $
    174,198
   December 31,2008
    
    
    2007Machinery and equipment under capital leases
    
    $
    9,495
    
    
    
    10,074Accumulated amortization
    
    
    (2,284
    )
    
    
    (444
    )$
    7,211
    
    
    $
    9,630
  Note 5  Retail Acquisitions and Transactions
 The Factory Card & Party Outlet Acquisition
     Party City Franchise Group Transaction
  F12




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Party America Acquisition
    Note 6  Other Intangible Assets, net
  At
December 31, 2008Accumulated
    
    Net CarryingCost
    
    Amortization
    
    Value
    
    Useful livesRetail franchise licenses
    
    $
    63,630
    
    
    $
    14,117
    
    
    $
    49,513
    
    
    9-20 yearsCustomer lists relationships
    
    
    14,500
    
    
    
    4,511
    
    
    
    9,989
    
    
    15 yearsCopyrights, designs, and other
    
    
    13,880
    
    
    
    13,093
    
    
    
    787
    
    
    2-3 yearsLeasehold and other intangibles
    
    
    2,237
    
    
    
    900
    
    
    
    1,337
    
    
    1-15 yearsTotal Cost
    
    $
    94,247
    
    
    $
    32,621
    
    
    $
    61,626
 At December 31, 2007Accumulated
    
    Net CarryingCost
    
    Amortization
    
    Value
    
    Useful livesRetail franchise licenses
    
    $
    37,500
    
    
    $
    8,138
    
    
    $
    29,362
    
    
    9 yearsCustomer lists relationships
    
    
    14,500
    
    
    
    3,545
    
    
    
    10,955
    
    
    15 yearsCopyrights, designs, and other
    
    
    13,988
    
    
    
    13,023
    
    
    
    965
    
    
    2-3 yearsLeasehold and other intangibles
    
    
    1,283
    
    
    
    39
    
    
    
    1,244
    
    
    1-15 yearsTotal Cost
    
    $
    67,271
    
    
    $
    24,745
    
    
    $
    42,526
 F13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note 7  Loans and Notes Payable
    ABL Credit Agreement 
         F14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   PCFG Credit Agreement
   PCFG Credit Agreement borrowings:
  Interest Rate and Fees
 1 2
 Prepayments
  Amortization
  F15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Guarantee and Security
  Certain Covenants
  Event of Default
   Other Credit Agreements
  Note 8  Long-Term Obligations
  December 31,2008
    
    2007Term Loan due 2013(a)
    
    $
    368,437
    
    
    $
    372,187PCFG Term Loan due 2012(b)
    
    
    27,500
    
    
    
    29,500Mortgage obligations(c)
    
    
    6,285
    
    
    
    6,875Capital lease obligations(d)
    
    
    7,535
    
    
    
    9,3948.75% senior subordinated notes(e)
    
    
    175,000
    
    
    
    175,000Total long-term obligations
    
    $
    584,757
    
    
    $
    592,956Less: current portion
    
    
    (34,002
    )
    
    
    (8,620
    )Long-term obligations, excluding current portion
    
    $
    550,755
    
    
    $
    584,336
 F16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
           1
 F17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      Long-term Debt
    
    Capital LeaseObligations
    
    Obligations
    
    Totals2009
    
    $
    31,916
    
    
    $
    2,086
    
    
    $
    34,0022010
    
    
    9,369
    
    
    
    2,029
    
    
    
    11,3982011
    
    
    3,750
    
    
    
    1,997
    
    
    
    5,7472012
    
    
    3,750
    
    
    
    1,411
    
    
    
    5,1612013
    
    
    3,750
    
    
    
    12
    
    
    
    3,762Thereafter
    
    
    524,687
    
    
    
    
    
    
    
    524,687Long-term obligations
    
    $
    577,222
    
    
    $
    7,535
    
    
    $
    584,757
 Note 9  Capital Stock
   F18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      2008
    
    2007Redeemable common shares
    
    $
    16,589
    
    
    
    18,5462004 Rollover Options
    
    
    1,582
    
    
    
    1,792Redeemable PCFG minority interest shares
    
    
    
    
    
    
    13,444$
    18,171
    
    
    
    33,782
  Note 10  Provision for Doubtful Accounts
  Note 11  Non-recurring Expenses and Write-off of Deferred Financing Costs
  F19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 12  Restructuring Charges
     Note 13  Other (Income) Expense
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Undistributed income in
unconsolidated joint venture
    
    $
    (538
    )
    
    $
    (628
    )
    
    $
    (429
    )Change in fair market value of the
interest rate cap
    
    
    (187
    )
    
    
    61
    
    
    $
    126Change in fair market value of the foreign
exchange contracts
    
    
    
    
    
    
    
    
    
    
    171Gain on sale of property, plant, and
equipment
    
    
    (227
    )
    
    
    (152
    )
    
    
    (879
    )Foreign currency (gain) or loss
    
    
    (476
    )
    
    
    388
    
    
    
    78Early extinguishment of debt
    
    
    
    
    
    
    16,360
    
    
    
    Impairment of investment in subsidiary
    
    
    
    
    
    
    2,005
    
    
    
    Contract amendment fee
    
    
    400
    
    
    
    
    
    
    
    Other, net
    
    
    210
    
    
    
    180
    
    
    
    (67
    )Other (income) expense, net
    
    $
    (818
    )
    
    $
    18,214
    
    
    $
    (1,000
    )
 Note 14  Employee Benefit Plans
  F20




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 15  Equity Incentive Plan
   Rollover options
        Time-based options
  F21




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Expected dividend rate
    
    
    Risk free interest rate
    
    1.76% to 5.08%Price volatility
    
    
    15.00Weighted average expected life
    
    
    7.5Forfeiture rate
    
    
    7.75
  Performance-based options
    F22




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
        Summary
   F23




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Average
    
    Average Fair MarketExercise
    
    Value of Options atOptions
    
    Price
    
    Grant DateOutstanding at December 31, 2005
    
    
    1,580.18
    
    
    $
    9,534Granted
    
    
    1,409.02
    
    
    
    11,929
    
    
    
    4,060Exercised
    
    
    (1.00
    )
    
    
    10,000Canceled
    
    
    (130.00
    )
    
    
    11,000Outstanding at December 31, 2006
    
    
    2,858.20
    
    
    $
    10,648Granted
    
    
    704.00
    
    
    
    15,929
    
    
    
    5,341Exercised
    
    
    (14.52
    )
    
    
    14,250Canceled
    
    
    (148.54
    )
    
    
    11,259Outstanding at December 31, 2007
    
    
    3,399.14
    
    
    
    11,700Granted
    
    
    305.90
    
    
    
    24,617
    
    
    
    5,736Exercised
    
    
    (627.90
    )
    
    
    14,283Canceled
    
    
    (144.54
    )
    
    
    10,193Outstanding at December 31, 2008
    
    
    2,932.60
    
    
    
    13,242Exercisable at December 31, 2008
    
    
    700.90
    
    
    
    10,370
 Note 16  Income Taxes
  Year ended December 31,2008
    
    
    2007
    
    
    2006Domestic
    
    $
    54,701
    
    
    $
    27,444
    
    
    $
    5,658Foreign
    
    
    9,120
    
    
    
    5,509
    
    
    
    5,160Total
    
    $
    63,821
    
    
    $
    32,953
    
    
    $
    10,818
 
 F24




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    24,515
    
    
    $
    13,009
    
    
    $
    6,493State
    
    
    4,817
    
    
    
    4,074
    
    
    
    2,018Foreign
    
    
    2,741
    
    
    
    2,136
    
    
    
    2,110Total current provision
    
    
    32,073
    
    
    
    19,219
    
    
    
    10,621Deferred:Federal
    
    
    (6,627
    )
    
    
    (5,229
    )
    
    
    (5,101
    )State
    
    
    (1,139
    )
    
    
    (758
    )
    
    
    (861
    )Foreign
    
    
    (119
    )
    
    
    14
    
    
    
    (364
    )Total deferred provision (benefit)
    
    
    (7,885
    )
    
    
    (5,973
    )
    
    
    (6,326
    )Income tax expense
    
    $
    24,188
    
    
    $
    13,246
    
    
    $
    4,295
  December 31,2008
    
    
    2007Current deferred income tax assets:Inventory valuation
    
    $
    14,287
    
    
    $
    14,457Allowance for doubtful accounts
    
    
    832
    
    
    
    718Accrued liabilities
    
    
    11,377
    
    
    
    8,121Tax loss carryforward
    
    
    3,078
    
    
    
    4,446Tax credit carryforward
    
    
    1,148
    
    
    
    1,148Current deferred income tax assets (included in
prepaid expenses and other current assets)
    
    $
    30,722
    
    
    $
    28,890Non-current deferred income tax liabilities, net:Property, plant and equipment
    
    $
    2,446
    
    
    $
    1,676Intangible assets
    
    
    71,263
    
    
    
    80,750Amortization of goodwill and other assets
    
    
    14,109
    
    
    
    12,436Other
    
    
    6
    
    
    
    (502
    )Non-current deferred income tax liabilities, net
    
    $
    87,824
    
    
    $
    94,360
  F25




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year Ended December 31,2008
    
    2007
    
    2006Provision at federal statutory
income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net of federal
income tax benefit
    
    
    4.2
    
    
    
    6.6
    
    
    
    7.0Non-deductible reserve for
investment in foreign subsidiary
    
    
    
    
    
    
    2.1
    
    
    
    Domestic manufacturing deductions
    
    
    (1.3
    )
    
    
    (2.0
    )
    
    
    (2.7
    )Other
    
    
    
    
    
    
    (1.5
    )
    
    
    0.4Effective income tax rate
    
    
    37.9
    %
    
    
    40.2
    %
    
    
    39.7
    %
      2008
    
    
    2007Balance as
of January 1
    
    $
    2,485
    
    
    $
    2,550Increases related to current year tax positions
    
    
    172
    
    
    
    184Increases
related to prior year tax positions
    
    
    
    
    
    
    160Decreases related to settlements
    
    
    
    
    
    
    (189
    )Decreases
related to statutes of limitations
    
    
    (633
    )
    
    
    (220
    )$
    2,024
    
    
    $
    2,485
   F26




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Note 17  Commitments, Contingencies and Related Party Transactions
 Lease Agreements
   Future MinimumOperating Lease Payments2009
    
    $
    114,5392010
    
    
    99,2152011
    
    
    83,7322012
    
    
    68,5052013
    
    
    42,288Thereafter
    
    
    69,728$
    478,007
    Product Royalty Agreements
  F27




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Future MinimumRoyalty Payments2009
    
    $
    4,0222010
    
    
    4,7322011
    
    
    4,8482012
    
    
    1,3752013
    
    
    1,122$
    16,099
   Product PurchaseCommitments2009
    
    $
    5,6942010
    
    
    4,5752011
    
    
    4,5762012
    
    
    1,138$
    15,983
 Legal Proceedings
  Related Party Transactions
  Note 18  Segment Information
 Industry Segments
  F28




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedYear Ended December 31, 2008Revenues:Net sales
    
    $
    653,403
    
    
    $
    1,099,136
    
    
    $
    1,752,539Royalties and franchise fees
    
    
    
    
    
    
    22,020
    
    
    
    22,020Total revenues
    
    
    653,403
    
    
    
    1,121,156
    
    
    
    1,774,559Eliminations
    
    
    (214,898
    )
    
    
    
    
    
    
    (214,898
    )Net Revenues
    
    $
    438,505
    
    
    $
    1,121,156
    
    
    $
    1,559,661Income from operations
    
    $
    58,290
    
    
    $
    55,628
    
    
    $
    113,918Interest expense, net
    
    
    
    
    
    
    
    
    
    
    50,915Other income, net
    
    
    
    
    
    
    
    
    
    
    (818
    )Income before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    63,821Long-lived assets
    
    $
    424,070
    
    
    $
    566,629
    
    
    $
    990,699
 Wholesale
    
    
    Retail
    
    
    ConsolidatedYear Ended December 31, 2007Revenues:Net sales
    
    $
    626,476
    
    
    $
    768,183
    
    
    $
    1,394,659Royalties and franchise fees
    
    
    
    
    
    
    25,888
    
    
    
    25,888Total revenues
    
    
    626,476
    
    
    
    794,071
    
    
    
    1,420,547Eliminations
    
    
    (173,143
    )
    
    
    
    
    
    
    (173,143
    )Net Revenues
    
    $
    453,333
    
    
    $
    794,071
    
    
    $
    1,247,404Income from operations
    
    $
    45,172
    
    
    $
    60,585
    
    
    $
    105,757Interest expense, net
    
    
    
    
    
    
    
    
    
    
    54,590Other expense, net
    
    
    
    
    
    
    
    
    
    
    18,214Income before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    32,953Long-lived assets
    
    $
    451,379
    
    
    $
    550,100
    
    
    $
    1,001,479
 Wholesale
    
    
    Retail
    
    
    ConsolidatedYear Ended December 31, 2006Revenues:Net sales
    
    $
    508,486
    
    
    $
    560,808
    
    
    $
    1,069,294Royalties and franchise fees
    
    
    
    
    
    
    21,746
    
    
    
    21,746Total revenues
    
    
    508,486
    
    
    
    582,554
    
    
    
    1,091,040Eliminations
    
    
    (75,952
    )
    
    
    
    
    
    
    (75,952
    )Net Revenues
    
    $
    432,534
    
    
    $
    582,554
    
    
    $
    1,015,088Income from operations
    
    $
    35,527
    
    
    $
    29,178
    
    
    $
    64,705Interest expense, net
    
    
    
    
    
    
    
    
    
    
    54,887Other income, net
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Income before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    10,818Long-lived assets
    
    $
    457,446
    
    
    $
    396,338
    
    
    $
    853,784
 Geographic Segments
  F29




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedYear Ended December 31, 2008Revenues:Net sales to unaffiliated customers
    
    $
    1,454,145
    
    
    $
    83,496
    
    
    $
    
    
    
    $
    1,537,641Net sales between geographic areas
    
    
    23,194
    
    
    
    
    
    
    
    (23,194
    )
    
    
    Net sales
    
    
    1,477,339
    
    
    
    83,496
    
    
    
    (23,194
    )
    
    
    1,537,641Royalties and franchise fees
    
    
    22,020
    
    
    
    
    
    
    
    
    
    
    
    22,020Total revenues
    
    $
    1,499,359
    
    
    $
    83,496
    
    
    $
    (23,194
    )
    
    $
    1,559,661Income from operations
    
    $
    104,217
    
    
    $
    8,536
    
    
    $
    1,165
    
    
    $
    113,918Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,915Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (818
    )Income before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    63,821Long-lived assets
    
    $
    973,379
    
    
    $
    93,365
    
    
    $
    (79,045
    )
    
    $
    990,699
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedYear Ended December 31, 2007Revenues:Net sales to unaffiliated customers
    
    $
    1,141,532
    
    
    $
    79,984
    
    
    $
    
    
    
    $
    1,221,516Net sales between geographic areas
    
    
    23,906
    
    
    
    
    
    
    
    (23,906
    )
    
    
    Net sales
    
    
    1,165,438
    
    
    
    79,984
    
    
    
    (23,906
    )
    
    
    1,221,516Royalties and franchise fees
    
    
    25,888
    
    
    
    
    
    
    
    
    
    
    
    25,888Total revenues
    
    $
    1,191,326
    
    
    $
    79,984
    
    
    $
    (23,906
    )
    
    $
    1,247,404Income from operations
    
    $
    97,638
    
    
    $
    6,956
    
    
    $
    1,163
    
    
    $
    105,757Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,590Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,214Income before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32,953Long-lived assets
    
    $
    1,003,984
    
    
    $
    49,161
    
    
    $
    (51,666
    )
    
    $
    1,001,479
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedYear Ended December 31, 2006Revenues:Net sales to unaffiliated customers
    
    $
    924,981
    
    
    $
    68,361
    
    
    $
    
    
    
    $
    993,342Net sales between geographic areas
    
    
    20,166
    
    
    
    
    
    
    
    (20,166
    )
    
    
    Net sales
    
    
    945,147
    
    
    
    68,361
    
    
    
    (20,166
    )
    
    
    993,342Royalties and franchise fees
    
    
    21,746
    
    
    
    
    
    
    
    
    
    
    
    21,746Total revenues
    
    $
    966,893
    
    
    $
    68,361
    
    
    $
    (20,166
    )
    
    $
    1,015,088Income from operations
    
    $
    69,267
    
    
    $
    6,339
    
    
    $
    (10,901
    )
    
    $
    64,705Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,887Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Income before income tax benefit
and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,818Long-lived assets
    
    $
    881,900
    
    
    $
    17,319
    
    
    $
    (45,436
    )
    
    $
    853,784
 F30




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 19  Quarterly Results (Unaudited)
   For the Three Months Ended,March 31,
    
    June 30,
    
    September 30,
    
    December 31,(Dollars in thousands)2008Revenues:Net sales
    
    
    325,032
    
    
    
    365,174
    
    
    
    356,231
    
    
    
    491,204Royalties and franchise fees
    
    
    5,342
    
    
    
    6,350
    
    
    
    5,863
    
    
    
    4,465Gross profit
    
    
    110,347
    
    
    
    139,414
    
    
    
    125,311
    
    
    
    196,143Income from operations
    
    
    8,778
    
    
    
    35,511
    
    
    
    18,573
    
    
    
    51,056
    (a)Net income (loss)
    
    
    (2,537
    )
    
    
    14,669
    
    
    
    4,563
    
    
    
    23,815
    (a)2007Revenues:Net sales
    
    
    243,529
    
    
    
    273,424
    
    
    
    277,564
    
    
    
    426,999
    (b)Royalties and franchise fees
    
    
    4,895
    
    
    
    5,747
    
    
    
    5,783
    
    
    
    9,463
    (b)Gross profit
    
    
    77,706
    
    
    
    98,399
    
    
    
    96,783
    
    
    
    171,042
    (b)Income from operations
    
    
    6,837
    
    
    
    25,887
    
    
    
    14,500
    
    
    
    58,533
    (b)Net income (loss)
    
    
    (4,402
    )
    
    
    (2,458
    )
    
    
    424
    
    
    
    25,697
    (b) (c)2006Revenues:Net sales
    
    
    204,183
    
    
    
    223,847
    
    
    
    220,514
    
    
    
    344,798
    (d)Royalties and franchise fees
    
    
    4,157
    
    
    
    4,886
    
    
    
    4,505
    
    
    
    8,198
    (d)Gross profit
    
    
    59,673
    
    
    
    71,529
    
    
    
    68,636
    
    
    
    138,723
    (d)Income from operations
    
    
    1,202
    
    
    
    12,244
    
    
    
    5,311
    
    
    
    45,948
    (d) (e)Net income (loss)
    
    
    (7,157
    )
    
    
    (9
    )
    
    
    (5,675
    )
    
    
    19,281
    (d) (e)
  F31




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Note 20  Fair Value of Financial Instruments
   Note 21  Derivative Financial Instruments
 Interest Rate Risk Management
     F32




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Foreign Exchange Risk Management
   Note 22  Sales Leaseback Transaction
  Note 23  Comprehensive Income
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Net income
    
    $
    40,510
    
    
    $
    19,261
    
    
    $
    6,440Cumulative change from adoption of FIN 48 (see Note 5)
    
    
    
    
    
    
    (31
    )Net change in cumulative translation adjustment
    
    
    (11,338
    )
    
    
    1,633
    
    
    
    2,446Change in fair value of interest rate swap contracts, net of income tax
(benefit) expense of $(2,851) and $(302), and $44
    
    
    (4,855
    )
    
    
    (514
    )
    
    
    75Change in fair value of foreign exchange contracts, net of income tax
expense (benefit) of $1,169, $(136), and $(36)
    
    
    1,990
    
    
    
    (231
    )
    
    
    (61
    )Comprehensive income
    
    $
    26,307
    
    
    $
    20,118
    
    
    $
    8,900
 F33




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  December 31,2008
    
    
    2007Cumulative translation adjustment
    
    $
    (8,256
    )
    
    $
    3,082Interest rate swap contracts, net of income tax
benefit of $(3,109), and $(258)
    
    
    (5,294
    )
    
    
    (439
    )Foreign exchange contracts, net of income tax
expense (benefit) of $997, and $(172)
    
    
    1,698
    
    
    
    (292
    )Total accumulated other comprehensive income
    
    $
    (11,852
    )
    
    $
    2,351
 Note 24  Condensed Consolidating Financial Information
   
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    Anagram Eden Prairie Property Holdings LLC
    
    Trisar, Inc.
  
    
    Amscan Distributors (Canada) Ltd.
    
    Amscan Holdings Limited
    
    Amscan (Asia-Pacific) Pty. Ltd.
    
    Amscan de Mexico, S.A. de C.V.
    
    Anagram International (Japan) Co., Ltd.
    
    JCS Hong Kong Ltd.
    
    Party City Franchise Group, LLC
  F34




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING BALANCE SHEET
December 31, 2008
(Dollars in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,544
    
    
    $
    4,514
    
    
    $
    
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    73,932
    
    
    
    15,511
    
    
    
    
    
    
    
    89,443Inventories, net of allowances
    
    
    331,059
    
    
    
    36,605
    
    
    
    (699
    )
    
    
    366,965Prepaid expenses and other current assets
    
    
    42,033
    
    
    
    5,779
    
    
    
    
    
    
    
    47,812Total current assets
    
    
    455,568
    
    
    
    62,409
    
    
    
    (699
    )
    
    
    517,278Property, plant and equipment, net
    
    
    175,532
    
    
    
    11,494
    
    
    
    
    
    
    
    187,026Goodwill
    
    
    497,197
    
    
    
    46,534
    
    
    
    
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    35,496
    
    
    
    26,130
    
    
    
    
    
    
    
    61,626Other assets, net
    
    
    123,315
    
    
    
    12,207
    
    
    
    (94,489
    )
    
    
    41,033Total assets
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    136,878
    
    
    
    
    
    
    
    
    
    
    
    136,878Accounts payable
    
    
    98,636
    
    
    
    28,002
    
    
    
    
    
    
    
    126,638Accrued expenses
    
    
    77,470
    
    
    
    10,515
    
    
    
    
    
    
    
    87,985Income taxes payable
    
    
    27,802
    
    
    
    860
    
    
    
    (57
    )
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    6,488
    
    
    
    27,514
    
    
    
    
    
    
    
    34,002Total current liabilities
    
    
    362,718
    
    
    
    66,891
    
    
    
    (57
    )
    
    
    429,552Long-term obligations, excluding current portion
    
    
    550,755
    
    
    
    
    
    
    
    
    
    
    
    550,755Deferred income tax liabilities
    
    
    76,360
    
    
    
    11,464
    
    
    
    
    
    
    
    87,824Other
    
    
    21,988
    
    
    
    37,996
    
    
    
    (48,537
    )
    
    
    11,447Total liabilities
    
    
    1,011,821
    
    
    
    116,351
    
    
    
    (48,594
    )
    
    
    1,079,578Redeemable common securities
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    18,171Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    334,983
    
    
    
    45,629
    
    
    
    (45,536
    )
    
    
    335,076Retained earnings
    
    
    91,268
    
    
    
    (3,776
    )
    
    
    (488
    )
    
    
    87,004Accumulated other comprehensive (loss) income
    
    
    (11,852
    )
    
    
    231
    
    
    
    (231
    )
    
    
    (11,852
    )Total stockholders equity
    
    
    414,399
    
    
    
    42,423
    
    
    
    (46,594
    )
    
    
    410,228Total liabilities, redeemable common securities and stockholders
equity
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977
 F35




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING BALANCE SHEET
December 31, 2007
(Dollars in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,391
    
    
    $
    8,883
    
    
    $
    
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    81,057
    
    
    
    17,368
    
    
    
    
    
    
    
    98,425Inventories, net of allowances
    
    
    282,954
    
    
    
    37,368
    
    
    
    (701
    )
    
    
    319,621Prepaid expenses and other current assets
    
    
    54,810
    
    
    
    7,236
    
    
    
    
    
    
    
    62,046Total current assets
    
    
    427,212
    
    
    
    70,855
    
    
    
    (701
    )
    
    
    497,366Property, plant and equipment, net
    
    
    168,033
    
    
    
    6,165
    
    
    
    
    
    
    
    174,198Goodwill
    
    
    509,114
    
    
    
    49,829
    
    
    
    
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    13,304
    
    
    
    
    
    
    
    186,187Other intangible assets, net
    
    
    42,526
    
    
    
    
    
    
    
    
    
    
    
    42,526Other assets, net
    
    
    111,428
    
    
    
    
    
    
    
    (71,803
    )
    
    
    39,625Total assets
    
    $
    1,431,196
    
    
    $
    140,153
    
    
    $
    (72,504
    )
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    152,670
    
    
    
    500
    
    
    
    
    
    
    
    153,170Accounts payable
    
    
    100,467
    
    
    
    19,826
    
    
    
    
    
    
    
    120,293Accrued expenses
    
    
    81,600
    
    
    
    12,728
    
    
    
    
    
    
    
    94,328Income taxes payable
    
    
    12,958
    
    
    
    (319
    )
    
    
    (58
    )
    
    
    12,581Current portion of long-term obligations
    
    
    6,524
    
    
    
    2,096
    
    
    
    
    
    
    
    8,620Total current liabilities
    
    
    354,219
    
    
    
    34,831
    
    
    
    (58
    )
    
    
    388,992Long-term obligations, excluding current portion
    
    
    556,817
    
    
    
    27,519
    
    
    
    
    
    
    
    584,336Deferred income tax liabilities
    
    
    93,523
    
    
    
    837
    
    
    
    
    
    
    
    94,360Other
    
    
    30,327
    
    
    
    63,395
    
    
    
    (71,933
    )
    
    
    21,789Total liabilities
    
    
    1,034,886
    
    
    
    126,582
    
    
    
    (71,991
    )
    
    
    1,089,477Redeemable common securities
    
    
    20,338
    
    
    
    13,444
    
    
    
    
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    326,695
    
    
    
    46
    
    
    
    
    
    
    
    326,741Retained earnings
    
    
    46,926
    
    
    
    (178
    )
    
    
    (254
    )
    
    
    46,494Accumulated other comprehensive income (loss)
    
    
    2,351
    
    
    
    (80
    )
    
    
    80
    
    
    
    2,351Total stockholders equity
    
    
    375,972
    
    
    
    127
    
    
    
    (513
    )
    
    
    375,586Total liabilities, redeemable common securities and
stockholders equity
    
    $
    1,431,196
    
    
    $
    140,153
    
    
    $
    (72,504
    )
    
    $
    1,498,845
 F36




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING STATEMENT OF OPERATIONS
For Year Ended December 31, 2008
(Dollars in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    1,359,780
    
    
    $
    201,055
    
    
    $
    (23,194
    )
    
    $
    1,537,641Royalties and franchise fees
    
    
    22,020
    
    
    
    
    
    
    
    
    
    
    
    22,020Total revenues
    
    
    1,381,800
    
    
    
    201,055
    
    
    
    (23,194
    )
    
    
    1,559,661Expenses:Cost of sales
    
    
    861,368
    
    
    
    128,097
    
    
    
    (23,039
    )
    
    
    966,426Selling expenses
    
    
    32,172
    
    
    
    9,722
    
    
    
    
    
    
    
    41,894Retail operating expenses
    
    
    233,348
    
    
    
    40,279
    
    
    
    
    
    
    
    273,627Franchise expenses
    
    
    13,686
    
    
    
    
    
    
    
    
    
    
    
    13,686General and administrative expenses
    
    
    104,445
    
    
    
    17,147
    
    
    
    (1,320
    )
    
    
    120,272Art and development costs
    
    
    12,462
    
    
    
    
    
    
    
    
    
    
    
    12,462Impairment of trade name
    
    
    17,376
    
    
    
    
    
    
    
    
    
    
    
    17,376Total expenses
    
    
    1,274,857
    
    
    
    195,245
    
    
    
    (24,359
    )
    
    
    1,445,743Income from operations
    
    
    106,943
    
    
    
    5,810
    
    
    
    1,165
    
    
    
    113,918Interest expense, net
    
    
    48,130
    
    
    
    2,785
    
    
    
    
    
    
    
    50,915Other  (income) expense, net
    
    
    (7,526
    )
    
    
    (552
    )
    
    
    7,260
    
    
    
    (818
    )Income before income taxes and minority interests
    
    
    66,339
    
    
    
    3,577
    
    
    
    (6,095
    )
    
    
    63,821Income tax expense
    
    
    21,900
    
    
    
    2,345
    
    
    
    (57
    )
    
    
    24,188Minority interests
    
    
    
    
    
    
    (877
    )
    
    
    
    
    
    
    (877
    )Net income
    
    $
    44,439
    
    
    $
    2,109
    
    
    $
    (6,038
    )
    
    $
    40,510
 F37




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING STATEMENT OF OPERATIONS
For Year Ended December 31, 2007
(Dollars in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    1,146,791
    
    
    $
    98,631
    
    
    $
    (23,906
    )
    
    $
    1,221,516Royalties and franchise fees
    
    
    25,888
    
    
    
    
    
    
    
    
    
    
    
    25,888Total revenues
    
    
    1,172,679
    
    
    
    98,631
    
    
    
    (23,906
    )
    
    
    1,247,404Expenses:Cost of sales
    
    
    735,670
    
    
    
    65,665
    
    
    
    (23,749
    )
    
    
    777,586Selling expenses
    
    
    32,292
    
    
    
    9,607
    
    
    
    
    
    
    
    41,899Retail operating expenses
    
    
    184,768
    
    
    
    6,655
    
    
    
    
    
    
    
    191,423Franchise expenses
    
    
    12,883
    
    
    
    
    
    
    
    
    
    
    
    12,883General and administrative expenses
    
    
    97,564
    
    
    
    9,463
    
    
    
    (1,320
    )
    
    
    105,707Art and development costs
    
    
    12,149
    
    
    
    
    
    
    
    
    
    
    
    12,149Total expenses
    
    
    1,075,326
    
    
    
    91,390
    
    
    
    (25,069
    )
    
    
    1,141,647Income from operations
    
    
    97,353
    
    
    
    7,241
    
    
    
    1,163
    
    
    
    105,757Interest expense, net
    
    
    54,393
    
    
    
    197
    
    
    
    
    
    
    
    54,590Other expense, net
    
    
    12,136
    
    
    
    319
    
    
    
    5,759
    
    
    
    18,214Income before income taxes and
minority interests
    
    
    30,824
    
    
    
    6,725
    
    
    
    (4,596
    )
    
    
    32,953Income tax expense
    
    
    11,646
    
    
    
    1,658
    
    
    
    (58
    )
    
    
    13,246Minority interests
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    446Net income
    
    $
    19,178
    
    
    $
    4,621
    
    
    $
    (4,538
    )
    
    $
    19,261
 F38




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING STATEMENT OF OPERATIONS
For The Year Ended December 31, 2006
(Dollars in thousands)
 AAH andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    945,147
    
    
    $
    68,361
    
    
    $
    (20,166
    )
    
    $
    993,342Royalties and franchise fees
    
    
    21,746
    
    
    
    
    
    
    
    
    
    
    
    21,746Total revenues
    
    
    966,893
    
    
    
    68,361
    
    
    
    (20,166
    )
    
    
    1,015,088Total expenses:Cost of sales
    
    
    651,083
    
    
    
    45,651
    
    
    
    (20,207
    )
    
    
    676,527Selling expenses
    
    
    31,355
    
    
    
    8,094
    
    
    
    
    
    
    
    39,449Retail operating expenses
    
    
    126,224
    
    
    
    
    
    
    
    
    
    
    
    126,224Franchise expenses
    
    
    13,009
    
    
    
    
    
    
    
    
    
    
    
    13,009General and administrative expenses
    
    
    77,879
    
    
    
    8,277
    
    
    
    (1,320
    )
    
    
    84,836Art and development costs
    
    
    10,338
    
    
    
    
    
    
    
    
    
    
    
    10,338Total expenses
    
    
    909,888
    
    
    
    62,022
    
    
    
    (21,527
    )
    
    
    950,383Income from operations
    
    
    57,005
    
    
    
    6,339
    
    
    
    1,361
    
    
    
    64,705Interest expense, net
    
    
    54,748
    
    
    
    139
    
    
    
    
    
    
    
    54,887Other (income) expense, net
    
    
    (6,754
    )
    
    
    542
    
    
    
    5,212
    
    
    
    (1,000
    )Income before income taxes and
minority interests
    
    
    9,011
    
    
    
    5,658
    
    
    
    (3,851
    )
    
    
    10,818Income tax expense
    
    
    2,596
    
    
    
    1,683
    
    
    
    16
    
    
    
    4,295Minority interests
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Net income
    
    $
    6,415
    
    
    $
    3,892
    
    
    $
    (3,867
    )
    
    $
    6,440
 F39




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING STATEMENT OF CASH FLOWS
For Year Ended December 31, 2008
(Dollars in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by operating activities:Net income
    
    $
    44,439
    
    
    $
    2,109
    
    
    $
    (6,038
    )
    
    $
    40,510Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization expense
    
    
    42,406
    
    
    
    4,872
    
    
    
    
    
    
    
    47,278Amortization of deferred financing costs
    
    
    1,956
    
    
    
    265
    
    
    
    
    
    
    
    2,221Provision for doubtful accounts
    
    
    945
    
    
    
    147
    
    
    
    
    
    
    
    1,092Deferred income tax benefit
    
    
    (7,885
    )
    
    
    
    
    
    
    
    
    
    
    (7,885
    )Deferred rent
    
    
    1,202
    
    
    
    
    
    
    
    
    
    
    
    1,202Undistributed gain in unconsolidated joint venture
    
    
    (538
    )
    
    
    
    
    
    
    
    
    
    
    (538
    )Impairment of trade name
    
    
    17,376
    
    
    
    
    
    
    
    
    
    
    
    17,376(Gain) loss on disposal of equipment
    
    
    (1,198
    )
    
    
    3
    
    
    
    
    
    
    
    (1,195
    )Equity based compensation
    
    
    4,311
    
    
    
    46
    
    
    
    
    
    
    
    4,357Tax benefit on exercised options
    
    
    (1,823
    )
    
    
    
    
    
    
    
    
    
    
    (1,823
    )Changes in operating assets and liabilities:Decrease in accounts receivable
    
    
    6,526
    
    
    
    1,711
    
    
    
    
    
    
    
    8,237Increase in inventories
    
    
    (51,358
    )
    
    
    (1,144
    )
    
    
    155
    
    
    
    (52,347
    )Decrease in prepaid expenses and other current assets
    
    
    29,595
    
    
    
    1,645
    
    
    
    
    
    
    
    31,240(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (22,075
    )
    
    
    6,396
    
    
    
    5,883
    
    
    
    (9,796
    )Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by operating activities
    
    
    63,879
    
    
    
    16,050
    
    
    
    
    
    
    
    79,929Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (1,143
    )
    
    
    (473
    )
    
    
    
    
    
    
    (1,616
    )Capital expenditures
    
    
    (44,457
    )
    
    
    (8,544
    )
    
    
    
    
    
    
    (53,001
    )Proceeds from disposal of property and equipment
    
    
    3,390
    
    
    
    28
    
    
    
    
    
    
    
    3,418Net cash used in investing activities
    
    
    (42,210
    )
    
    
    (8,989
    )
    
    
    
    
    
    
    (51,199
    )Cash flows used in financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (24,250
    )
    
    
    (2,592
    )
    
    
    
    
    
    
    (26,842
    )Tax benefit on exercised options
    
    
    1,823
    
    
    
    
    
    
    
    
    
    
    
    1,823Sale of additional interest to minority shareholder
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Purchase and retirement of redeemable common stock
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    (514
    )Net cash used in financing activities
    
    
    (20,441
    )
    
    
    (2,592
    )
    
    
    
    
    
    
    (23,033
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,075
    )
    
    
    (8,838
    )
    
    
    
    
    
    
    (9,913
    )Net increase (decrease) in cash and cash equivalents
    
    
    153
    
    
    
    (4,368
    )
    
    
    
    
    
    
    (4,215
    )Cash and cash equivalents at beginning of period
    
    
    8,391
    
    
    
    8,883
    
    
    
    
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    8,544
    
    
    $
    4,515
    
    
    $
    
    
    
    $
    13,059
 F40




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For Year Ended December 31, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net income
    
    $
    19,178
    
    
    $
    4,621
    
    
    $
    (4,538
    )
    
    $
    19,261Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    37,076
    
    
    
    1,017
    
    
    
    
    
    
    
    38,093Amortization of deferred financing costs
    
    
    2,142
    
    
    
    
    
    
    
    
    
    
    
    2,142Provision for doubtful accounts
    
    
    1,045
    
    
    
    245
    
    
    
    
    
    
    
    1,290Deferred income tax  benefit
    
    
    (5,973
    )
    
    
    
    
    
    
    
    
    
    
    (5,973
    )Deferred rent
    
    
    744
    
    
    
    421
    
    
    
    
    
    
    
    1,165Undistributed  gain in unconsolidated joint venture
    
    
    (628
    )
    
    
    
    
    
    
    
    
    
    
    (628
    )Impairment of investment in subsidiary
    
    
    2,005
    
    
    
    
    
    
    
    
    
    
    
    2,005Loss on disposal of equipment
    
    
    1,442
    
    
    
    10
    
    
    
    
    
    
    
    1,452Equity based compensation
    
    
    1,882
    
    
    
    46
    
    
    
    
    
    
    
    1,928Debt retirement costs
    
    
    3,781
    
    
    
    
    
    
    
    
    
    
    
    3,781Write-off of deferred financing costs
    
    
    6,333
    
    
    
    
    
    
    
    
    
    
    
    6,333Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    9,036
    
    
    
    (7,055
    )
    
    
    
    
    
    
    1,981Increase  in inventories
    
    
    (19,572
    )
    
    
    (3,499
    )
    
    
    157
    
    
    
    (22,914
    )Increase  in prepaid expenses and other current assets
    
    
    (13,627
    )
    
    
    (592
    )
    
    
    
    
    
    
    (14,219
    )Decrease in accounts payable, accrued expenses and
income taxes payable
    
    
    (19,481
    )
    
    
    (10,953
    )
    
    
    4,381
    
    
    
    (26,053
    )Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in operating activities
    
    
    25,383
    
    
    
    (15,739
    )
    
    
    
    
    
    
    9,644Cash flows (used in) provided by  investing activities:Cash paid in connection with store acquisitions
    
    
    (132,262
    )
    
    
    26,139
    
    
    
    
    
    
    
    (106,123
    )Capital expenditures
    
    
    (25,988
    )
    
    
    (1,457
    )
    
    
    
    
    
    
    (27,445
    )Proceeds from disposal of property and equipment
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    162Net cash (used in) provided by  investing activities
    
    
    (158,088
    )
    
    
    24,682
    
    
    
    
    
    
    
    (133,406
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (385,438
    )
    
    
    (2,111
    )
    
    
    
    
    
    
    (387,549
    )Proceeds from loans, notes payable and long-term obligations
    
    
    523,609
    
    
    
    
    
    
    
    
    
    
    
    523,609Debt retirement costs
    
    
    (6,218
    )
    
    
    
    
    
    
    
    
    
    
    (6,218
    )Capital contributions and proceeds from issuance of common
stock and exercise of options, net of retirements
    
    
    4,734
    
    
    
    
    
    
    
    
    
    
    
    4,734Net cash provided by (used in) financing activities
    
    
    136,687
    
    
    
    (2,111
    )
    
    
    
    
    
    
    134,576Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    1,480
    
    
    
    
    
    
    
    1,494Net decrease in cash and cash equivalents
    
    
    3,995
    
    
    
    8,312
    
    
    
    
    
    
    
    12,308Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    8,391
    
    
    $
    8,883
    
    
    $
    
    
    
    $
    17,274
 F41




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2006
(Dollars in thousands)
 AAH andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income
    
    $
    6,415
    
    
    $
    3,892
    
    
    $
    (3,867
    )
    
    $
    6,440Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization expense
    
    
    37,808
    
    
    
    811
    
    
    
    
    
    
    
    38,619Amortization of deferred financing costs
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    2,661Deferred rent
    
    
    3,019
    
    
    
    
    
    
    
    
    
    
    
    3,019Provision for doubtful accounts
    
    
    1,324
    
    
    
    344
    
    
    
    
    
    
    
    1,668Deferred income tax benefit
    
    
    (6,326
    )
    
    
    
    
    
    
    
    
    
    
    (6,326
    )(Gain) loss on disposal of property, plant and
equipment
    
    
    (886
    )
    
    
    7
    
    
    
    
    
    
    
    (879
    )Undistributed loss in unconsolidated joint venture
    
    
    (429
    )
    
    
    
    
    
    
    
    
    
    
    (429
    )Equity based compensation
    
    
    1,208
    
    
    
    
    
    
    
    
    
    
    
    1,208Changes in operating assets and liabilities, net
of acquisitions:Increase in accounts receivable
    
    
    (21,919
    )
    
    
    (1,826
    )
    
    
    
    
    
    
    (23,745
    )(Increase) decrease in inventories
    
    
    (7,729
    )
    
    
    642
    
    
    
    (41
    )
    
    
    (7,128
    )Decrease (increase) in prepaid expenses, other
current assets and other, net
    
    
    12,702
    
    
    
    (30
    )
    
    
    
    
    
    
    12,672Increase (decrease) in accounts payable,
accrued expenses, income taxes payable and
other liabilities
    
    
    4,318
    
    
    
    (5,001
    )
    
    
    3,908
    
    
    
    3,225Net cash provided by (used in) operating
activities
    
    
    32,166
    
    
    
    (1,161
    )
    
    
    
    
    
    
    31,005Cash flows used in investing activities:Cash contributed to joint venture and cash paid for
acquisition
    
    
    (14,634
    )
    
    
    
    
    
    
    
    
    
    
    (14,634
    )Capital expenditures
    
    
    (39,568
    )
    
    
    (808
    )
    
    
    
    
    
    
    (40,376
    )Proceeds from disposal of property, plant and
equipment
    
    
    14,839
    
    
    
    52
    
    
    
    
    
    
    
    14,891Net cash used in investing activities
    
    
    (39,363
    )
    
    
    (756
    )
    
    
    
    
    
    
    (40,119
    )Cash flows provided by (used in) financing activitiesRepayment of loans, notes payable and long-term
obligations
    
    
    (3,135
    )
    
    
    (257
    )
    
    
    
    
    
    
    (3,392
    )Proceeds from loans, notes payable and long-term
obligations, net of debt issuance costs
    
    
    5,149
    
    
    
    
    
    
    
    
    
    
    
    5,149Capital contributions  and proceeds from issuance of common stock and exercise of options, net of retirements
    
    
    1,785
    
    
    
    
    
    
    
    
    
    
    
    1,785Net cash provided by (used in) financing
activities
    
    
    3,799
    
    
    
    (257
    )
    
    
    
    
    
    
    3,542Effect of exchange rate changes on cash and cash
equivalents
    
    
    98
    
    
    
    1,695
    
    
    
    
    
    
    
    1,793Net decrease in cash and cash equivalents
    
    
    (3,300
    )
    
    
    (479
    )
    
    
    
    
    
    
    (3,779
    )Cash and cash equivalents at beginning of period
    
    
    7,695
    
    
    
    1,050
    
    
    
    
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    4,395
    
    
    $
    571
    
    
    $
    
    
    
    $
    4,966
 F42




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##### Table of Contents



SCHEDULE II
 AMSCAN HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2008, 2007 and 2006
 Beginning
    
    
    
    
    
    
    
    
    
    Ending(Dollars in thousands)
    
    Balance
    
    Write-Offs
    
    Additions
    
    BalanceAllowance for Doubtful Accounts:For the year ended December 31, 2006
    
    $
    1,798
    
    
    $
    1,315
    
    
    $
    1,668
    
    
    $
    2,151For the year ended December 31, 2007
    
    
    2,151
    
    
    
    804
    
    
    
    1,290
    
    
    
    2,637For the year ended December 31, 2008
    
    
    2,637
    
    
    
    1,546
    
    
    
    1,092
    
    
    
    2,183Inventory Reserves::For the year ended December 31, 2006
    
    $
    2,186
    
    
    $
    3,051
    
    
    $
    6,168
    
    
    $
    5,303For the year ended December 31, 2007
    
    
    5,303
    
    
    
    1,459
    
    
    
    6,572
    
    
    
    10,416For the year ended December 31, 2008
    
    
    10,416
    
    
    
    5,128
    
    
    
    3,030
    
    
    
    8,318
 F43