##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3911462(I.R.S. Employer Identification No.)80 Grasslands Road Elmsford, NY(Address of Principal Executive Offices)
    
    10523(Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 þ o
  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




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 September 30, 2009
  
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4 Controls and Procedures
    
    
    31PART IIItem 6 Exhibits
    
    
    32Signature
    
    
    33EX-31.1EX-31.2EX-32
   http://www.sec.gov.
 2




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,366
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    99,266
    
    
    
    89,443Inventories, net of allowances
    
    
    410,962
    
    
    
    366,965Prepaid expenses and other current assets
    
    
    44,223
    
    
    
    47,812Total current assets
    
    
    580,817
    
    
    
    517,278Property, plant and equipment, net
    
    
    178,845
    
    
    
    187,026Goodwill
    
    
    548,370
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    157,283Other intangible assets, net
    
    
    56,036
    
    
    
    61,626Other assets, net
    
    
    41,223
    
    
    
    41,033Total assets
    
    $
    1,562,574
    
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    160,445
    
    
    $
    136,878Accounts payable
    
    
    145,274
    
    
    
    126,638Accrued expenses
    
    
    103,313
    
    
    
    87,985Income taxes payable
    
    
    4,701
    
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    15,646
    
    
    
    34,002Total current liabilities
    
    
    444,823
    
    
    
    429,552Long-term obligations, excluding current portion
    
    
    562,814
    
    
    
    550,755Deferred income tax liabilities
    
    
    93,402
    
    
    
    87,824Deferred rent and other long-term liabilities
    
    
    9,948
    
    
    
    9,558Total liabilities
    
    
    1,110,987
    
    
    
    1,077,689Redeemable common securities (including 592.84 and 585.15 common shares
issued and outstanding at September 30, 2009 and December 31, 2008
respectively)
    
    
    18,389
    
    
    
    18,171Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50
shares issued and outstanding at September 30, 2009 and December 31, 2008)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    335,604
    
    
    
    335,076Retained earnings
    
    
    103,439
    
    
    
    87,004Accumulated other comprehensive loss
    
    
    (7,937
    )
    
    
    (11,852
    )Amscan
Holdings, Inc. stockholders equity
    
    
    431,106
    
    
    
    410,228Noncontrolling interests
    
    
    2,092
    
    
    
    1,889Total equity
    
    
    433,198
    
    
    
    412,117Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,562,574
    
    
    $
    1,507,977
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (Amounts in thousands)
 Three Months Ended September 30,2009
    
    
    2008Revenues:Net sales
    
    $
    336,944
    
    
    $
    356,231Royalties and franchise fees
    
    
    4,164
    
    
    
    5,863Total revenues
    
    
    341,108
    
    
    
    362,094Expenses:Cost of sales
    
    
    215,491
    
    
    
    230,920Selling expenses
    
    
    9,984
    
    
    
    11,064Retail operating expenses
    
    
    65,049
    
    
    
    64,644Franchise expenses
    
    
    3,046
    
    
    
    3,077General and administrative expenses
    
    
    29,274
    
    
    
    30,333Art and development costs
    
    
    3,327
    
    
    
    3,483Total expenses
    
    
    326,171
    
    
    
    343,521Income from operations
    
    
    14,937
    
    
    
    18,573Interest expense, net
    
    
    10,345
    
    
    
    12,245Other expense (income), net
    
    
    421
    
    
    
    (389
    )Income before income taxes
    
    
    4,171
    
    
    
    6,717Income tax expense
    
    
    1,016
    
    
    
    2,518Net income
    
    
    3,155
    
    
    
    4,199Less: net income (loss) attributable to noncontrolling interest
    
    
    76
    
    
    
    (364
    )Net income
attributable to Amscan Holdings, Inc.
    
    $
    3,079
    
    
    $
    4,563
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (Amounts in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008Revenues:Net sales
    
    $
    983,525
    
    
    $
    1,046,437Royalties and franchise fees
    
    
    12,394
    
    
    
    17,555Total revenues
    
    
    995,919
    
    
    
    1,063,992Expenses:Cost of sales
    
    
    630,018
    
    
    
    671,365Selling expenses
    
    
    30,114
    
    
    
    32,532Retail operating expenses
    
    
    174,714
    
    
    
    185,135Franchise expenses
    
    
    8,811
    
    
    
    10,100General and administrative expenses
    
    
    87,698
    
    
    
    91,823Art and development costs
    
    
    9,606
    
    
    
    10,176Total expenses
    
    
    940,961
    
    
    
    1,001,131Income from operations
    
    
    54,958
    
    
    
    62,861Interest expense, net
    
    
    31,502
    
    
    
    38,581Other expense (income), net
    
    
    336
    
    
    
    (1,112
    )Income before income taxes
    
    
    23,120
    
    
    
    25,392Income tax expense
    
    
    6,492
    
    
    
    9,595Net income
    
    
    16,628
    
    
    
    15,797Less: net income (loss) attributable to noncontrolling interest
    
    
    193
    
    
    
    (898
    )Net income
attributable to Amscan Holdings, Inc.
    
    $
    16,435
    
    
    $
    16,695
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY  Nine Months Ended September 30, 2009  (Unaudited)  (Amounts in thousands, except share amounts)
 AmscanAdditional
    
    
    
    
    
    Accumulated Other
    
    Holdings, Inc.Common
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Shareholdings
    
    NoncontrollingShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Equity
    
    Interests
    
    TotalBalance at December
31, 2008
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,076
    
    
    $
    87,004
    
    
    $
    (11,852
    )
    
    $
    410,228
    
    
    $
    1,889
    
    
    $
    412,117Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,435
    
    
    
    
    
    
    
    16,435
    
    
    
    193
    
    
    
    16,628Net change in
cumulative
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,401
    
    
    
    4,401
    
    
    
    10
    
    
    
    4,411Change in fair
value of interest
rate swap
contracts, net of
income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,157
    
    
    
    1,157
    
    
    
    
    
    
    
    1,157Change in fair
value of foreign
exchange contracts,
net of income tax
benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,643
    )
    
    
    (1,643
    )
    
    
    
    
    
    
    (1,643
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,350
    
    
    
    203
    
    
    
    20,553Issuance of
redeemable common
shares
    
    
    
    
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    (129
    )Equity based
compensation
expense
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    657Balance at September
30, 2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,604
    
    
    $
    103,439
    
    
    $
    (7,937
    )
    
    $
    431,106
    
    
    $
    2,092
    
    
    $
    433,198
  6




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)  (Amounts in thousands)
 Nine Months Ended September 30,2009
    
    
    2008Cash flows provided by operating activities:Net income
    
    $
    16,435
    
    
    $
    16,695Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization expense
    
    
    32,525
    
    
    
    32,482Amortization of deferred financing costs
    
    
    1,616
    
    
    
    1,664Provision for doubtful accounts
    
    
    3,392
    
    
    
    1,272Deferred income tax provision (benefit)
    
    
    3,410
    
    
    
    (5,107
    )Deferred rent
    
    
    1,059
    
    
    
    1,089Undistributed income in unconsolidated joint venture
    
    
    (251
    )
    
    
    (561
    )Loss (gain) on disposal of equipment
    
    
    141
    
    
    
    (1,678
    )Equity based compensation
    
    
    657
    
    
    
    4,092Tax benefit on exercised options
    
    
    
    
    
    
    (1,823
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (10,494
    )
    
    
    (12,041
    )Increase in inventories
    
    
    (44,078
    )
    
    
    (122,579
    )Decrease in prepaid expenses and other current assets
    
    
    167
    
    
    
    19,871Increase in accounts payable, accrued expenses and income taxes payable
    
    
    15,585
    
    
    
    75,998Net cash provided by operating activities
    
    
    20,164
    
    
    
    9,374Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (3,378
    )
    
    
    (573
    )Capital expenditures
    
    
    (19,523
    )
    
    
    (39,343
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    2,917Net cash used in investing activities
    
    
    (22,847
    )
    
    
    (36,999
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (6,343
    )
    
    
    (6,774
    )Proceeds from loans, notes payable and long-term obligations
    
    
    19,927
    
    
    
    44,789Tax benefit on exercised options
    
    
    
    
    
    
    1,823Sale of additional interest to minority shareholder
    
    
    
    
    
    
    2,500Capital contributions and proceeds from issuance of common stock and exercise of options, net of retirements
    
    
    90
    
    
    
    Net cash provided by financing activities
    
    
    13,674
    
    
    
    42,338Effect of exchange rate changes on cash and cash equivalents
    
    
    2,317
    
    
    
    (2,263
    )Net increase in cash and cash equivalents
    
    
    13,308
    
    
    
    12,450Cash and cash equivalents at beginning of period
    
    
    13,058
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    26,366
    
    
    $
    29,724
  7




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AMSCAN
HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 1  Description of Business
  Note 2  Acquisitions
   Note 3  Basis of Presentation
   8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 4  Inventories
  September 30,
    
    
    December 31,2009
    
    
    2008Finished goods
    
    $
    401,340
    
    
    $
    353,713Raw Materials
    
    
    13,390
    
    
    
    13,756Work in Process
    
    
    5,928
    
    
    
    7,814420,658
    
    
    
    375,283Less: reserve for slow moving and obsolete inventory
    
    
    (9,696
    )
    
    
    (8,318
    )$
    410,962
    
    
    $
    366,965
  Note 5  Income Taxes
  Note 6  Restructuring
    9




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 7  Comprehensive Income
  Three months ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    3,079
    
    
    $
    4,563
    
    
    $
    16,435
    
    
    $
    16,695Net change in cumulative translation adjustment
    
    
    (164
    )
    
    
    (2,831
    )
    
    
    4,401
    
    
    
    (2,731
    )Change in fair value of interest rate swap
contracts, net of income tax (benefit)
expense of $(41), $(201), $680, and $(241)
    
    
    (69
    )
    
    
    (343
    )
    
    
    1,157
    
    
    
    (411
    )Change in fair value of foreign exchange
contracts, net of income tax (benefit)
expense of $(258), $724, $(965), $735
    
    
    (440
    )
    
    
    1,232
    
    
    
    (1,643
    )
    
    
    1,251Comprehensive income
    
    $
    2,406
    
    
    $
    2,621
    
    
    $
    20,350
    
    
    $
    14,804
 Note 8  Capital Stock
    10




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 9  Segment Information
 Industry Segments
   Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended September 30, 2009Revenues:Net sales
    
    $
    172,948
    
    
    $
    222,367
    
    
    $
    395,315Royalties and franchise fees
    
    
    
    
    
    
    4,164
    
    
    
    4,164Total revenues
    
    
    172,948
    
    
    
    226,531
    
    
    
    399,479Eliminations
    
    
    (58,371
    )
    
    
    
    
    
    
    (58,371
    )Net Revenues
    
    $
    114,577
    
    
    $
    226,531
    
    
    $
    341,108Income (loss) from operations
    
    $
    19,536
    
    
    $
    (4,599
    )
    
    $
    14,937Interest expense, net
    
    
    
    
    
    
    
    
    
    
    10,345Other expense, net
    
    
    
    
    
    
    
    
    
    
    421Income
before income taxes and minority interests
    
    
    
    
    
    
    
    $
    4,171Total assets
    
    $
    782,868
    
    
    $
    779,706
    
    
    $
    1,562,574
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended September 30, 2008Revenues:Net sales
    
    $
    186,750
    
    
    $
    230,082
    
    
    $
    416,832Royalties and franchise fees
    
    
    
    
    
    
    5,863
    
    
    
    5,863Total revenues
    
    
    186,750
    
    
    
    235,945
    
    
    
    422,695Eliminations
    
    
    (60,601
    )
    
    
    
    
    
    
    (60,601
    )Net Revenues
    
    $
    126,149
    
    
    $
    235,945
    
    
    $
    362,094Income from operations
    
    $
    18,024
    
    
    $
    549
    
    
    $
    18,573Interest expense, net
    
    
    
    
    
    
    
    
    
    
    12,245Other income, net
    
    
    
    
    
    
    
    
    
    
    (389
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    6,717Total assets
    
    $
    788,830
    
    
    $
    846,396
    
    
    $
    1,635,226
 11




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedNine Months Ended September 30, 2009Revenues:Net sales
    
    $
    478,147
    
    
    $
    668,521
    
    
    $
    1,146,668Royalties and franchise fees
    
    
    
    
    
    
    12,394
    
    
    
    12,394Total revenues
    
    
    478,147
    
    
    
    680,915
    
    
    
    1,159,062Eliminations
    
    
    (163,143
    )
    
    
    
    
    
    
    (163,143
    )Net Revenues
    
    $
    315,004
    
    
    $
    680,915
    
    
    $
    995,919Income from operations
    
    $
    45,826
    
    
    $
    9,132
    
    
    $
    54,958Interest expense, net
    
    
    
    
    
    
    
    
    
    
    31,502Other expense, net
    
    
    
    
    
    
    
    
    
    
    336Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    23,120Total assets
    
    $
    782,868
    
    
    $
    779,706
    
    
    $
    1,562,574
 Wholesale
    
    
    Retail
    
    
    ConsolidatedNine Months Ended September 30, 2008Revenues:Net sales
    
    $
    505,476
    
    
    $
    702,645
    
    
    $
    1,208,121Royalties and franchise fees
    
    
    
    
    
    
    17,555
    
    
    
    17,555Total revenues
    
    
    505,476
    
    
    
    720,200
    
    
    
    1,225,676Eliminations
    
    
    (161,684
    )
    
    
    
    
    
    
    (161,684
    )Net Revenues
    
    $
    343,792
    
    
    $
    720,200
    
    
    $
    1,063,992Income from operations
    
    $
    44,172
    
    
    $
    18,689
    
    
    $
    62,861Interest expense, net
    
    
    
    
    
    
    
    
    
    
    38,581Other (income), net
    
    
    
    
    
    
    
    
    
    
    (1,112
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    25,392Total assets
    
    $
    788,830
    
    
    $
    846,396
    
    
    $
    1,635,226
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
   12




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 12  Long Term Obligations
     Note 13  Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   13




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Foreign Exchange Risk Management
    Derivative Assets
    
    
    Derivative LiabilitiesBalance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceNotional Amounts
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairSeptember 30,
    
    
    December 31,
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    ValueDerivative Instrument
    
    2009
    
    
    2008
    
    
    September 30, 2009
    
    
    December 31, 2008
    
    
    September 30, 2009
    
    
    December 31, 2008Interest Rate Hedge
    
    $
    163,441
    
    
    $
    175,505
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b) AE
    
    $
    (6,567
    )
    
    (b) AE
    
    $
    (8,403
    )Foreign Exchange Contracts
    
    $
    2,215
    
    
    $
    18,560
    
    
    (a) PP
    
    $
    196
    
    
    (a) PP
    
    $
    3,365
    
    
    (a) PP
    
    $
    (109
    )
    
    (a) PP
    
    $
    (670
    )Total Hedges
    
    $
    165,656
    
    
    $
    194,065
    
    
    
    
    
    
    $
    196
    
    
    
    
    
    
    $
    3,365
    
    
    
    
    
    
    $
    (6,676
    )
    
    
    
    
    
    $
    (9,073
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses 14




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Fair Value Measurement
      SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Inputs
    
    Inputs
    
    September 30,Liabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2009Derivative assets
    
    
    
    
    
    $
    196
    
    
    
    
    
    
    $
    196Derivative liabilities
    
    
    
    
    
    
    (6,676
    )
    
    
    
    
    
    
    (6,676
    )
  SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Inputs
    
    Inputs
    
    December 31,Liabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2008Derivative assets
    
    
    
    
    
    $
    3,365
    
    
    
    
    
    
    $
    3,365Derivative liabilities
    
    
    
    
    
    
    (9,073
    )
    
    
    
    
    
    
    (9,073
    )
    September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueTerm Loan
    
    $
    365,625
    
    
    $
    329,063
    
    
    $
    368,437
    
    
    $
    247,000$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    164,500
    
    
    
    175,000
    
    
    
    107,000
  15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 14  Recently Issued Accounting Standards
     
    
    ASC 820 (FSP FAS 157-4), Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP
FAS 157-4). FSP FAS 157-4 relates to determining fair values when
there is no active market or where the price inputs being used
represent distressed sales. It reaffirms the need to use judgment
to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive.
    
    ASC 320 (FSP FAS 115-2 and FAS 124-2)
Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP is
intended to bring consistency to the timing of
impairment recognition, and provide improved
disclosures about the credit and noncredit
components of impaired debt securities that are
not expected to be sold. The measure of
impairment in comprehensive income remains fair
value. The FSP also requires increased and more
timely disclosures regarding expected cash
flows, credit losses, and an aging of securities
with unrealized losses.
    
    ASC 825 and ASC 270 (FSP FAS 107-1 and APB
28-1), Interim Disclosures about Fair Value of
Financial Instruments. This FSP relates to fair
value disclosures for financial instruments that
are not currently reflected on the balance sheet
at fair value. Prior to issuing this FSP, fair
values for these assets and liabilities were
only disclosed once a year. The FSP now requires
these disclosures on a quarterly basis,
providing qualitative and quantitative
information about fair value estimates for all
those financial instruments not measured on the
balance sheet at fair value.
  16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
  Note 15  Subsequent Events
  Note 16  Condensed Consolidating Financial Information
  
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Factory Card & Party Outlet Corporation
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.
  
    
    Amscan (Asia-Pacific) Pty. Ltd.
    
    Amscan de Mexico, S.A. de C.V.
    
    Amscan Distributors (Canada) Ltd.
    
    Anagram Espana, S.A.
    
    Anagram France S.C.S.
    
    Amscan Holdings Limited
    
    Anagram International (Japan) Co., Ltd.
    
    Amscan Partyartikel GmbH
    
    JCS Hong Kong Ltd.
    
    Party City Franchise Group Holdings, LLC
  17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2009
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,341
    
    
    $
    10,025
    
    
    $
    
    
    
    $
    26,366Accounts receivable, net of allowances
    
    
    77,951
    
    
    
    21,315
    
    
    
    
    
    
    
    99,266Inventories, net of allowances
    
    
    366,107
    
    
    
    45,804
    
    
    
    (949
    )
    
    
    410,962Prepaid expenses and other current assets
    
    
    34,336
    
    
    
    9,887
    
    
    
    
    
    
    
    44,223Total current assets
    
    
    494,735
    
    
    
    87,031
    
    
    
    (949
    )
    
    
    580,817Property, plant and equipment, net
    
    
    167,892
    
    
    
    10,953
    
    
    
    
    
    
    
    178,845Goodwill
    
    
    510,400
    
    
    
    37,970
    
    
    
    
    
    
    
    548,370Trade names
    
    
    157,283
    
    
    
    
    
    
    
    

    
    
    
    157,283Other intangible assets, net
    
    
    31,270
    
    
    
    24,766
    
    
    
    
    

    
    
    56,036Other assets, net
    
    
    168,475
    
    
    
    (2,244
    )
    
    
    (125,008
    )
    
    
    41,223Total assets
    
    $
    1,530,055
    
    
    $
    158,476
    
    
    $
    (125,957
    )
    
    $
    1,562,574LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    160,445
    
    
    
    
    
    
    
    
    
    
    
    160,445Accounts payable
    
    
    134,422
    
    
    
    10,852
    
    
    
    
    
    
    
    145,274Accrued expenses
    
    
    91,166
    
    
    
    12,147
    
    
    
    
    
    
    
    103,313Income taxes payable
    
    
    7,503
    
    
    
    (2,709
    )
    
    
    (93
    )
    
    
    4,701Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    11,645
    
    
    
    4,001
    
    
    
    
    
    
    
    15,646Total current liabilities
    
    
    420,625
    
    
    
    24,291
    
    
    
    (93
    )
    
    
    444,823Long-term obligations, excluding current portion
    
    
    540,814
    
    
    
    22,000
    
    
    
    
    
    
    
    562,814Deferred income tax liabilities
    
    
    92,832
    
    
    
    570
    
    
    
    
    
    
    
    93,402Other
    
    
    16,168
    
    
    
    72,686
    
    
    
    (78,906
    )
    
    
    9,948Total liabilities
    
    
    1,070,439
    
    
    
    119,547
    
    
    
    (78,999
    )
    
    
    1,110,987Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    335,512
    
    
    
    46,167
    
    
    
    (46,075
    )
    
    
    335,604Retained earnings
    
    
    113,652
    
    
    
    (9,659
    )
    
    
    (554
    )
    
    
    103,439Accumulated other comprehensive loss
    
    
    (7,937
    )
    
    
    (10
    )
    
    
    10
    
    
    
    (7,937
    )Amscan Holdings, Inc. stockholders equity
    
    
    441,227
    
    
    
    36,837
    
    
    
    (46,958
    )
    
    
    431,106Noncontrolling interests
    
    
    
    
    
    
    2,092
    
    
    
    
    
    
    
    2,092Total stockholders equity
    
    
    441,227
    
    
    
    38,929
    
    
    
    (46,958
    )
    
    
    433,198Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,530,055
    
    
    $
    158,476
    
    
    $
    (125,957
    )
    
    $
    1,562,574
 18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONSOLIDATING BALANCE SHEET
December 31, 2008
 AHI and
    
    CombinedCombined
    
    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
    
    
    
    36,107
    
    
    
    (48,537
    )
    
    
    9,558Total liabilities
    
    
    1,011,821
    
    
    
    114,462
    
    
    
    (48,594
    )
    
    
    1,077,689Redeemable 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
    )Amscan Holdings, Inc. stockholders equity
    
    
    414,399
    
    
    
    42,423
    
    
    
    (46,594
    )
    
    
    410,228Noncontrolling interest
    
    
    
    
    
    
    1,889
    
    
    
    
    
    
    
    1,889Total stockholders equity
    
    
    414,399
    
    
    
    44,312
    
    
    
    (46,594
    )
    
    
    412,117Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977
 19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    301,026
    
    
    $
    42,625
    
    
    $
    (6,707
    )
    
    $
    336,944Royalties and franchise fees
    
    
    4,164
    
    
    
    
    
    
    
    
    
    
    
    4,164Total revenues
    
    
    305,190
    
    
    
    42,625
    
    
    
    (6,707
    )
    
    
    341,108Expenses:Cost of sales
    
    
    194,334
    
    
    
    27,740
    
    
    
    (6,583
    )
    
    
    215,491Selling expenses
    
    
    8,007
    
    
    
    1,977
    
    
    
    
    
    
    
    9,984Retail operating expenses
    
    
    56,369
    
    
    
    8,680
    
    
    
    
    
    
    
    65,049Franchise expenses
    
    
    3,046
    
    
    
    
    
    
    
    
    
    
    
    3,046General and administrative expenses
    
    
    25,683
    
    
    
    3,921
    
    
    
    (330
    )
    
    
    29,274Art and development costs
    
    
    3,327
    
    
    
    
    
    
    
    
    
    
    
    3,327Total expenses
    
    
    290,766
    
    
    
    42,318
    
    
    
    (6,913
    )
    
    
    326,171Income from operations
    
    
    14,424
    
    
    
    307
    
    
    
    206
    
    
    
    14,937Interest expense, net
    
    
    9,394
    
    
    
    951
    
    
    
    
    
    
    
    10,345Other (income) expense, net
    
    
    (2,437
    )
    
    
    702
    
    
    
    2,156
    
    
    
    421Income (loss) before income taxes
    
    
    7,467
    
    
    
    (1,346
    )
    
    
    (1,950
    )
    
    
    4,171Income tax expense (benefit)
    
    
    1,723
    
    
    
    (661
    )
    
    
    (46
    )
    
    
    1,016Net income (loss)
    
    
    5,744
    
    
    
    (685
    )
    
    
    (1,904
    )
    
    
    3,155Less net income attributable to
noncontrolling interests
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    76Net income (loss) attributable
to Amscan Holdings, Inc.
    
    $
    5,744
    
    
    $
    (761
    )
    
    $
    (1,904
    )
    
    $
    3,079
 20




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    878,876
    
    
    $
    123,416
    
    
    $
    (18,767
    )
    
    $
    983,525Royalties and franchise fees
    
    
    12,394
    
    
    
    
    
    
    
    
    
    
    
    12,394Total revenues
    
    
    891,270
    
    
    
    123,416
    
    
    
    (18,767
    )
    
    
    995,919Expenses:Cost of sales
    
    
    566,527
    
    
    
    82,007
    
    
    
    (18,516
    )
    
    
    630,018Selling expenses
    
    
    24,170
    
    
    
    5,944
    
    
    
    
    
    
    
    30,114Retail operating expenses
    
    
    150,133
    
    
    
    24,581
    
    
    
    
    
    
    
    174,714Franchise expenses
    
    
    8,811
    
    
    
    
    
    
    
    
    
    
    
    8,811General and administrative expenses
    
    
    76,443
    
    
    
    12,245
    
    
    
    (990
    )
    
    
    87,698Art and development costs
    
    
    9,606
    
    
    
    
    
    
    
    
    
    
    
    9,606Total expenses
    
    
    835,690
    
    
    
    124,777
    
    
    
    (19,506
    )
    
    
    940,961Income (loss) from operations
    
    
    55,580
    
    
    
    (1,361
    )
    
    
    739
    
    
    
    54,958Interest expense, net
    
    
    29,442
    
    
    
    2,060
    
    
    
    
    
    
    
    31,502Other (income) expense, net
    
    
    (4,607
    )
    
    
    691
    
    
    
    4,252
    
    
    
    336Income (loss) before income taxes
    
    
    30,745
    
    
    
    (4,112
    )
    
    
    (3,513
    )
    
    
    23,120Income tax expense (benefit)
    
    
    8,419
    
    
    
    (1,835
    )
    
    
    (92
    )
    
    
    6,492Net income (loss)
    
    
    22,326
    
    
    
    (2,277
    )
    
    
    (3,421
    )
    
    
    16,628Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    193Net income (loss) attributable to Amscan
Holdings, Inc.
    
    $
    22,326
    
    
    $
    (2,470
    )
    
    $
    (3,421
    )
    
    $
    16,435
 21




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2008
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    320,473
    
    
    $
    47,237
    
    
    $
    (11,479
    )
    
    $
    356,231Royalties and franchise fees
    
    
    5,863
    
    
    
    
    
    
    
    
    
    
    
    5,863Total revenues
    
    
    326,336
    
    
    
    47,237
    
    
    
    (11,479
    )
    
    
    362,094Expenses:Cost of sales
    
    
    213,855
    
    
    
    28,631
    
    
    
    (11,566
    )
    
    
    230,920Selling expenses
    
    
    8,526
    
    
    
    2,538
    
    
    
    
    
    
    
    11,064Retail operating expenses
    
    
    54,417
    
    
    
    10,227
    
    
    
    
    
    
    
    64,644Franchise expenses
    
    
    3,077
    
    
    
    
    
    
    
    
    
    
    
    3,077General and administrative expenses
    
    
    26,280
    
    
    
    4,383
    
    
    
    (330
    )
    
    
    30,333Art and development costs
    
    
    3,483
    
    
    
    
    
    
    
    
    
    
    
    3,483Total expenses
    
    
    309,638
    
    
    
    45,779
    
    
    
    (11,896
    )
    
    
    343,521Income from operations
    
    
    16,698
    
    
    
    1,458
    
    
    
    417
    
    
    
    18,573Interest expense, net
    
    
    11,427
    
    
    
    818
    
    
    
    
    
    
    
    12,245Other (income) expense, net
    
    
    (2,999
    )
    
    
    18
    
    
    
    2,592
    
    
    
    (389
    )Income before income taxes
    
    
    8,270
    
    
    
    622
    
    
    
    (2,175
    )
    
    
    6,717Income tax expense
    
    
    1,849
    
    
    
    636
    
    
    
    33
    
    
    
    2,518Net income (loss)
    
    
    6,421
    
    
    
    (14
    )
    
    
    (2,208
    )
    
    
    4,199Less net income attributable to noncontrolling
interests
    
    
    
    
    
    
    (364
    )
    
    
    
    
    
    
    (364
    )Net income attributable to Amscan Holdings, Inc.
    
    $
    6,421
    
    
    $
    350
    
    
    $
    (2,208
    )
    
    $
    4,563
 22




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2008
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    930,125
    
    
    $
    139,993
    
    
    $
    (23,681
    )
    
    $
    1,046,437Royalties and franchise fees
    
    
    17,555
    
    
    
    
    
    
    
    
    
    
    
    17,555Total revenues
    
    
    947,680
    
    
    
    139,993
    
    
    
    (23,681
    )
    
    
    1,063,992Expenses:Cost of sales
    
    
    608,752
    
    
    
    85,990
    
    
    
    (23,377
    )
    
    
    671,365Selling expenses
    
    
    24,800
    
    
    
    7,732
    
    
    
    
    
    
    
    32,532Retail operating expenses
    
    
    154,758
    
    
    
    30,377
    
    
    
    
    
    
    
    185,135Franchise expenses
    
    
    10,100
    
    
    
    
    
    
    
    
    
    
    
    10,100General and administrative expenses
    
    
    79,990
    
    
    
    12,823
    
    
    
    (990
    )
    
    
    91,823Art and development costs
    
    
    10,176
    
    
    
    
    
    
    
    
    
    
    
    10,176Total expenses
    
    
    888,576
    
    
    
    136,922
    
    
    
    (24,367
    )
    
    
    1,001,131Income from operations
    
    
    59,104
    
    
    
    3,071
    
    
    
    686
    
    
    
    62,861Interest expense, net
    
    
    36,336
    
    
    
    2,245
    
    
    
    
    
    
    
    38,581Other (income), net
    
    
    (6,723
    )
    
    
    (50
    )
    
    
    5,661
    
    
    
    (1,112
    )Income before income taxes
    
    
    29,491
    
    
    
    876
    
    
    
    (4,975
    )
    
    
    25,392Income tax expense
    
    
    8,212
    
    
    
    1,495
    
    
    
    (112
    )
    
    
    9,595Net income (loss)
    
    
    21,279
    
    
    
    (619
    )
    
    
    (4,863
    )
    
    
    15,797Less net loss attributable to noncontrolling interests
    
    
    
    
    
    
    (898
    )
    
    
    
    
    
    
    (898
    )Net income attributable to Amscan Holdings, Inc.
    
    $
    21,279
    
    
    $
    279
    
    
    $
    (4,863
    )
    
    $
    16,695
 23




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2009
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows provided by operating activities:Net income (loss)
    
    $
    22,326
    
    
    $
    (2,470
    )
    
    $
    (3,421
    )
    
    $
    16,435Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization expense
    
    
    28,991
    
    
    
    3,534
    
    
    
    
    
    
    
    32,525Amortization of deferred financing costs
    
    
    1,416
    
    
    
    200
    
    
    
    
    
    
    
    1,616Provision for doubtful accounts
    
    
    2,027
    
    
    
    1,365
    
    
    
    
    
    
    
    3,392Deferred income tax expense
    
    
    3,410
    
    
    
    
    
    
    
    
    
    
    
    3,410Deferred rent
    
    
    380
    
    
    
    679
    
    
    
    
    
    
    
    1,059Undistributed gain in unconsolidated joint venture
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    (251
    )Loss on disposal of equipment
    
    
    61
    
    
    
    80
    
    
    
    
    
    
    
    141Equity based compensation
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    657Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (5,748
    )
    
    
    (4,746
    )
    
    
    
    
    
    
    (10,494
    )Increase in inventories
    
    
    (35,131
    )
    
    
    (9,198
    )
    
    
    251
    
    
    
    (44,078
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    5,659
    
    
    
    (5,492
    )
    
    
    
    
    
    
    167(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (12,949
    )
    
    
    25,364
    
    
    
    3,170
    
    
    
    15,585Net cash provided by operating activities
    
    
    10,848
    
    
    
    9,316
    
    
    
    
    
    
    
    20,164Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (726
    )
    
    
    (2,652
    )
    
    
    
    
    
    
    (3,378
    )Capital expenditures
    
    
    (17,967
    )
    
    
    (1,556
    )
    
    
    
    
    
    
    (19,523
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54Net cash used in investing activities
    
    
    (18,639
    )
    
    
    (4,208
    )
    
    
    
    
    
    
    (22,847
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (4,843
    )
    
    
    (1,500
    )
    
    
    
    
    
    
    (6,343
    )Proceeds from loans, notes payable and long-term obligations
    
    
    19,927
    
    
    
    
    
    
    
    
    
    
    
    19,927Capital contributions and proceeds from issuance of common stock
and exercise of options, net of retirements
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    90Net cash provided by (used in) financing activities
    
    
    15,174
    
    
    
    (1,500
    )
    
    
    
    
    
    
    13,674Effect of exchange rate changes on cash and cash equivalents
    
    
    414
    
    
    
    1,903
    
    
    
    
    
    
    
    2,317Net increase in cash and cash equivalents
    
    
    7,797
    
    
    
    5,511
    
    
    
    
    
    
    
    13,308Cash and cash equivalents at beginning of period
    
    
    8,544
    
    
    
    4,514
    
    
    
    
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    16,341
    
    
    $
    10,025
    
    
    $
    
    
    
    $
    26,366
 24




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months Ended September 30, 2008
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income
    
    $
    21,279
    
    
    $
    279
    
    
    $
    (4,863
    )
    
    $
    16,695Adjustments to reconcile net income to net cash provided by (used in) operating
activities:Depreciation and amortization expense
    
    
    29,048
    
    
    
    3,434
    
    
    
    
    
    
    
    32,482Amortization of deferred financing costs
    
    
    1,465
    
    
    
    199
    
    
    
    
    
    
    
    1,664Provision for doubtful accounts
    
    
    1,075
    
    
    
    197
    
    
    
    
    
    
    
    1,272Deferred income tax benefit
    
    
    (5,107
    )
    
    
    
    
    
    
    
    
    
    
    (5,107
    )Deferred rent
    
    
    1,089
    
    
    
    
    
    
    
    
    
    
    
    1,089Undistributed gain in unconsolidated joint venture
    
    
    (561
    )
    
    
    
    
    
    
    
    
    
    
    (561
    )Gain on disposal of equipment
    
    
    (1,678
    )
    
    
    
    
    
    
    
    
    
    
    (1,678
    )Equity based compensation
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    4,092Tax benefit on exercised options
    
    
    (1,823
    )
    
    
    
    
    
    
    
    
    
    
    (1,823
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (10,045
    )
    
    
    (1,996
    )
    
    
    
    
    
    
    (12,041
    )Increase in inventories
    
    
    (107,716
    )
    
    
    (15,167
    )
    
    
    304
    
    
    
    (122,579
    )Decrease in prepaid expenses and other current assets
    
    
    16,918
    
    
    
    2,953
    
    
    
    
    
    
    
    19,871Increase in accounts payable, accrued expenses and income taxes
payable
    
    
    68,176
    
    
    
    3,263
    
    
    
    4,559
    
    
    
    75,998Net cash provided by (used in) operating activities
    
    
    16,212
    
    
    
    (6,838
    )
    
    
    
    
    
    
    9,374Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (100
    )
    
    
    (473
    )
    
    
    
    
    
    
    (573
    )Capital expenditures
    
    
    (33,104
    )
    
    
    (6,239
    )
    
    
    
    
    
    
    (39,343
    )Proceeds from disposal of property and equipment
    
    
    2,867
    
    
    
    50
    
    
    
    
    
    
    
    2,917Net cash used in investing activities
    
    
    (30,337
    )
    
    
    (6,662
    )
    
    
    
    
    
    
    (36,999
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (5,200
    )
    
    
    (1,574
    )
    
    
    
    
    
    
    (6,774
    )Proceeds from loans, notes payable and long-term obligations
    
    
    32,118
    
    
    
    12,671
    
    
    
    
    
    
    
    44,789Tax benefit on exercised options
    
    
    1,823
    
    
    
    
    
    
    
    
    
    

    
    1,823Sale of additional interest to minority shareholder
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Net cash provided by financing activities
    
    
    31,241
    
    
    
    11,097
    
    
    
    
    
    
    
    42,338Effect of exchange rate changes on cash and cash equivalents
    
    
    (77
    )
    
    
    (2,186
    )
    
    
    
    
    
    
    (2,263
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,039
    
    
    
    (4,589
    )
    
    
    
    
    
    
    12,450Cash and cash equivalents at beginning of period
    
    
    8,391
    
    
    
    8,883
    
    
    
    
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    25,430
    
    
    $
    4,294
    
    
    $
    
    
    
    $
    29,724
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008
  Three Months EndedSeptember 30,2009
    
    
    2008Revenues:Net sales
    
    
    98.8
    %
    
    
    98.4
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.6Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.2
    
    
    
    63.8Selling expenses
    
    
    2.9
    
    
    
    3.1Retail operating expenses
    
    
    19.0
    
    
    
    17.9Franchise expenses
    
    
    0.9
    
    
    
    0.8General and administrative expenses
    
    
    8.6
    
    
    
    8.4Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    95.6
    
    
    
    95.0Income from operations
    
    
    4.4
    
    
    
    5.0Interest expense, net
    
    
    3.1
    
    
    
    3.4Other expense (income), net
    
    
    0.1
    
    
    
    (0.1
    )Income before income taxes
    
    
    1.2
    
    
    
    1.7Income tax expense
    
    
    0.3
    
    
    
    0.7Net income
    
    
    0.9
    
    
    
    1.0Less net income (loss) attributable to noncontrolling
interests
    
    
    
    
    
    
    (0.1
    )Net income attributable to Amscan Holdings, Inc.
    
    
    0.9
    %
    
    
    1.1
    %
  Three Months Ended September 30,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenues:SalesWholesale
    
    $
    172,948
    
    
    
    50.7
    %
    
    $
    186,750
    
    
    
    51.6
    %Eliminations
    
    
    (58,371
    )
    
    
    (17.1
    )
    
    
    (60,601
    )
    
    
    (16.7
    )Net wholesale
    
    
    114,577
    
    
    
    33.6
    
    
    
    126,149
    
    
    
    34.9Retail
    
    
    222,367
    
    
    
    65.2
    
    
    
    230,082
    
    
    
    63.5Total net sales
    
    
    336,944
    
    
    
    98.8
    
    
    
    356,231
    
    
    
    98.4Franchise related
    
    
    4,164
    
    
    
    1.2
    
    
    
    5,863
    
    
    
    1.6Total revenues
    
    $
    341,108
    
    
    
    100.0
    %
    
    $
    362,094
    
    
    
    100.0
    %
 Wholesale
  26




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##### Table of Contents



Retail
 i.e
 Gross Profit
  Three Months Ended September 30,2009
    
    
    2008Percentage of Total
    
    
    
    
    
    
    Percentage of TotalDollars in Thousands
    
    
    Revenue
    
    
    Dollars in Thousands
    
    
    RevenueWholesale
    
    $
    40,644
    
    
    
    35.5
    %
    
    $
    41,575
    
    
    
    33.0
    %Retail
    
    
    80,809
    
    
    
    36.3
    %
    
    
    83,736
    
    
    
    36.4
    %Total
    
    $
    121,453
    
    
    
    36.0
    %
    
    $
    125,311
    
    
    
    35.2
    %
   Operating expenses
     27




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##### Table of Contents



Interest expense, net
  Other expense (income), net
  Income tax expense
  NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008
  Nine Months EndedSeptember 30,2009
    
    
    2008Revenues:Net sales
    
    
    98.8
    %
    
    
    98.4
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.6Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.3
    
    
    
    63.1Selling expenses
    
    
    3.0
    
    
    
    3.1Retail operating expenses
    
    
    17.5
    
    
    
    17.4Franchise expenses
    
    
    0.9
    
    
    
    0.9General and administrative expenses
    
    
    8.8
    
    
    
    8.6Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    94.5
    
    
    
    94.1Income from operations
    
    
    5.5
    
    
    
    5.9Interest expense, net
    
    
    3.2
    
    
    
    3.6Other income net
    
    
    
    
    
    
    (0.1
    )Income before income taxes
    
    
    2.3
    
    
    
    2.4Income tax expense
    
    
    0.6
    
    
    
    0.9Net income
    
    
    1.7
    %
    
    
    1.5
    %Less net income (loss) attributable to
noncontrolling interests
    
    
    
    
    
    
    (0.1
    )Net income attributable to Amscan Holdings, Inc.
    
    
    1.7
    %
    
    
    1.6
    %
  Nine Months Ended September 30,2009
    
    
    2008Percentage of
    
    
    
    
    
    
    Percentage ofDollars in Thousands
    
    
    Total Revenue
    
    
    Dollars in Thousands
    
    
    Total RevenueRevenuesSalesWholesale
    
    $
    478,147
    
    
    
    48.0
    %
    
    $
    505,476
    
    
    
    47.5
    %Eliminations
    
    
    (163,143
    )
    
    
    (16.4
    )
    
    
    (161,684
    )
    
    
    (15.2
    )Net wholesale
    
    
    315,004
    
    
    
    31.6
    
    
    
    343,792
    
    
    
    32.3Retail
    
    
    668,521
    
    
    
    67.2
    
    
    
    702,645
    
    
    
    66.1Total net sales
    
    
    983,525
    
    
    
    98.8
    
    
    
    1,046,437
    
    
    
    98.4Franchise related
    
    
    12,394
    
    
    
    1.2
    
    
    
    17,555
    
    
    
    1.6Total revenues
    
    $
    995,919
    
    
    
    100.0
    %
    
    $
    1,063,992
    
    
    
    100.0
    %
 28




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##### Table of Contents



Wholesale
   Retail
 i.e
 Gross Profit
  Nine Months Ended September 30,2009
    
    
    2008Percentage of
    
    
    
    
    
    
    Percentage ofDollars in Thousands
    
    
    Total Revenue
    
    
    Dollars in Thousands
    
    
    Total RevenueWholesale
    
    $
    109,634
    
    
    
    34.8
    %
    
    $
    110,980
    
    
    
    32.3
    %Retail
    
    
    243,873
    
    
    
    36.5
    %
    
    
    264,092
    
    
    
    37.6
    %Total
    
    $
    353,507
    
    
    
    35.9
    %
    
    $
    375,072
    
    
    
    35.8
    %
   Operating expenses
   29




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##### Table of Contents



Interest expense, net
  Other expense (income), net
  Income tax expense
  Liquidity and Capital Resources
       Legal Proceedings
  Seasonality
 Wholesale Operations
  30




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##### Table of Contents



Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   31




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##### Table of Contents



PART II
 
 Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) under the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) under the Securities Exchange Act, as amended.32
    
    Certification of Chief Executive and Financial Officers pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 32




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AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: November 13, 2009
    
    Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 33