##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 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
    
    13-3911462(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer 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
 þ o
  o o þ
 o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 June 30, 2007
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2007 and
December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the Three
Months Ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 2007 and 2006
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the
Six Months Ended June 30, 2007
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2007 and 2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    28Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4 Controls and Procedures
    
    
    38PART IIItem 5 Other Information
    
    
    39Item 6 Exhibits
    
    
    39Signature
    
    
    40EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION
   http://www.sec.gov.
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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 December 31,June 30, 2007
    
    
    2006(Unaudited)
    
    
    (Note)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,356
    
    
    $
    4,966Accounts receivable, net of allowances
    
    
    95,180
    
    
    
    95,470Inventories, net of allowances
    
    
    231,273
    
    
    
    227,450Prepaid expenses and other current assets
    
    
    43,254
    
    
    
    35,700Total current assets
    
    
    376,063
    
    
    
    363,586Property, plant and equipment, net
    
    
    152,845
    
    
    
    155,443Goodwill
    
    
    477,926
    
    
    
    476,704Trade names
    
    
    143,000
    
    
    
    143,000Other intangible assets, net
    
    
    46,496
    
    
    
    47,407Other assets, net
    
    
    29,734
    
    
    
    31,231Total assets
    
    $
    1,226,064
    
    
    $
    1,217,371LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    77,900
    
    
    $
    4,930Accounts payable
    
    
    61,805
    
    
    
    110,429Accrued expenses
    
    
    65,535
    
    
    
    68,089Income taxes payable
    
    
    1,785
    
    
    
    8,874Current portion of long-term obligations
    
    
    4,686
    
    
    
    3,703Total current liabilities
    
    
    211,711
    
    
    
    196,025Long-term obligations, excluding current portion
    
    
    553,736
    
    
    
    558,372Deferred income tax liabilities
    
    
    83,370
    
    
    
    83,592Deferred
rent and other long-term liabilities
    
    
    10,341
    
    
    
    10,199Total liabilities
    
    
    859,158
    
    
    
    848,188Redeemable common securities
    
    
    12,269
    
    
    
    9,343Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,187.16 shares issued and
outstanding at June 30, 2007 and 30,100.75 shares issued and outstanding at December 31,
2006)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    332,107
    
    
    
    331,113Retained earnings
    
    
    20,371
    
    
    
    27,264Accumulated other comprehensive income
    
    
    2,159
    
    
    
    1,463Total stockholders equity
    
    
    354,637
    
    
    
    359,840Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,226,064
    
    
    $
    1,217,371
   3




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Three Months Ended June 30,2007
    
    
    2006Revenues:Net sales
    
    $
    273,424
    
    
    $
    223,847Royalties and franchise fees
    
    
    5,747
    
    
    
    4,886Total revenues
    
    
    279,171
    
    
    
    228,733Expenses:Cost of sales
    
    
    175,025
    
    
    
    157,204Selling expenses
    
    
    10,486
    
    
    
    9,443Retail operating expenses
    
    
    36,559
    
    
    
    24,363Franchise expenses
    
    
    3,056
    
    
    
    3,142General and administrative expenses
    
    
    25,123
    
    
    
    19,861Art and development costs
    
    
    3,035
    
    
    
    2,476Total expenses
    
    
    253,284
    
    
    
    216,489Income from operations
    
    
    25,887
    
    
    
    12,244Interest expense, net
    
    
    13,907
    
    
    
    13,880Other expense (income), net
    
    
    15,841
    
    
    
    (1,682
    )(Loss) income before income taxes and minority interests
    
    
    (3,861
    )
    
    
    46Income tax (benefit) expense
    
    
    (1,459
    )
    
    
    19Minority interests
    
    
    56
    
    
    
    36Net loss
    
    $
    (2,458
    )
    
    $
    (9
    )
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Six Months Ended June 30,2007
    
    
    2006Revenues:Net sales
    
    $
    516,953
    
    
    $
    428,030Royalties and franchise fees
    
    
    10,642
    
    
    
    9,043Total revenues
    
    
    527,595
    
    
    
    437,073Expenses:Cost of sales
    
    
    340,848
    
    
    
    305,871Selling expenses
    
    
    20,966
    
    
    
    18,618Retail operating expenses
    
    
    71,442
    
    
    
    48,562Franchise expenses
    
    
    6,406
    
    
    
    5,979General and administrative expenses
    
    
    49,255
    
    
    
    39,639Art and development costs
    
    
    5,954
    
    
    
    4,958Total expenses
    
    
    494,871
    
    
    
    423,627Income from operations
    
    
    32,724
    
    
    
    13,446Interest expense, net
    
    
    27,982
    
    
    
    27,103Other expense (income), net
    
    
    15,705
    
    
    
    (1,957
    )Loss before income taxes and minority interests
    
    
    (10,963
    )
    
    
    (11,700
    )Income tax benefit
    
    
    (4,165
    )
    
    
    (4,640
    )Minority interests
    
    
    64
    
    
    
    106Net loss
    
    $
    (6,862
    )
    
    $
    (7,166
    )
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Six Months Ended June 30, 2007
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 AccumulatedOtherCommon
    
    
    
    
    
    
    Additional
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Common Stock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at December 31, 2006
    
    
    30,100.75
    
    
    $
    
    
    
    $
    331,113
    
    
    $
    27,264
    
    
    $
    1,463
    
    
    $
    359,840Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,862
    )
    
    
    
    
    
    
    (6,862
    )Cumulative change from
adoption of FIN 48 (see
Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815
    
    
    
    815Change in fair value of
interest rate swap
contracts, net of income
tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    59Change in fair value of
foreign exchange
contracts, net of income
tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    (178
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,197
    )Issuance of shares of
redeemable and
non-redeemable common
stock
    
    
    92.89
    
    
    
    
    
    
    
    1,221
    
    
    
    
    
    
    
    
    
    
    
    1,221Reclassification of common stock to
redeemable common
securities
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Purchase and retirement of
redeemable and
non-redeemable common
stock held by former
employees
    
    
    (6.48
    )

    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (80
    )Stock option compensation
expense
    
    
    
    
    
    
    
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    853Balance at June 30, 2007
    
    
    30,187.16
    
    
    $
    
    
    
    $
    332,107
    
    
    $
    20,371
    
    
    $
    2,159
    
    
    $
    354,637
  6




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Six Months Ended June 30,2007
    
    
    2006Cash flows used in operating activities:Net loss
    
    $
    (6,862
    )
    
    $
    (7,166
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization expense
    
    
    19,111
    
    
    
    20,254Amortization of deferred financing costs
    
    
    1,141
    
    
    
    1,309Provision for doubtful accounts
    
    
    429
    
    
    
    687Deferred income tax benefit
    
    
    (1,034
    )
    
    
    (4,200
    )Deferred rent
    
    
    2,218
    
    
    
    1,500Undistributed income in unconsolidated joint venture
    
    
    (49
    )
    
    
    (221
    )Loss (gain) on disposal of equipment
    
    
    95
    
    
    
    (2,018
    )Equity-based compensation
    
    
    853
    
    
    
    476Debt retirement costs
    
    
    3,783
    
    
    
    Write-off of deferred financing costs
    
    
    6,364
    
    
    
    Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (4,044
    )
    
    
    (6,867
    )(Increase) decrease in inventories
    
    
    (3,826
    )
    
    
    14,443Increase in prepaid expenses and other current assets
    
    
    (10,756
    )
    
    
    (2,984
    )Decrease in accounts payable, accrued expenses and income taxes payable
    
    
    (40,006
    )
    
    
    (34,486
    )Other, net
    
    
    9
    
    
    
    Net cash used in operating activities
    
    
    (32,574
    )
    
    
    (19,273
    )Cash flows used in investing activities:Cash paid in connection with acquisitions, net of cash received
    
    
    (8,085
    )
    
    
    (862
    )Capital expenditures
    
    
    (10,432
    )
    
    
    (15,899
    )Proceeds from disposal of property and equipment
    
    
    1,737
    
    
    
    13,004Net cash used in investing activities
    
    
    (16,780
    )
    
    
    (3,757
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (394,946
    )
    
    
    (1,314
    )Proceeds from loans, notes payable and long-term obligations, net of debt issuance costs
    
    
    449,136
    
    
    
    17,700Debt retirement costs
    
    
    (6,218
    )
    
    
    Proceeds from capital contributions, stock subscriptions and exercise of options, net
of retirements
    
    
    2,067
    
    
    
    1,374Net cash provided by financing activities
    
    
    50,039
    
    
    
    17,760Effect of exchange rate changes on cash and cash equivalents
    
    
    705
    
    
    
    1,159Net increase (decrease) in cash and cash equivalents
    
    
    1,390
    
    
    
    (4,111
    )Cash and cash equivalents at beginning of period
    
    
    4,966
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    6,356
    
    
    $
    4,634Supplemental disclosures:Interest paid
    
    $
    27,847
    
    
    $
    22,479Income taxes paid
    
    $
    6,366
    
    
    $
    2,409
  7




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 1  Description of Business
  Note 2  Acquisitions
 Party America Acquisition 
  Other-
 Note 3  Basis of Presentation
    8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 4  Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Finished goods
    
    $
    221,371
    
    
    $
    215,069Raw materials
    
    
    11,758
    
    
    
    12,105Work-in-process
    
    
    5,710
    
    
    
    5,579238,839
    
    
    
    232,753Less: reserve for slow moving and obsolete inventory
    
    
    (7,566
    )
    
    
    (5,303
    )$
    231,273
    
    
    $
    227,450
  Note 5  Income Taxes
       Note 6  Restructuring
  9




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 7  Comprehensive Loss
  Three Months
    
    
    Six Months EndedEnded June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (2,458
    )
    
    $
    (9
    )
    
    $
    (6,862
    )
    
    $
    (7,166
    )Cumulative change from adoption of FIN 48 (see Note 5)
    
    
    
    
    
    
    
    
    
    
    (31
    )Net change in cumulative translation adjustment
    
    
    636
    
    
    
    1,673
    
    
    
    815
    
    
    
    1,525Change in fair value of interest rate swap contracts,
net of income tax expense of $120, $119, $35, and
$167
    
    
    203
    
    
    
    201
    
    
    
    59
    
    
    
    284Change in fair value of foreign exchange contracts,
net of income tax benefit of $(23) and $(104)
    
    
    (39
    )
    
    
    
    
    
    
    (178
    )
    
    
    $
    (1,658
    )
    
    $
    1,865
    
    
    $
    (6,197
    )
    
    $
    (5,357
    )
  June 30,
    
    
    December 31,2007
    
    
    2006Cumulative translation adjustment
    
    $
    2,264
    
    
    $
    1,449Interest rate swap contracts, net of income tax expense of $79, and $44
    
    
    134
    
    
    
    75Foreign exchange contracts, net of income tax benefit of $(140), and
$(36)
    
    
    (239
    )
    
    
    (61
    )Total accumulated other comprehensive income
    
    $
    2,159
    
    
    $
    1,463
 Note 8  Capital Stock
    10




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 9  Segment Information  Industry Segments
   Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended June 30, 2007Revenues:Net sales
    
    $
    148,770
    
    
    $
    164,909
    
    
    $
    (40,255
    )
    
    $
    273,424Royalties and franchise fees
    
    
    
    
    
    
    5,747
    
    
    
    
    
    
    
    5,747Total revenues
    
    $
    148,770
    
    
    $
    170,656
    
    
    $
    (40,255
    )
    
    $
    279,171Income from operations
    
    $
    9,520
    
    
    $
    19,055
    
    
    $
    (2,688
    )
    
    $
    25,887Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,907Other
expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,841Loss before income taxes and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,861
    )Long-lived assets
    
    $
    461,716
    
    
    $
    399,569
    
    
    $
    (11,284
    )
    
    $
    850,001
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended June 30, 2006Revenues:Net sales
    
    $
    116,772
    
    
    $
    120,203
    
    
    $
    (13,128
    )
    
    $
    223,847Royalties and franchise fees
    
    
    
    
    
    
    4,886
    
    
    
    
    
    
    
    4,886Total revenues
    
    $
    116,772
    
    
    $
    125,089
    
    
    $
    (13,128
    )
    
    $
    228,733Income from operations
    
    $
    7,009
    
    
    $
    6,867
    
    
    $
    (1,632
    )
    
    $
    12,244Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,880Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,682
    )Income before income taxes and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    46Long-lived assets
    
    $
    446,425
    
    
    $
    347,639
    
    
    $
    (9,406
    )
    
    $
    784,658
 11




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedSix Months Ended June 30, 2007Revenues:Net sales
    
    $
    288,763
    
    
    $
    300,318
    
    
    $
    (72,128
    )
    
    $
    516,953Royalties and franchise fees
    
    
    
    
    
    
    10,642
    
    
    
    
    
    
    
    10,642Total revenues
    
    $
    288,763
    
    
    $
    310,960
    
    
    $
    (72,128
    )
    
    $
    527,595Income from operations
    
    $
    19,948
    
    
    $
    17,959
    
    
    $
    (5,183
    )
    
    $
    32,724Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,982Other
expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,705Loss before income taxes and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (10,963
    )Long-lived assets
    
    $
    461,716
    
    
    $
    399,569
    
    
    $
    (11,284
    )
    
    $
    850,001
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedSix Months Ended June 30, 2006Revenues:Net sales
    
    $
    239,959
    
    
    $
    217,102
    
    
    $
    (29,031
    )
    
    $
    428,030Royalties and franchise fees
    
    
    
    
    
    
    9,043
    
    
    
    
    
    
    
    9,043Total revenues
    
    $
    239,959
    
    
    $
    226,145
    
    
    $
    (29,031
    )
    
    $
    437,073Income (loss) from operations
    
    $
    20,819
    
    
    $
    (1,994
    )
    
    $
    (5,379
    )
    
    $
    13,446Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,103Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,957
    )Loss before income taxes and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (11,700
    )Long-lived assets
    
    $
    446,425
    
    
    $
    347,639
    
    
    $
    (9,406
    )
    
    $
    784,658
 Geographic Segments
  12




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
  Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended June 30, 2007Revenues:Net sales to unaffiliated customers
    
    $
    253,929
    
    
    $
    19,495
    
    
    $
    
    
    
    $
    273,424Net sales between geographic areas
    
    
    6,022
    
    
    
    
    
    
    
    (6,022
    )
    
    
    Net sales
    
    
    259,951
    
    
    
    19,495
    
    
    
    (6,022
    )
    
    
    273,424Royalties and franchise fees
    
    
    5,747
    
    
    
    
    
    
    
    
    
    
    
    5,747Total revenues
    
    $
    265,698
    
    
    $
    19,495
    
    
    $
    (6,022
    )
    
    $
    279,171Income from operations
    
    $
    24,070
    
    
    $
    1,598
    
    
    $
    219
    
    
    $
    25,887Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,907Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,841Loss before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,861
    )Long-lived assets
    
    $
    879,760
    
    
    $
    17,631
    
    
    $
    (47,390
    )
    
    $
    850,001
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended June 30, 2006Revenues:Net sales to unaffiliated customers
    
    $
    207,405
    
    
    $
    16,442
    
    
    $
    
    
    
    $
    223,847Net sales between geographic areas
    
    
    5,247
    
    
    
    
    
    
    
    (5,247
    )
    
    
    Net sales
    
    
    212,652
    
    
    
    16,442
    
    
    
    (5,247
    )
    
    
    223,847Royalties and franchise fees
    
    
    4,886
    
    
    
    
    
    
    
    
    
    
    
    4,886Total revenues
    
    $
    217,538
    
    
    $
    16,442
    
    
    $
    (5,247
    )
    
    $
    228,733Income from operations
    
    $
    10,612
    
    
    $
    1,234
    
    
    $
    398
    
    
    $
    12,244Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,880Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,682
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    46Long-lived assets
    
    $
    808,243
    
    
    $
    11,667
    
    
    $
    (35,252
    )
    
    $
    784,658
 13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedSix Months Ended June 30, 2007Revenues:Net sales to unaffiliated customers
    
    $
    479,731
    
    
    $
    37,222
    
    
    $
    
    
    
    $
    516,953Net sales between geographic areas
    
    
    10,446
    
    
    
    
    
    
    
    (10,446
    )
    
    
    Net sales
    
    
    490,177
    
    
    
    37,222
    
    
    
    (10,446
    )
    
    
    516,953Royalties and franchise fees
    
    
    10,642
    
    
    
    
    
    
    
    
    
    
    
    10,642Total revenues
    
    $
    500,819
    
    
    $
    37,222
    
    
    $
    (10,446
    )
    
    $
    527,595Income from operations
    
    $
    29,582
    
    
    $
    2,464
    
    
    $
    678
    
    
    $
    32,724Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,982Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,705Loss before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (10,963
    )Long-lived assets
    
    $
    879,760
    
    
    $
    17,631
    
    
    $
    (47,390
    )
    
    $
    850,001
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedSix Months Ended June 30, 2006Revenues:Net sales to unaffiliated customers
    
    $
    396,519
    
    
    $
    31,511
    
    
    $
    
    
    
    $
    428,030Net sales between geographic areas
    
    
    9,190
    
    
    
    
    
    
    
    (9,190
    )
    
    
    Net sales
    
    
    405,709
    
    
    
    31,511
    
    
    
    (9,190
    )
    
    
    428,030Royalties and franchise fees
    
    
    9,043
    
    
    
    
    
    
    
    
    
    
    
    9,043Total revenues
    
    $
    414,752
    
    
    $
    31,511
    
    
    $
    (9,190
    )
    
    $
    437,073Income from operations
    
    $
    10,369
    
    
    $
    2,142
    
    
    $
    935
    
    
    $
    13,446Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,103Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,957
    )Loss before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (11,700
    )Long-lived assets
    
    $
    808,243
    
    
    $
    11,667
    
    
    $
    (35,252
    )
    
    $
    784,658
 Note 10  Legal Proceedings
  Note 11  Related Party Transactions
  14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 12  Stock Option Plan
       Expected dividend rate
    
    
    Risk free interest rate
    
    
    4.85
    %Expected Life
    
    7.50 yearsPrice Volatility
    
    
    15.00
    %Forfeiture rate
    
    
    7.75
    %
  15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 13  Long Term Obligations
  Term Loan Credit Agreement-
           ABL Credit Agreement 
  16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
            Prior Credit Agreements 
     17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
      Note 14  Recently Issued Accounting Standards
   Note 15  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
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
 18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    
    SSY Realty Corp.
    
    Trisar, Inc.
  
    
    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.
  19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2007
 AHI and Combined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,516
    
    
    $
    840
    
    
    $
    
    
    
    $
    6,356Accounts receivable, net of allowances
    
    
    76,916
    
    
    
    18,264
    
    
    
    
    
    
    
    95,180Inventories, net of allowances
    
    
    220,061
    
    
    
    11,738
    
    
    
    (526
    )
    
    
    231,273Prepaid expenses and other current assets
    
    
    40,979
    
    
    
    2,275
    
    
    
    
    
    
    
    43,254Total current assets
    
    
    343,472
    
    
    
    33,117
    
    
    
    (526
    )
    
    
    376,063Property, plant and equipment, net
    
    
    150,561
    
    
    
    2,284
    
    
    
    
    
    
    
    152,845Goodwill
    
    
    473,583
    
    
    
    4,343
    
    
    
    
    
    
    
    477,926Trade names
    
    
    143,000
    
    
    
    
    
    
    
    
    
    
    
    143,000Other intangible assets, net
    
    
    46,496
    
    
    
    
    
    
    
    
    
    
    
    46,496Other assets, net
    
    
    66,121
    
    
    
    11,003
    
    
    
    (47,390
    )
    
    
    29,734Total assets
    
    $
    1,223,233
    
    
    $
    50,747
    
    
    $
    (47,916
    )
    
    $
    1,226,064LIABILITIES, REDEEMABLE COMMON SECURITIES AND
STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    77,900
    
    
    $
    
    
    
    $
    
    
    
    $
    77,900Accounts payable
    
    
    59,629
    
    
    
    2,176
    
    
    
    
    
    
    
    61,805Accrued expenses
    
    
    56,972
    
    
    
    8,563
    
    
    
    
    
    
    
    65,535Income taxes payable
    
    
    2,178
    
    
    
    (400
    )
    
    
    7
    
    
    
    1,785Current portion of long-term obligations
    
    
    4,544
    
    
    
    142
    
    
    
    
    
    
    
    4,686Total current liabilities
    
    
    201,223
    
    
    
    10,481
    
    
    
    7
    
    
    
    211,711Long-term obligations, excluding current
portion
    
    
    553,685
    
    
    
    51
    
    
    
    
    
    
    
    553,736Deferred income tax liabilities
    
    
    82,654
    
    
    
    716
    
    
    
    
    
    
    
    83,370Deferred
rent and other long-term liabilities
    
    
    18,259
    
    
    
    39,629
    
    
    
    (47,547
    )
    
    
    10,341Total liabilities
    
    
    855,821
    
    
    
    50,877
    
    
    
    (47,540
    )
    
    
    859,158Redeemable common securities
    
    
    12,269
    
    
    
    
    
    
    
    
    
    
    
    12,269Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    332,107
    
    
    
    
    
    
    
    
    
    
    
    332,107Retained earnings (deficit)
    
    
    20,877
    
    
    
    (390
    )
    
    
    (116
    )
    
    
    20,371Accumulated other comprehensive income
(loss)
    
    
    2,159
    
    
    
    (79
    )
    
    
    79
    
    
    
    2,159Total stockholders equity
    
    
    355,143
    
    
    
    (130
    )
    
    
    (376
    )
    
    
    354,637Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,223,233
    
    
    $
    50,747
    
    
    $
    (47,916
    )
    
    $
    1,226,064
 20




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,395
    
    
    $
    571
    
    
    $
    
    
    
    $
    4,966Accounts receivable, net
    
    
    82,193
    
    
    
    13,277
    
    
    
    
    
    
    
    95,470Inventories, net
    
    
    214,681
    
    
    
    13,313
    
    
    
    (544
    )
    
    
    227,450Prepaid expenses and other current assets
    
    
    33,960
    
    
    
    1,740
    
    
    
    
    
    
    
    35,700Total current assets
    
    
    335,229
    
    
    
    28,901
    
    
    
    (544
    )
    
    
    363,586Property, plant and equipment, net
    
    
    152,956
    
    
    
    2,487
    
    
    
    
    
    
    
    155,443Goodwill, net
    
    
    472,448
    
    
    
    4,256
    
    
    
    
    
    
    
    476,704Trade names
    
    
    143,000
    
    
    
    
    
    
    
    
    
    
    
    143,000Other intangible assets, net
    
    
    47,407
    
    
    
    
    
    
    
    
    
    
    
    47,407Other assets
    
    
    66,092
    
    
    
    10,575
    
    
    
    (45,436
    )
    
    
    31,231Total assets
    
    $
    1,217,132
    
    
    $
    46,219
    
    
    $
    (45,980
    )
    
    $
    1,217,371LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    4,930
    
    
    $
    
    
    
    $
    
    
    
    
    4,930Accounts payable
    
    
    108,192
    
    
    
    2,237
    
    
    
    
    
    
    
    110,429Accrued expenses
    
    
    61,940
    
    
    
    6,149
    
    
    
    
    
    
    
    68,089Income taxes payable
    
    
    8,908
    
    
    
    (50
    )
    
    
    16
    
    
    
    8,874Current portion of long-term obligations
    
    
    3,523
    
    
    
    180
    
    
    
    
    
    
    
    3,703Total current liabilities
    
    
    187,493
    
    
    
    8,516
    
    
    
    16
    
    
    
    196,025Long-term obligations, excluding current portion
    
    
    558,265
    
    
    
    107
    
    
    
    
    
    
    
    558,372Deferred income tax liabilities
    
    
    82,891
    
    
    
    701
    
    
    
    
    
    
    
    83,592Deferred rent and other long-term liabilities
    
    
    18,879
    
    
    
    36,963
    
    
    
    (45,643
    )
    
    
    10,199Total liabilities
    
    
    847,528
    
    
    
    46,287
    
    
    
    (45,627
    )
    
    
    848,188Redeemable common securities
    
    
    9,343
    
    
    
    
    
    
    
    
    
    
    
    9,343Commitments and contingenciesStockholders equity:Common stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    331,113
    
    
    
    
    
    
    
    
    
    
    
    331,113Retained earnings (deficit)
    
    
    27,685
    
    
    
    (327
    )
    
    
    (94
    )
    
    
    27,264Accumulated other comprehensive income (loss)
    
    
    1,463
    
    
    
    (80
    )
    
    
    80
    
    
    
    1,463Total stockholders equity
    
    
    360,261
    
    
    
    (68
    )
    
    
    (353
    )
    
    
    359,840Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,217,132
    
    
    $
    46,219
    
    
    $
    (45,980
    )
    
    $
    1,217,371
 21




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    259,951
    
    
    $
    19,495
    
    
    $
    (6,022
    )
    
    $
    273,424Royalties and franchise fees
    
    
    5,747
    
    
    
    
    
    
    
    
    
    
    
    5,747Total revenues
    
    
    265,698
    
    
    
    19,495
    
    
    
    (6,022
    )
    
    
    279,171Expenses:Cost of sales
    
    
    167,634
    
    
    
    13,302
    
    
    
    (5,911
    )
    
    
    175,025Selling expenses
    
    
    8,116
    
    
    
    2,370
    
    
    
    
    
    
    
    10,486Retail operating expenses
    
    
    36,559
    
    
    
    
    
    
    
    
    
    
    
    36,559Franchise expenses
    
    
    3,056
    
    
    
    
    
    
    
    
    
    
    
    3,056General and administrative expenses
    
    
    23,228
    
    
    
    2,225
    
    
    
    (330
    )
    
    
    25,123Art and development costs
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    3,035Total expenses
    
    
    241,628
    
    
    
    17,897
    
    
    
    (6,241
    )
    
    
    253,284Income from operations
    
    
    24,070
    
    
    
    1,598
    
    
    
    219
    
    
    
    25,887Interest expense, net
    
    
    13,873
    
    
    
    34
    
    
    
    
    
    
    
    13,907Other expense (income), net
    
    
    14,482
    
    
    
    (170
    )
    
    
    1,529
    
    
    
    15,841(Loss) income before income
taxes and minority interests
    
    
    (4,285
    )
    
    
    1,734
    
    
    
    (1,310
    )
    
    
    (3,861
    )Income tax (benefit) expense
    
    
    (1,897
    )
    
    
    479
    
    
    
    (41
    )
    
    
    (1,459
    )Minority interests
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Net (loss) income
    
    $
    (2,388
    )
    
    $
    1,199
    
    
    $
    (1,269
    )
    
    $
    (2,458
    )
 22




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    490,177
    
    
    $
    37,222
    
    
    $
    (10,446
    )
    
    $
    516,953Royalties and franchise fees
    
    
    10,642
    
    
    
    
    
    
    
    
    
    
    
    10,642Total revenues
    
    
    500,819
    
    
    
    37,222
    
    
    
    (10,446
    )
    
    
    527,595Expenses:Cost of sales
    
    
    325,638
    
    
    
    25,674
    
    
    
    (10,464
    )
    
    
    340,848Selling expenses
    
    
    16,227
    
    
    
    4,739
    
    
    
    
    
    
    
    20,966Retail operating expenses
    
    
    71,442
    
    
    
    
    
    
    
    
    
    
    
    71,442Franchise expenses
    
    
    6,406
    
    
    
    
    
    
    
    
    
    
    
    6,406General and administrative expenses
    
    
    45,570
    
    
    
    4,345
    
    
    
    (660
    )
    
    
    49,255Art and development costs
    
    
    5,954
    
    
    
    
    
    
    
    
    
    
    
    5,954Total expenses
    
    
    471,237
    
    
    
    34,758
    
    
    
    (11,124
    )
    
    
    494,871Income from operations
    
    
    29,582
    
    
    
    2,464
    
    
    
    678
    
    
    
    32,724Interest expense, net
    
    
    27,919
    
    
    
    63
    
    
    
    
    
    
    
    27,982Other expense (income), net
    
    
    13,517
    
    
    
    (87
    )
    
    
    2,275
    
    
    
    15,705(Loss) income before income
taxes and minority interests
    
    
    (11,854
    )
    
    
    2,488
    
    
    
    (1,597
    )
    
    
    (10,963
    )Income tax (benefit) expense
    
    
    (4,982
    )
    
    
    810
    
    
    
    7
    
    
    
    (4,165
    )Minority interests
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    64Net (loss) income
    
    $
    (6,872
    )
    
    $
    1,614
    
    
    $
    (1,604
    )
    
    $
    (6,862
    )
 23




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    212,652
    
    
    $
    16,442
    
    
    $
    (5,247
    )
    
    $
    223,847Royalties and franchise fees
    
    
    4,886
    
    
    
    
    
    
    
    
    
    
    
    4,886Total revenues
    
    
    217,538
    
    
    
    16,442
    
    
    
    (5,247
    )
    
    
    228,733Expenses:Cost of sales
    
    
    151,298
    
    
    
    11,221
    
    
    
    (5,315
    )
    
    
    157,204Selling expenses
    
    
    7,529
    
    
    
    1,914
    
    
    
    
    
    
    
    9,443Retail operating expenses
    
    
    24,363
    
    
    
    
    
    
    
    
    
    
    
    24,363Franchise expenses
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    3,142General and administrative expenses
    
    
    18,118
    
    
    
    2,073
    
    
    
    (330
    )
    
    
    19,861Art and development costs
    
    
    2,476
    
    
    
    
    
    
    
    
    
    
    
    2,476Total expenses
    
    
    206,926
    
    
    
    15,208
    
    
    
    (5,645
    )
    
    
    216,489Income from operations
    
    
    10,612
    
    
    
    1,234
    
    
    
    398
    
    
    
    12,244Interest expense, net
    
    
    13,843
    
    
    
    37
    
    
    
    
    
    
    
    13,880Other (income) expense, net
    
    
    (2,966
    )
    
    
    299
    
    
    
    985
    
    
    
    (1,682
    )(Loss) income before income taxes and minority
interests
    
    
    (265
    )
    
    
    898
    
    
    
    (587
    )
    
    
    46Income tax (benefit) expense
    
    
    (213
    )
    
    
    207
    
    
    
    25
    
    
    
    19Minority interests
    
    
    
    
    
    
    36
    
    
    

    
    

    
    
    36Net (loss) income
    
    $
    (52
    )
    
    $
    655
    
    
    $
    (612
    )
    
    $
    (9
    )
 24




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    405,709
    
    
    $
    31,511
    
    
    $
    (9,190
    )
    
    $
    428,030Royalties and franchise fees
    
    
    9,043
    
    
    
    
    
    
    
    
    
    
    
    9,043Total revenues
    
    
    414,752
    
    
    
    31,511
    
    
    
    (9,190
    )
    
    
    437,073Expenses:Cost of sales
    
    
    293,906
    
    
    
    21,430
    
    
    
    (9,465
    )
    
    
    305,871Selling expenses
    
    
    14,752
    
    
    
    3,866
    
    
    
    
    
    
    
    18,618Retail operating expenses
    
    
    48,562
    
    
    
    
    
    
    
    
    
    
    
    48,562Franchise expenses
    
    
    5,979
    
    
    
    
    
    
    
    
    
    
    
    5,979General and administrative expenses
    
    
    36,226
    
    
    
    4,073
    
    
    
    (660
    )
    
    
    39,639Art and development costs
    
    
    4,958
    
    
    
    
    
    
    
    
    
    
    
    4,958Total expenses
    
    
    404,383
    
    
    
    29,369
    
    
    
    (10,125
    )
    
    
    423,627Income from operations
    
    
    10,369
    
    
    
    2,142
    
    
    
    935
    
    
    
    13,446Interest expense, net
    
    
    27,031
    
    
    
    72
    
    
    
    
    
    
    
    27,103Other (income) expense, net
    
    
    (4,104
    )
    
    
    336
    
    
    
    1,811
    
    
    
    (1,957
    )(Loss) income before
income taxes and minority
interests
    
    
    (12,558
    )
    
    
    1,734
    
    
    
    (876
    )
    
    
    (11,700
    )Income tax (benefit) expense
    
    
    (5,220
    )
    
    
    477
    
    
    
    103
    
    
    
    (4,640
    )Minority interests
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    106Net (loss) income
    
    $
    (7,338
    )
    
    $
    1,151
    
    
    $
    (979
    )
    
    $
    (7,166
    )
 25




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (6,872
    )
    
    $
    1,614
    
    
    $
    (1,604
    )
    
    $
    (6,862
    )Adjustments to reconcile net (loss) income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    18,648
    
    
    
    463
    
    
    
    
    
    
    
    19,111Amortization of deferred financing costs
    
    
    1,141
    
    
    
    
    
    
    
    
    
    
    
    1,141Provision for doubtful accounts
    
    
    308
    
    
    
    121
    
    
    
    
    
    
    
    429Deferred income tax benefit
    
    
    (1,034
    )
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Deferred rent
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    2,218Undistributed gain in unconsolidated joint venture
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (49
    )Loss on disposal of equipment
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    95Equity based compensation
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    853Debt retirement costs
    
    
    3,783
    
    
    
    
    
    
    
    
    
    
    
    3,783Write-off of deferred financing costs
    
    
    6,364
    
    
    
    
    
    
    
    
    
    
    
    6,364Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    1,068
    
    
    
    (5,112
    )
    
    
    
    
    
    
    (4,044
    )(Increase) decrease in inventories
    
    
    (5,383
    )
    
    
    1,575
    
    
    
    (18
    )
    
    
    (3,826
    )Increase in prepaid expenses and other current assets
    
    
    (10,134
    )
    
    
    (622
    )
    
    
    
    
    
    
    (10,756
    )(Decrease) increase in accounts payable, accrued expenses and income taxes payable
    
    
    (43,471
    )
    
    
    1,844
    
    
    
    1,622
    
    
    
    (40,006
    )Other, net
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Net cash used in operating activities
    
    
    (32,456
    )
    
    
    (117
    )
    
    
    
    
    
    
    (32,574
    )Cash flows used in investing activities:Cash paid in connection with store acquisitions
    
    
    (8,085
    )
    
    
    
    
    
    
    
    
    
    
    (8,085
    )Capital expenditures
    
    
    (10,217
    )
    
    
    (215
    )
    
    
    
    
    
    
    (10,432
    )Proceeds from disposal of property and equipment
    
    
    1,737
    
    
    
    
    
    
    
    
    
    
    
    1,737Net cash used in investing activities
    
    
    (16,565
    )
    
    
    (215
    )
    
    
    
    
    
    
    (16,780
    )Cash flows
provided by (used in) financing activities:Repayments of loans, notes payable and long-term
obligations
    
    
    (394,846
    )
    
    
    (100
    )
    
    
    
    
    
    
    (394,946
    )Proceeds from loans, notes payable and long-term
obligations
    
    
    449,136
    
    
    
    
    
    
    
    
    
    
    
    449,136Debt retirement costs
    
    
    (6,218
    )
    
    
    
    
    
    
    
    
    
    
    (6,218
    )Proceeds from capital contributions and exercise of
options, net of retirements
    
    
    2,067
    
    
    
    
    
    
    
    
    
    
    
    2,067Net cash provided by (used in) financing activities
    
    
    50,139
    
    
    
    (100
    )
    
    
    
    
    
    
    50,039Effect of exchange rate changes on cash and cash equivalents
    
    
    5
    
    
    
    700
    
    
    
    
    
    
    
    705Net increase (decrease) in cash and cash equivalents
    
    
    1,123
    
    
    
    269
    
    
    
    
    
    
    
    1,390Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    5,518
    
    
    $
    840
    
    
    $
    
    
    
    $
    6,356
 26




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (7,338
    )
    
    $
    1,151
    
    
    $
    (979
    )
    
    $
    (7,166
    )Adjustments to reconcile net (loss) income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    19,869
    
    
    
    385
    
    
    
    
    
    
    
    20,254Amortization of deferred financing costs
    
    
    1,309
    
    
    
    
    
    
    
    
    
    
    
    1,309Provision for doubtful accounts
    
    
    536
    
    
    
    151
    
    
    
    
    
    
    
    687Deferred income tax benefit
    
    
    (4,200
    )
    
    
    
    
    
    
    
    
    
    
    (4,200
    )Deferred rent
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    1,500Undistributed gain in unconsolidated joint venture
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    (221
    )(Gain) loss on disposal of property, plant and equipment
    
    
    (2,024
    )
    
    
    6
    
    
    
    
    
    
    
    (2,018
    )Equity based compensation
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    476Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (3,681
    )
    
    
    (3,186
    )
    
    
    
    



    (6,867
    )Decrease in inventories
    
    
    14,027
    
    
    
    691
    
    
    
    (275
    )
    
    
    14,443Increase in prepaid expenses, other current assets
and other, net
    
    
    (3,925
    )
    
    
    (210
    )
    
    
    1,151
    
    
    
    (2,984
    )(Decrease) increase in accounts payable, accrued
expenses, income taxes payable and other
liabilities
    
    
    (34,605
    )
    
    
    16
    
    
    
    103
    
    
    
    (34,486
    )Net cash used in operating activities
    
    
    (18,277
    )
    
    
    (996
    )
    
    
    
    
    
    
    (19,273
    )Cash flows used in investing activities:Cash paid in connection with Party City Acquisition
    
    
    (862
    )
    
    
    
    
    
    
    
    
    
    
    (862
    )Capital expenditures
    
    
    (15,562
    )
    
    
    (337
    )
    
    
    
    
    
    
    (15,899
    )Proceeds from disposal of property, plant and equipment
    
    
    12,980
    
    
    
    24
    
    
    
    
    
    
    
    13,004Net cash used in investing activities
    
    
    (3,444
    )
    
    
    (313
    )
    
    
    
    
    
    
    (3,757
    )Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term
obligations
    
    
    (1,176
    )
    
    
    (138
    )
    
    
    
    
    
    
    (1,314
    )Proceeds from short term obligations
    
    
    17,700
    
    
    
    
    
    
    
    
    
    
    
    17,700Proceeds from the sale of common stock
    
    
    1,374
    
    
    
    
    
    
    
    
    
    
    
    1,374Net cash provided by (used in) financing activities
    
    
    17,898
    
    
    
    (138
    )
    
    
    
    
    
    
    17,760Effect of exchange rate changes on cash and cash equivalents
    
    
    41
    
    
    
    1,118
    
    
    

    



    
    1,159Net decrease in cash and cash equivalents
    
    
    (3,782
    )
    
    
    (329
    )
    
    
    
    
    
    
    (4,111
    )Cash and cash equivalents at beginning of period
    
    
    7,695
    
    
    
    1,050
    
    
    
    
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    3,913
    
    
    $
    721
    
    
    $
    
    
    
    $
    4,634
 27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
 Acquisitions
 The Party America Acquisition
    Other
  28




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##### Table of Contents



THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006
 Percentage of Total Revenues
  Three Months Ended June 30,2007
    
    2006Revenues:Net sales
    
    
    97.9
    %
    
    
    97.9
    %Royalties and franchise fees
    
    
    2.1
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.7
    
    
    
    68.7Selling expenses
    
    
    3.8
    
    
    
    4.1Retail operating expenses
    
    
    13.1
    
    
    
    10.7Franchise expenses
    
    
    1.1
    
    
    
    1.4General and administrative expenses
    
    
    9.0
    
    
    
    8.7Art and development costs
    
    
    1.1
    
    
    
    1.1Total expenses
    
    
    90.7
    
    
    
    94.6Income from operations
    
    
    9.3
    
    
    
    5.4Interest expense, net
    
    
    5.0
    
    
    
    6.1Other expense (income), net
    
    
    5.7
    
    
    
    (0.7
    )Loss before income taxes and
minority interests
    
    
    (1.4)
    
    
    
    0.0Income tax benefit
    
    
    (0.5)
    
    
    
    0.0Minority interests
    
    
    0.0
    
    
    
    0.0Net loss
    
    
    (0.9)
    %
    
    
    0.0
    %
 Total Revenues
  Three Months Ended June 30,2007
    
    2006% of total
    
    
    
    
    
    % of total$ in thousands
    
    revenues
    
    $ in thousands
    
    revenuesRevenuesSalesWholesale
    
    $
    148,770
    
    
    
    53.3
    %
    
    $
    116,772
    
    
    
    51.0
    %Eliminations
    
    
    (40,255
    )
    
    
    (14.4
    )
    
    
    (13,128
    )
    
    
    (5.7
    )Net Wholesale
    
    
    108,515
    
    
    
    38.9
    
    
    
    103,644
    
    
    
    45.3Retail
    
    
    164,909
    
    
    
    59.1
    
    
    
    120,203
    
    
    
    52.6Total Sales
    
    
    273,424
    
    
    
    97.9
    
    
    
    223,847
    
    
    
    97.9Franchise related
    
    
    5,747
    
    
    
    2.1
    
    
    
    4,886
    
    
    
    2.1Total Revenues
    
    $
    279,171
    
    
    
    100.0
    %
    
    $
    228,733
    
    
    
    100.0
    %
 29




---



##### Table of Contents



Wholesale
   Retail
   Royalties and franchise fees
  Gross Profit
  Three Months Ended June 30,2007
    
    
    2006% ofassociated
    
    
    
    
    
    
    % of associated($
in thousands)
    
    
    sales
    
    
    ($
in thousands)
    
    
    salesNet Wholesale
    
    $
    31,185
    
    
    
    28.7
    %
    
    $
    27,214
    
    
    
    26.3
    %Net Retail
    
    
    67,215
    
    
    
    40.8
    
    
    
    39,430
    
    
    
    32.8Total Gross Profit
    
    $
    98,399
    
    
    
    36.0
    %
    
    $
    66,643
    
    
    
    29.8
    %
 30




---



##### Table of Contents



Operating expenses
      Interest expense, net
  Other expense ( income), net
  Income tax (benefit) expense
  31




---



##### Table of Contents



SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30, 2006
 Percentage of Total Revenues
  Six Months Ended June 30,2007
    
    2006Revenues:Net sales
    
    
    98.0
    %
    
    
    97.9
    %Royalties and franchise fees
    
    
    2.0
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    64.7
    
    
    
    70.0Selling expenses
    
    
    4.0
    
    
    
    4.3Retail operating expenses
    
    
    13.5
    
    
    
    11.1Franchise expenses
    
    
    1.2
    
    
    
    1.4General and administrative expenses
    
    
    9.3
    
    
    
    9.1Art and development costs
    
    
    1.1
    
    
    
    1.1Total expenses
    
    
    93.8
    
    
    
    96.9Income from operations
    
    
    6.2
    
    
    
    3.1Interest expense, net
    
    
    5.3
    
    
    
    6.2Other expense (income), net
    
    
    3.0
    
    
    
    (0.4)Loss before income taxes and
minority interests
    
    
    (2.1)
    
    
    
    (2.7)Income tax benefit
    
    
    (0.8)
    
    
    
    (1.1)Minority interests
    
    
    0.0
    
    
    
    0.0Net loss
    
    
    (1.3)
    %
    
    
    (1.6)
    %
 Total Revenues
  Six Months Ended June 30,2007
    
    
    2006% of total
    
    
    
    
    
    
    % of total$
in thousands
    
    
    revenues
    
    

$
in thousands
    
    
    revenuesRevenuesSalesWholesale
    
    $
    288,763
    
    
    
    54.7
    %
    
    $
    239,959
    
    
    
    54.9
    %Eliminations
    
    
    (72,128
    )
    
    
    (13.7)
    
    
    
    (29,031
    )
    
    
    (6.6)Net Wholesale
    
    
    216,635
    
    
    
    41.1
    
    
    
    210,928
    
    
    
    48.3Retail
    
    
    300,318
    
    
    
    56.9
    
    
    
    217,102
    
    
    
    49.7Total Sales
    
    
    516,953
    
    
    
    98.0
    
    
    
    428,030
    
    
    
    97.9Franchise related
    
    
    10,642
    
    
    
    2.0
    
    
    
    9,043
    
    
    
    2.1Total Revenues
    
    $
    527,595
    
    
    
    100.0
    %
    
    $
    437,073
    
    
    
    100.0
    %
 32




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##### Table of Contents



Wholesale
   Retail
   Royalties and franchise fees
  Gross Profit
  Six Months Ended June 30,2007
    
    2006% of
    
    
    
    
    
    % ofassociated
    
    
    
    
    
    associated($
in thousands)
    
    sales
    

($
in thousands)
    
    salesNet Wholesale
    
    $
    63,913
    
    
    
    29.5
    %
    
    $
    58,431
    
    
    
    27.7
    %Net Retail
    
    
    112,192
    
    
    
    37.4
    
    
    
    63,728
    
    
    
    29.4Total Gross Profit
    
    $
    176,105
    
    
    
    34.1
    %
    
    $
    122,159
    
    
    
    28.5
    %
   33




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##### Table of Contents



Operating expenses
      Interest expense, net
  Other expense (income), net
  Income tax benefit.
  Liquidity and Capital Resources
 Capital Structure
  Term Loan Credit Agreement
   34




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##### Table of Contents



ABL Credit Agreement
       35




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##### Table of Contents



36




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##### Table of Contents



Cash Flow Data  Six months ended June 30, 2007 Compared to Six months ended June 30, 2006
    Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  37




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
    38




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##### Table of Contents



PART II
 
 Item 5. Other Information
    
 Item 6. Exhibits
 31(1)
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended.31(2)
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended.32
    
    Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 39




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##### Table of Contents



AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: August 14, 2007
    
    Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 40