##### 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 September 30, 2010
 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
    
    10523(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 þ o
 o o
  Large
accelerated
filer oAccelerated
filer oNon-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, 2010
 TABLE OF CONTENTS
 PagePART IItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2010 and 2009
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2010
    
    
    6Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32Item 5. Other Events
    
    
    32PART IIItem 6. Exhibits
    
    
    34Signature
    
    
    35EX-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 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,743
    
    
    $
    15,420Accounts receivable, net of allowances
    
    
    130,069
    
    
    
    82,781Inventories, net of allowances
    
    
    469,570
    
    
    
    335,950Prepaid expenses and other current assets
    
    
    77,625
    
    
    
    69,541Total current assets
    
    
    700,007
    
    
    
    503,692Property, plant and equipment, net
    
    
    186,996
    
    
    
    174,994Goodwill
    
    
    597,332
    
    
    
    548,439Trade names
    
    
    157,355
    
    
    
    157,283Other intangible assets, net
    
    
    60,245
    
    
    
    54,669Other assets, net
    
    
    17,572
    
    
    
    41,424Total assets
    
    $
    1,719,507
    
    
    $
    1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    205,202
    
    
    $
    77,635Accounts payable
    
    
    197,899
    
    
    
    76,901Accrued expenses
    
    
    112,469
    
    
    
    93,680Income taxes payable
    
    
    6,793
    
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    3,228
    
    
    
    34,906Total current liabilities
    
    
    541,035
    
    
    
    330,627Long-term obligations, excluding current portion
    
    
    522,553
    
    
    
    538,892Deferred income tax liabilities
    
    
    102,444
    
    
    
    101,570Deferred rent and other long-term liabilities
    
    
    10,625
    
    
    
    11,901Total liabilities
    
    
    1,176,657
    
    
    
    982,990Redeemable
common securities (including 597.52 and 592.85 common shares issued and
outstanding at September 30, 2010 and December 31, 2009,
respectively)
    
    
    18,522
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50 shares
issued and outstanding at September 30, 2010 and December 31, 2009)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    357,254
    
    
    
    335,823Retained earnings
    
    
    170,208
    
    
    
    149,557Accumulated other comprehensive loss
    
    
    (5,508
    )
    
    
    (8,395
    )Amscan Holdings, Inc. stockholders equity
    
    
    521,954
    
    
    
    476,985Noncontrolling interests
    
    
    2,374
    
    
    
    2,137Total stockholders equity
    
    
    524,328
    
    
    
    479,122Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,719,507
    
    
    $
    1,480,501
  3




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AMSCAN HOLDINGS, INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Three Months Ended September 30,2010
    
    
    2009Revenues:Net sales
    
    $
    358,772
    
    
    $
    336,944Royalties and franchise fees
    
    
    4,035
    
    
    
    4,164Total revenues
    
    
    362,807
    
    
    
    341,108Expenses:Cost of sales
    
    
    226,335
    
    
    
    215,491Wholesale selling expenses
    
    
    10,524
    
    
    
    9,984Retail operating expenses
    
    
    73,785
    
    
    
    65,049Franchise expenses
    
    
    2,930
    
    
    
    3,046General and administrative expenses
    
    
    27,495
    
    
    
    29,274Art and development costs
    
    
    3,775
    
    
    
    3,327Total expenses
    
    
    344,844
    
    
    
    326,171Income from operations
    
    
    17,963
    
    
    
    14,937Interest expense, net
    
    
    9,834
    
    
    
    10,345Other expense, net
    
    
    704
    
    
    
    421Income before income taxes
    
    
    7,425
    
    
    
    4,171Income tax expense
    
    
    2,752
    
    
    
    1,016Net income
    
    
    4,673
    
    
    
    3,155Less: net income attributable to noncontrolling interest
    
    
    70
    
    
    
    76Net income attributable to Amscan
Holdings, Inc.
    
    $
    4,603
    
    
    $
    3,079
  4




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AMSCAN HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Nine Months Ended September 30,2010
    
    
    2009Revenues:Net sales
    
    $
    1,015,856
    
    
    $
    983,525Royalties and franchise fees
    
    
    12,333
    
    
    
    12,394Total revenues
    
    
    1,028,189
    
    
    
    995,919Expenses:Cost of sales
    
    
    637,100
    
    
    
    630,018Wholesale selling expenses
    
    
    31,759
    
    
    
    30,114Retail operating expenses
    
    
    191,161
    
    
    
    174,714Franchise expenses
    
    
    9,203
    
    
    
    8,811General and administrative expenses
    
    
    86,302
    
    
    
    87,698Art and development costs
    
    
    11,044
    
    
    
    9,606Total expenses
    
    
    966,569
    
    
    
    940,961Income from operations
    
    
    61,620
    
    
    
    54,958Interest expense, net
    
    
    28,261
    
    
    
    31,502Other expense, net
    
    
    758
    
    
    
    336Income before income taxes
    
    
    32,601
    
    
    
    23,120Income tax expense
    
    
    11,766
    
    
    
    6,492Net income
    
    
    20,835
    
    
    
    16,628Less: net income attributable to noncontrolling interest
    
    
    184
    
    
    
    193Net income attributable to Amscan
Holdings, Inc.
    
    $
    20,651
    
    
    $
    16,435
  5




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AMSCAN HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2010
(Unaudited)
(Amounts in thousands, except share amounts)
 Accumulated
    
    AmscanAdditional
    
    
    
    
    
    Other
    
    Holdings, Inc.
    
    
    
    TotalCommon
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Stockholders
    
    Noncontrolling
    
    StockholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Loss
    
    Equity
    
    Interests
    
    EquityBalance at
December 31,
2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,823
    
    
    $
    149,557
    
    
    $
    (8,395
    )
    
    $
    476,985
    
    
    $
    2,137
    
    
    $
    479,122Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,651
    
    
    
    
    
    
    
    20,651
    
    
    
    184
    
    
    
    20,835Net change in cumulative 
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    886
    
    
    
    886
    
    
    
    53
    
    
    
    939Change in fair value of interest rate swap
contracts, net of 
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,771
    
    
    
    1,771
    
    
    
    
    
    
    
    1,771Change in fair value of foreign exchange contracts, net of 
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    230
    
    
    
    
    
    
    
    230Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,538
    
    
    
    237
    
    
    
    23,775Options exercised into 
redeemable common securities
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    (82
    )Issuance of non-redeemable 
warrants
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000Equity based compensation 
expense
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    513Balance at
September 30,
2010
    
    
    30,226.50
    
    
    $
    
    
    
    $
    357,254
    
    
    $
    170,208
    
    
    $
    (5,508
    )
    
    $
    521,954
    
    
    $
    2,374
    
    
    $
    524,328
  6




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AMSCAN HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows (used in) provided by operating activities:Net income
    
    $
    20,835
    
    
    $
    16,628Less: net income attributable to noncontrolling interest
    
    
    184
    
    
    
    193Net income attributable to Amscan Holdings, Inc.
    
    
    20,651
    
    
    
    16,435Adjustments to reconcile net income to net cash (used in) provided by operating activities:Depreciation and amortization expense
    
    
    36,676
    
    
    
    32,525Amortization of deferred financing costs
    
    
    2,142
    
    
    
    1,616Provision for doubtful accounts
    
    
    838
    
    
    
    3,392Deferred income tax provision
    
    
    660
    
    
    
    3,410Deferred rent
    
    
    1,546
    
    
    
    1,059Undistributed income in unconsolidated joint venture
    
    
    (382
    )
    
    
    (251
    )Loss on disposal of equipment
    
    
    259
    
    
    
    141Equity based compensation
    
    
    513
    
    
    
    657Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (29,588
    )
    
    
    (10,494
    )Increase in inventories
    
    
    (130,625
    )
    
    
    (44,078
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (12,972
    )
    
    
    167Increase in accounts payable, accrued expenses and income taxes payable
    
    
    108,782
    
    
    
    15,585Net cash (used in) provided by operating activities
    
    
    (1,500
    )
    
    
    20,164Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (35,630
    )
    
    
    (3,378
    )Capital expenditures
    
    
    (36,100
    )
    
    
    (19,523
    )Proceeds from disposal of property and equipment
    
    
    147
    
    
    
    54Net cash used in investing activities
    
    
    (71,583
    )
    
    
    (22,847
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (49,157
    )
    
    
    (6,343
    )Borrowings under revolving credit facility
    
    
    128,851
    
    
    
    19,927Proceeds from issuance of common stock and exercise of options, net of retirements
    
    
    52
    
    
    
    90Net cash provided by financing activities
    
    
    79,746
    
    
    
    13,674Effect of exchange rate changes on cash and cash equivalents
    
    
    660
    
    
    
    2,317Net increase in cash and cash equivalents
    
    
    7,323
    
    
    
    13,308Cash and cash equivalents at beginning of period
    
    
    15,420
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    22,743
    
    
    $
    26,366
  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
       8




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 3  Basis of Presentation
  Note 4  Inventories
  September 30,
    
    
    December 31,2010
    
    
    2009Finished goods
    
    $
    463,111
    
    
    $
    325,421Raw Materials
    
    
    11,649
    
    
    
    12,650Work in Process
    
    
    6,314
    
    
    
    6,431481,074
    
    
    
    344,502Reserve for slow-moving and obsolete inventory
    
    
    (11,504
    )
    
    
    (8,552
    )$
    469,570
    
    
    $
    335,950
  Note 5  Income Taxes
  Note 6  Restructuring
   9




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 7  Comprehensive Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    4,603
    
    
    $
    3,079
    
    
    $
    20,651
    
    
    $
    16,435Net change in cumulative translation adjustment
    
    
    2,993
    
    
    
    (164
    )
    
    
    886
    
    
    
    4,401Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $804, $(41), $1,040, and $680
    
    
    1,370
    
    
    
    (69
    )
    
    
    1,771
    
    
    
    1,157Change in fair value of foreign exchange
contracts, net of income tax (benefit)
expense of $(206), $(258), $135, $(965)
    
    
    (351
    )
    
    
    (440
    )
    
    
    230
    
    
    
    (1,643
    )Comprehensive income
    
    $
    8,615
    
    
    $
    2,406
    
    
    $
    23,538
    
    
    $
    20,350
 Note 8  Capital Stock
    10




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 9  Segment Information
   Industry Segments
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended September 30, 2010Revenues:Net sales
    
    $
    219,976
    
    
    $
    229,856
    
    
    $
    449,831Royalties and franchise fees
    
    
    
    
    
    
    4,035
    
    
    
    4,035Total revenues
    
    
    219,976
    
    
    
    233,891
    
    
    
    453,867Eliminations
    
    
    (91,060
    )
    
    
    
    
    
    
    (91,060
    )Net Revenues
    
    $
    128,916
    
    
    $
    233,891
    
    
    $
    362,807Income (loss) from operations
    
    $
    29,566
    
    
    $
    (11,603
    )
    
    $
    17,963Interest expense, net
    
    
    
    
    
    
    
    
    
    
    9,834Other expense, net
    
    
    
    
    
    
    
    
    
    
    704Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    7,425Total assets
    
    $
    962,547
    
    
    $
    756,960
    
    
    $
    1,719,507
 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
    
    
    
    
    
    
    
    
    
    $
    4,171Total assets
    
    $
    782,868
    
    
    $
    779,705
    
    
    
    1,562,573
 11




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedNine Months Ended September 30, 2010Revenues:Net sales
    
    $
    564,400
    
    
    $
    668,250
    
    
    $
    1,232,650Royalties and franchise fees
    
    
    
    
    
    
    12,333
    
    
    
    12,333Total revenues
    
    
    564,400
    
    
    
    680,583
    
    
    
    1,244,983Eliminations
    
    
    (216,794
    )
    
    
    
    
    
    
    (216,794
    )Net Revenues
    
    $
    347,606
    
    
    $
    680,583
    
    
    $
    1,028,189Income from operations
    
    $
    72,049
    
    
    $
    (10,429
    )
    
    $
    61,620Interest expense, net
    
    
    
    
    
    
    
    
    
    
    28,261Other expense, net
    
    
    
    
    
    
    
    
    
    
    758Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    32,601Total assets
    
    $
    962,547
    
    
    $
    756,960
    
    
    $
    1,719,507
 Wholesale
    
    
    Retail
    
    
    ConsolidatedNine Months Ended September 30, 2009Revenues:Net sales
    
    $
    478,147
    
    
    $
    668,520
    
    
    $
    1,146,667Royalties and franchise fees
    
    
    
    
    
    
    12,394
    
    
    
    12,394Total revenues
    
    
    478,147
    
    
    
    680,914
    
    
    
    1,159,061Eliminations
    
    
    (163,142
    )
    
    
    
    
    
    
    (163,142
    )Net Revenues
    
    $
    315,005
    
    
    $
    680,914
    
    
    $
    995,919Income from operations
    
    $
    45,826
    
    
    $
    9,132
    
    
    $
    54,958Interest expense, net
    
    
    
    
    
    
    
    
    
    
    31,502Other expense, net
    
    
    
    
    
    
    
    
    
    
    336Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    23,120Total assets
    
    $
    782,868
    
    
    $
    779,705
    
    
    $
    1,562,573
 Geographic Segments
  Note 10  Legal Proceedings
  12




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 11  Stock Option Plan
    Note 12  Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   Foreign Exchange Risk Management
   13




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Fair Value Measurement
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
    
    Level 3  Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
  Quoted Prices in
    
    SignificantActive Markets for
    
    Other
    
    UnobservableIdentical Assets or
    
    Observable
    
    Inputs
    
    Total as ofSeptember 30, 2010
    
    Liabilities (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)
    
    September 30, 2010Derivative assets
    
    
    
    
    
    $
    97
    
    
    
    
    
    
    $
    97Derivative liabilities
    
    
    
    
    
    
    (3,501
    )
    
    
    
    
    
    
    (3,501
    )
 Quoted Prices in
    
    SignificantActive Markets for
    
    Other
    
    UnobservableIdentical Assets or
    
    Observable
    
    Inputs
    
    Total as ofDecember 31, 2009
    
    Liabilities (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)
    
    December 31, 2009Derivative liabilities
    
    
    
    
    
    $
    (6,582
    )
    
    
    
    
    
    $
    (6,582
    )
    September 30, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueTerm Loan
    
    $
    341,635
    
    
    $
    329,678
    
    
    $
    364,688
    
    
    $
    331,866$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    166,250
    
    
    
    175,000
    
    
    
    166,250
 14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
   Derivative Assets
    
    
    Derivative LiabilitiesNotional Amounts
    
    September 30, 2010
    
    
    December 31, 2009
    
    
    September 30, 2010
    
    
    December 31, 2009Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceSeptember 30,
    
    
    December 31,
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairDerivative Instrument
    
    2010
    
    
    2009
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    ValueInterest Rate Hedge
    
    $
    142,972
    
    
    $
    163,441
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b) AE
    
    
    ($3,501
    )
    
    (b) AE
    
    
    ($6,313
    )Foreign Exchange Contracts
    
    
    4,800
    
    
    
    19,200
    
    
    (a) PP
    
    
    97
    
    
    (a) PP
    
    
    
    
    
    (a) PP
    
    
    
    
    
    (b) AE
    
    
    ($269
    )Total Hedges
    
    $
    147,772
    
    
    $
    182,641
    
    
    
    
    
    
    $
    97
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    ($3,501
    )
    
    
    
    
    
    
    ($6,582
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses Note 13  Recently Issued Accounting Pronouncements
    15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 14  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
    
    SSY Realty Corp.
    
    Party City Franchise Group Holdings, LLC (PCFG)
  
    
    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.
    
    Christys Asia, Ltd.
    
    Christys By Design, Ltd.
    
    Christys Dress Up, Ltd.
    
    Christys Garments & Accessories Ltd.
    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)
 CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    19,645
    
    
    $
    3,098
    
    
    $
    
    
    
    $
    22,743Accounts receivable, net of allowances
    
    
    87,273
    
    
    
    42,796
    
    
    
    
    
    
    
    130,069Inventories, net of allowances
    
    
    447,922
    
    
    
    22,578
    
    
    
    (930
    )
    
    
    469,570Prepaid expenses and other current assets
    
    
    73,631
    
    
    
    3,994
    
    
    
    
    
    
    
    77,625Total current assets
    
    
    628,471
    
    
    
    72,466
    
    
    
    (930
    )
    
    
    700,007Property, plant and equipment, net
    
    
    183,766
    
    
    
    3,230
    
    
    
    
    
    
    
    186,996Goodwill
    
    
    572,145
    
    
    
    25,137
    
    
    
    50
    
    
    
    597,332Trade names
    
    
    157,355
    
    
    
    
    
    
    
    
    
    
    
    157,355Other intangible assets, net
    
    
    60,245
    
    
    
    
    
    
    
    
    
    
    
    60,245Investment in unconsolidated subsidiaries
    
    
    68,254
    
    
    
    
    
    
    
    (68,254
    )
    
    
    Intercompany receivable
    
    
    14,371
    
    
    
    
    
    
    
    (14,371
    )
    
    
    Other assets, net
    
    
    14,997
    
    
    
    2,575
    
    
    
    
    
    
    
    17,572Total assets
    
    $
    1,699,604
    
    
    $
    103,408
    
    
    $
    (83,505
    )
    
    $
    1,719,507LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    205,202
    
    
    $
    
    
    
    $
    
    
    
    $
    205,202Intercompany payable
    
    
    
    
    
    
    14,371
    
    
    
    (14,371
    )
    
    
    Accounts payable
    
    
    186,095
    
    
    
    11,804
    
    
    
    
    
    
    
    197,899Accrued expenses
    
    
    106,135
    
    
    
    6,334
    
    
    
    
    
    
    
    112,469Income taxes payable
    
    
    5,877
    
    
    
    931
    
    
    
    (15
    )
    
    
    6,793Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    3,189
    
    
    
    39
    
    
    
    
    
    
    
    3,228Total current liabilities
    
    
    521,942
    
    
    
    33,479
    
    
    
    (14,386
    )
    
    
    541,035Long-term obligations, excluding current portion
    
    
    522,459
    
    
    
    94
    
    
    
    
    
    
    
    522,553Deferred income tax liabilities
    
    
    101,878
    
    
    
    566
    
    
    
    
    
    
    
    102,444Deferred rent and other long-term liabilities
    
    
    11,597
    
    
    
    
    
    
    
    (972
    )
    
    
    10,625Total liabilities
    
    
    1,157,876
    
    
    
    34,139
    
    
    
    (15,358
    )
    
    
    1,176,657Redeemable common securities
    
    
    18,522
    
    
    
    
    
    
    
    
    
    
    
    18,522Commitments and contingenciesStockholders equity:Common Stock
    
    
    336
    
    
    
    336
    
    
    
    (672
    )
    
    
    Additional paid-in capital
    
    
    357,254
    
    
    
    31,025
    
    
    
    (31,025
    )
    
    
    357,254Retained earnings
    
    
    171,123
    
    
    
    38,857
    
    
    
    (39,772
    )
    
    
    170,208Accumulated other comprehensive loss
    
    
    (5,508
    )
    
    
    (3,323
    )
    
    
    3,323
    
    
    
    (5,508
    )Amscan Holdings, Inc. stockholders equity
    
    
    523,206
    
    
    
    66,895
    
    
    
    (68,147
    )
    
    
    521,954Noncontrolling interests
    
    
    
    
    
    
    2,374
    
    
    
    
    
    
    
    2,374Total stockholders equity
    
    
    523,206
    
    
    
    69,269
    
    
    
    (68,147
    )
    
    
    524,328Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,699,604
    
    
    $
    103,408
    
    
    $
    (83,505
    )
    
    $
    1,719,507
 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
December 31, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    
    8,240
    
    
    
    7,180
    
    
    
    
    
    
    
    15,420Accounts receivable, net of allowances
    
    
    60,655
    
    
    
    22,126
    
    
    
    
    
    
    
    82,781Inventories, net of allowances
    
    
    295,004
    
    
    
    46,708
    
    
    
    (5,762
    )
    
    
    335,950Prepaid expenses and other current assets
    
    
    63,529
    
    
    
    4,231
    
    
    
    1,781
    
    
    
    69,541Total current assets
    
    
    427,428
    
    
    
    80,245
    
    
    
    (3,981
    )
    
    
    503,692Property, plant and equipment, net
    
    
    163,999
    
    
    
    10,995
    
    
    
    
    
    
    
    174,994Goodwill
    
    
    510,400
    
    
    
    37,988
    
    
    
    51
    
    
    
    548,439Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    29,948
    
    
    
    24,721
    
    
    
    
    
    
    
    54,669Investment in unconsolidated subsidiaries
    
    
    76,032
    
    
    
    
    
    
    
    (76,032
    )
    
    
    Intercompany receivable
    
    
    42,335
    
    
    
    9,760
    
    
    
    (52,095
    )
    
    
    Other assets, net
    
    
    41,622
    
    
    
    (198
    )
    
    
    
    
    
    
    41,424Total assets
    
    $
    1,449,047
    
    
    $
    163,511
    
    
    $
    (132,057
    )
    
    $
    1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    77,635
    
    
    $
    
    
    
    $
    
    
    
    $
    77,635Accounts payable
    
    
    67,235
    
    
    
    9,666
    
    
    
    
    
    
    
    76,901Accrued expenses
    
    
    83,430
    
    
    
    10,250
    
    
    
    
    
    
    
    93,680Income taxes payable
    
    
    32,969
    
    
    
    (552
    )
    
    
    (356
    )
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    27,761
    
    
    
    7,145
    
    
    
    
    
    
    
    34,906Total current liabilities
    
    
    304,474
    
    
    
    26,509
    
    
    
    (356
    )
    
    
    330,627Long-term obligations, excluding current portion
    
    
    522,392
    
    
    
    16,500
    
    
    
    
    
    
    
    538,892Intercompany payable
    
    
    9,760
    
    
    
    42,335
    
    
    
    (52,095
    )
    
    
    Deferred income tax liabilities
    
    
    101,000
    
    
    
    570
    
    
    
    
    
    
    
    101,570Deferred rent and other long term-liabilities
    
    
    12,087
    
    
    
    786
    
    
    
    (972
    )
    
    
    11,901Total liabilities
    
    
    949,713
    
    
    
    86,700
    
    
    
    (53,423
    )
    
    
    982,990Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    336
    
    
    
    336
    
    
    
    (672
    )
    
    
    Additional paid-in capital
    
    
    336,331
    
    
    
    47,333
    
    
    
    (47,841
    )
    
    
    335,823Retained earnings
    
    
    152,673
    
    
    
    31,561
    
    
    
    (34,677
    )
    
    
    149,557Accumulated other comprehensive loss
    
    
    (8,395
    )
    
    
    (4,556
    )
    
    
    4,556
    
    
    
    (8,395
    )Amscan Holdings Inc. stockholders equity
    
    
    480,945
    
    
    
    76,674
    
    
    
    (78,634
    )
    
    
    476,985Noncontrolling interests
    
    
    
    
    
    
    2,137
    
    
    
    
    
    
    
    2,137Total stockholders equity
    
    
    480,945
    
    
    
    76,811
    
    
    
    (78,634
    )
    
    
    479,122Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,449,047
    
    
    $
    163,511
    
    
    $
    (132,057
    )
    
    $
    1,480,501
 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)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    332,781
    
    
    $
    31,854
    
    
    $
    (5,863
    )
    
    $
    358,772Royalties and franchise fees
    
    
    4,035
    
    
    
    
    
    
    
    
    
    
    
    4,035Total revenues
    
    
    336,816
    
    
    
    31,854
    
    
    
    (5,863
    )
    
    
    362,807Expenses:Cost of sales
    
    
    209,516
    
    
    
    22,741
    
    
    
    (5,922
    )
    
    
    226,335Wholesale selling expenses
    
    
    7,728
    
    
    
    2,796
    
    
    
    
    
    
    
    10,524Retail operating expenses
    
    
    73,785
    
    
    
    
    
    
    
    
    
    
    
    73,785Franchise expenses
    
    
    2,930
    
    
    
    
    
    
    
    
    
    
    
    2,930General and administrative expenses
    
    
    25,625
    
    
    
    2,200
    
    
    
    (330
    )
    
    
    27,495Art and development costs
    
    
    3,802
    
    
    
    (27
    )
    
    
    
    
    
    
    3,775Total expenses
    
    
    323,386
    
    
    
    27,710
    
    
    
    (6,252
    )
    
    
    344,844Income from operations
    
    
    13,430
    
    
    
    4,144
    
    
    
    389
    
    
    
    17,963Interest expense, net
    
    
    9,817
    
    
    
    17
    
    
    
    
    
    
    
    9,834Other (income) expense, net
    
    
    (3,753
    )
    
    
    148
    
    
    
    4,309
    
    
    
    704Income before income taxes
    
    
    7,366
    
    
    
    3,979
    
    
    
    (3,920
    )
    
    
    7,425Income tax expense
    
    
    3,189
    
    
    
    1,509
    
    
    
    (1,946
    )
    
    
    2,752Net income
    
    
    4,177
    
    
    
    2,470
    
    
    
    (1,974
    )
    
    
    4,673Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    70Net income attributable to Amscan Holdings, Inc.
    
    $
    4,177
    
    
    $
    2,400
    
    
    $
    (1,974
    )
    
    $
    4,603
 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
Nine Months Ended September 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    955,977
    
    
    $
    77,309
    
    
    $
    (17,430
    )
    
    $
    1,015,856Royalties and franchise fees
    
    
    12,333
    
    
    
    
    
    
    
    
    
    
    
    12,333Total revenues
    
    
    968,310
    
    
    
    77,309
    
    
    
    (17,430
    )
    
    
    1,028,189Expenses:Cost of sales
    
    
    599,003
    
    
    
    55,486
    
    
    
    (17,389
    )
    
    
    637,100Wholesale selling expenses
    
    
    23,900
    
    
    
    7,859
    
    
    
    
    
    
    
    31,759Retail operating expenses
    
    
    191,161
    
    
    
    
    
    
    
    
    
    
    
    191,161Franchise expenses
    
    
    9,203
    
    
    
    
    
    
    
    
    
    
    
    9,203General and administrative expenses
    
    
    80,717
    
    
    
    6,575
    
    
    
    (990
    )
    
    
    86,302Art and development costs
    
    
    11,117
    
    
    
    (73
    )
    
    
    
    
    
    
    11,044Total expenses
    
    
    915,101
    
    
    
    69,847
    
    
    
    (18,379
    )
    
    
    966,569Income from operations
    
    
    53,209
    
    
    
    7,462
    
    
    
    949
    
    
    
    61,620Interest expense, net
    
    
    28,213
    
    
    
    48
    
    
    
    
    
    
    
    28,261Other (income) expense, net
    
    
    (7,646
    )
    
    
    487
    
    
    
    7,917
    
    
    
    758Income before income taxes
    
    
    32,642
    
    
    
    6,927
    
    
    
    (6,968
    )
    
    
    32,601Income tax expense
    
    
    11,781
    
    
    
    2,323
    
    
    
    (2,338
    )
    
    
    11,766Net income
    
    $
    20,861
    
    
    $
    4,604
    
    
    $
    (4,630
    )
    
    $
    20,835Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    184Net income attributable to Amscan Holdings, Inc.
    
    $
    20,861
    
    
    $
    4,420
    
    
    $
    (4,630
    )
    
    $
    20,651
 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
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
    )
    
    
    215,491Wholesale selling 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) loss, 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 attributed to noncontrolling interest
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    76Net income (loss) attributable to Amscan Holdings,
Inc.
    
    $
    5,744
    
    
    $
    (761
    )
    
    $
    (1,904
    )
    
    $
    3,079
 21




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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
    )
    
    
    630,018Wholesale selling 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 attributed to noncontrolling interest
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    193Net income (loss) attributable to Amscan Holdings,
Inc.
    
    $
    22,326
    
    
    $
    (2,470
    )
    
    $
    (3,421
    )
    
    $
    16,435
 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 CASH FLOWS
Nine Months Ended September 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows (used in) provided by operating activities:Net income
    
    $
    20,861
    
    
    $
    4,604
    
    
    $
    (4,630
    )
    
    $
    20,835Less net income attributable to noncontrolling interest
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    184Net income attributable to Amscan Holdings, Inc.
    
    
    20,861
    
    
    
    4,420
    
    
    
    (4,630
    )
    
    
    20,651Adjustments to reconcile net income attributable to Amscan Holdings, Inc.
to net cash (used in) provided by operating activities:Depreciation and amortization expense
    
    
    36,006
    
    
    
    670
    
    
    
    
    
    
    
    36,676Amortization of deferred financing costs
    
    
    2,142
    
    
    
    
    
    
    
    
    
    
    
    2,142Provision for doubtful accounts
    
    
    658
    
    
    
    180
    
    
    
    
    
    
    
    838Deferred income tax expense
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    660Deferred rent
    
    
    1,546
    
    
    
    
    
    
    
    
    
    
    
    1,546Undistributed income in unconsolidated joint venture
    
    
    (382
    )
    
    
    
    
    
    
    
    
    
    
    (382
    )Loss (gain) on disposal of property and equipment
    
    
    266
    
    
    
    (7
    )
    
    
    
    
    
    
    259Equity based compensation
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    513Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (24,966
    )
    
    
    (4,622
    )
    
    
    
    
    
    
    (29,588
    )Increase in inventories
    
    
    (129,152
    )
    
    
    (1,565
    )
    
    
    92
    
    
    
    (130,625
    )Increase in prepaid expenses and other current assets
    
    
    (11,773
    )
    
    
    (1,199
    )
    
    
    
    
    
    
    (12,972
    )Increase in accounts payable, accrued expenses and income taxes payable
    
    
    100,936
    
    
    
    3,308
    
    
    
    4,538
    
    
    
    108,782Net cash (used in) provided by operating activities
    
    
    (2,685
    )
    
    
    1,185
    
    
    
    
    
    
    
    (1,500
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (35,632
    )
    
    
    2
    
    
    
    
    
    
    
    (35,630
    )Capital expenditures
    
    
    (35,343
    )
    
    
    (757
    )
    
    
    
    
    
    
    (36,100
    )Proceeds from disposal of property and equipment
    
    
    109
    
    
    
    38
    
    
    
    
    
    
    
    147Net cash used in investing activities
    
    
    (70,866
    )
    
    
    (717
    )
    
    
    
    
    
    
    (71,583
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (49,136
    )
    
    
    (21
    )
    
    
    
    
    
    
    (49,157
    )Borrowings under revolving credit facility
    
    
    128,812
    
    
    
    39
    
    
    
    
    
    
    
    128,851Proceeds from issuance of common stock and exercise of options, net of retirements
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Net cash provided by financing activities
    
    
    79,728
    
    
    
    18
    
    
    
    
    
    
    
    79,746Effect of exchange rate changes on cash and cash equivalents
    
    
    (131
    )
    
    
    791
    
    
    
    
    
    
    
    660Net increase in cash and cash equivalents
    
    
    6,046
    
    
    
    1,277
    
    
    
    
    
    
    
    7,323Cash and cash equivalents at beginning of period
    
    
    13,599
    
    
    
    1,821
    
    
    
    
    
    
    
    15,420Cash and cash equivalents at end of period
    
    $
    19,645
    
    
    $
    3,098
    
    
    $
    
    
    
    $
    22,743
 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 andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by operating activities:Net income (loss)
    
    $
    22,326
    
    
    $
    (2,277
    )
    
    $
    (3,421
    )
    
    $
    16,628Less net income attributable to noncontrolling interest
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    193Net income (loss) attributable to Amscan Holdings, Inc.
    
    
    22,326
    
    
    
    (2,470
    )
    
    
    (3,421
    )
    
    
    16,435Adjustments to reconcile net income (loss) attributable to Amscan Holdings,
Inc. 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 loss in unconsolidated joint venture
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    (251
    )Gain on disposal of property and 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
    )Borrowings under revolving credit facility
    
    
    19,927
    
    
    
    
    
    
    
    
    
    
    
    19,927Proceeds from issuance of common stock and exercise of options, net of retirements
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    90Net provided by (used in) 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



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2009
  Three Months Ended September 30,2010
    
    
    2009Revenues:Net sales
    
    
    98.9
    %
    
    
    98.8
    %Royalties and franchise fees
    
    
    1.1
    
    
    
    1.2Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.4
    
    
    
    63.2Wholesale selling expenses
    
    
    2.9
    
    
    
    2.9Retail operating expenses
    
    
    20.3
    
    
    
    19.0Franchise expenses
    
    
    0.8
    
    
    
    0.9General and administrative expenses
    
    
    7.6
    
    
    
    8.6Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    95.0
    
    
    
    95.6Income from operations
    
    
    5.0
    
    
    
    4.4Interest expense, net
    
    
    2.7
    
    
    
    3.1Other expense, net
    
    
    0.2
    
    
    
    0.1Income before income taxes
    
    
    2.1
    
    
    
    1.2Income tax expense
    
    
    0.8
    
    
    
    0.3Net income
    
    
    1.3
    
    
    
    0.9Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    1.3
    %
    
    
    0.9
    %
 Three Months Ended September 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    219,976
    
    
    
    60.6
    %
    
    $
    172,948
    
    
    
    50.7
    %Eliminations
    
    
    (91,060
    )
    
    
    (25.1
    )
    
    
    (58,371
    )
    
    
    (17.1
    )Net wholesale
    
    
    128,916
    
    
    
    35.5
    
    
    
    114,577
    
    
    
    33.6Retail
    
    
    229,856
    
    
    
    63.4
    
    
    
    222,367
    
    
    
    65.2Total net sales
    
    
    358,772
    
    
    
    98.9
    
    
    
    336,944
    
    
    
    98.8Franchise related
    
    
    4,035
    
    
    
    1.1
    
    
    
    4,164
    
    
    
    1.2Total revenues
    
    $
    362,807
    
    
    
    100.0
    %
    
    $
    341,108
    
    
    
    100.0
    %
 25




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##### Table of Contents



Wholesale
   Retail
 i.e
 Gross Profit
  Three Months Ended September 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    49,439
    
    
    
    38.3
    %
    
    $
    40,644
    
    
    
    35.5
    %Retail
    
    
    82,998
    
    
    
    36.1
    %
    
    
    80,809
    
    
    
    36.3
    %Total
    
    $
    132,437
    
    
    
    36.9
    %
    
    $
    121,453
    
    
    
    36.0
    %
   Operating expenses
  26




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##### Table of Contents



Interest expense, net
  Other expense, net
  Income tax expense
  27




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##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2009
  Nine Months Ended September 30,2010
    
    2009Revenues:Net sales
    
    
    98.8
    %
    
    
    98.8
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.2Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.0
    
    
    
    63.3Wholesale selling expenses
    
    
    3.1
    
    
    
    3.0Retail operating expenses
    
    
    18.6
    
    
    
    17.5Franchise expenses
    
    
    0.9
    
    
    
    0.9General and administrative expenses
    
    
    8.4
    
    
    
    8.8Art and development costs
    
    
    1.1
    
    
    
    1.0Total expenses
    
    
    94.1
    
    
    
    94.5Income from operations
    
    
    5.9
    
    
    
    5.5Interest expense, net
    
    
    2.7
    
    
    
    3.2Other expense, net
    
    
    0.1
    
    
    
    0.0Income before income taxes
    
    
    3.1
    
    
    
    2.3Income tax expense
    
    
    1.1
    
    
    
    0.6Net income
    
    
    2.0
    
    
    
    1.7Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    2.0
    %
    
    
    1.7
    %
 Nine Months Ended September 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    564,400
    
    
    
    54.9
    %
    
    $
    478,147
    
    
    
    48.0
    %Eliminations
    
    
    (216,794
    )
    
    
    (21.1
    )
    
    
    (163,142
    )
    
    
    (16.4
    )Net wholesale
    
    
    347,606
    
    
    
    33.8
    
    
    
    315,005
    
    
    
    31.6Retail
    
    
    668,250
    
    
    
    65.0
    
    
    
    668,520
    
    
    
    67.1Total net sales
    
    
    1,015,856
    
    
    
    98.8
    
    
    
    983,525
    
    
    
    98.8Franchise related
    
    
    12,333
    
    
    
    1.2
    
    
    
    12,394
    
    
    
    1.2Total revenues
    
    $
    1,028,189
    
    
    
    100.0
    %
    
    $
    995,919
    
    
    
    100.0
    %
 28




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##### Table of Contents



Wholesale
   Retail
 i.e
 Gross Profit
  Nine Months Ended September 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    133,410
    
    
    
    38.4
    %
    
    $
    109,634
    
    
    
    34.8
    %Retail
    
    
    245,346
    
    
    
    36.7
    %
    
    
    243,873
    
    
    
    36.5
    %Total
    
    $
    378,756
    
    
    
    37.3
    %
    
    $
    353,507
    
    
    
    35.9
    %
   Operating expenses
   29




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##### Table of Contents



Interest expense, net
  Other expense, net
  Income tax expense
  Liquidity and Capital Resources
        30




---



##### Table of Contents



Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  31




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   
 Item 5. Other Events
 ABL Refinance
     32




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##### Table of Contents



Acquisitions
   33




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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) 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.
 34




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##### Table of Contents



AMSCAN HOLDINGS, INC.Date: November 15, 2010
    By:
    /s/ Michael A. CorrealeMichael A. CorrealeChief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 35