##### 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, 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




---



##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 September 30, 2007
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2007 and
December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the
Nine Months Ended September 30, 2007
    
    
    6Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2007 and 2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    29Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4 Controls and Procedures
    
    
    41PART IIItem 5 Other Information
    
    
    42Item 6 Exhibits
    
    
    42Signature
    
    
    43EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION
   http://www.sec.gov.
 2




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,246
    
    
    $
    4,966Accounts receivable, net of allowances
    
    
    112,419
    
    
    
    95,470Inventories, net of allowances
    
    
    284,755
    
    
    
    227,450Prepaid expenses and other current assets
    
    
    48,528
    
    
    
    35,700Total current assets
    
    
    455,948
    
    
    
    363,586Property, plant and equipment, net
    
    
    158,005
    
    
    
    155,443Goodwill
    
    
    480,081
    
    
    
    476,704Trade names
    
    
    143,000
    
    
    
    143,000Other intangible assets, net
    
    
    45,403
    
    
    
    47,407Other assets, net
    
    
    27,653
    
    
    
    31,231Total assets
    
    $
    1,310,090
    
    
    $
    1,217,371LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    61,000
    
    
    $
    4,930Accounts payable
    
    
    130,621
    
    
    
    110,429Accrued expenses
    
    
    91,230
    
    
    
    68,089Income taxes payable
    
    
    809
    
    
    
    8,874Current portion of long-term obligations
    
    
    4,670
    
    
    
    3,703Total current liabilities
    
    
    288,329
    
    
    
    196,025Long-term obligations, excluding current portion
    
    
    558,022
    
    
    
    558,372Deferred income tax liabilities
    
    
    83,296
    
    
    
    83,592Deferred rent and other long-term liabilities
    
    
    10,768
    
    
    
    10,199Total liabilities
    
    
    940,415
    
    
    
    848,188Redeemable common securities
    
    
    17,083
    
    
    
    9,343Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,435.16 and
30,100.75 shares issued and outstanding at September 30, 2007 and December
31, 2006 respectively.)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    329,386
    
    
    
    331,113Retained earnings
    
    
    20,793
    
    
    
    27,264Accumulated other comprehensive income
    
    
    2,413
    
    
    
    1,463Total stockholders equity
    
    
    352,592
    
    
    
    359,840Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,310,090
    
    
    $
    1,217,371
  3




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedSeptember 30,2007
    
    
    2006Revenues:Net sales
    
    $
    277,564
    
    
    $
    220,514Royalties and franchise fees
    
    
    5,783
    
    
    
    4,505Total revenues
    
    
    283,347
    
    
    
    225,019Expenses:Cost of sales
    
    
    180,781
    
    
    
    156,383Selling expenses
    
    
    10,473
    
    
    
    9,978Retail operating expenses
    
    
    44,931
    
    
    
    27,668Franchise expenses
    
    
    3,234
    
    
    
    3,424General and administrative expenses
    
    
    26,500
    
    
    
    19,751Art and development costs
    
    
    2,928
    
    
    
    2,504Total expenses
    
    
    268,847
    
    
    
    219,708Income from operations
    
    
    14,500
    
    
    
    5,311Interest expense, net
    
    
    12,936
    
    
    
    14,226Other expense, net
    
    
    209
    
    
    
    319Income (Loss) before income taxes and minority interests
    
    
    1,355
    
    
    
    (9,234
    )Income tax expense (benefit)
    
    
    927
    
    
    
    (3,671
    )Minority interests
    
    
    4
    
    
    
    112Net Income (loss)
    
    $
    424
    
    
    $
    (5,675
    )
  4




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Revenues:Net sales
    
    $
    794,517
    
    
    $
    648,544Royalties and franchise fees
    
    
    16,425
    
    
    
    13,548Total revenues
    
    
    810,942
    
    
    
    662,092Expenses:Cost of sales
    
    
    521,629
    
    
    
    462,254Selling expenses
    
    
    31,439
    
    
    
    28,596Retail operating expenses
    
    
    116,373
    
    
    
    76,230Franchise expenses
    
    
    9,640
    
    
    
    9,403General and administrative expenses
    
    
    75,755
    
    
    
    59,390Art and development costs
    
    
    8,882
    
    
    
    7,462Total expenses
    
    
    763,718
    
    
    
    643,335Income from operations
    
    
    47,224
    
    
    
    18,757Interest expense, net
    
    
    40,918
    
    
    
    41,329Other expense, (benefit) net
    
    
    15,916
    
    
    
    (1,638
    )Loss before income taxes and minority interests
    
    
    (9,610
    )
    
    
    (20,934
    )Income tax (benefit) expense
    
    
    (3,238
    )
    
    
    (8,311
    )Minority interests
    
    
    68
    
    
    
    218Net loss
    
    $
    (6,440
    )
    
    $
    (12,841
    )
  5




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Nine Months Ended September 30, 2007
 (Dollars in thousands, except share and per share amounts)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at December 31, 2006
    
    
    30,100.75
    
    
    $
    
    
    
    $
    331,113
    
    
    $
    27,264
    
    
    $
    1,463
    
    
    $
    359,840Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,440
    )
    
    
    
    
    
    
    (6,440
    )Cumulative change from
adoption of FIN 48 (see Note
5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,710
    
    
    
    1,710Change in fair value of
interest rate swap contracts,
net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (269
    )
    
    
    (269
    )Change in fair value of
foreign exchange contracts,
net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (491
    )
    
    
    (491
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,521
    )Issuance of shares of
redeemable and non-redeemable
common stock
    
    
    340.89
    
    
    
    
    
    
    
    4,755
    
    
    
    
    
    
    
    
    
    
    
    4,755Reclass of common stock to
redeemable common securities
    
    
    
    
    
    
    
    
    
    
    (4,534
    )
    
    
    
    
    
    
    
    
    
    
    (4,534
    )Revaluation of common stock
    
    
    
    
    
    
    
    
    
    
    (3,218
    )
    
    
    
    
    
    
    
    
    
    
    (3,218
    )Purchase and retirement of
redeemable and non-redeemable
common stock held by former
employees
    
    
    (6.48
    )
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (80
    )Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    
    
    
    
    1,350Balance at September 30, 2007
    
    
    30,435.16
    
    
    $
    
    
    
    $
    329,386
    
    
    $
    20,793
    
    
    $
    2,413
    
    
    $
    352,592
  6




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
 (Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006Cash flows used in operating activities:Net loss
    
    $
    (6,440
    )
    
    $
    (12,841
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization expense
    
    
    27,946
    
    
    
    30,626Amortization of deferred financing costs
    
    
    1,586
    
    
    
    1,986Provision for doubtful accounts
    
    
    966
    
    
    
    1,283Deferred income tax benefit
    
    
    1,007
    
    
    
    (7,553
    )Deferred rent
    
    
    526
    
    
    
    Undistributed income in unconsolidated joint venture
    
    
    (184
    )
    
    
    (184
    )Loss (gain) on disposal of equipment
    
    
    1,192
    
    
    
    (1,156
    )Equity based compensation
    
    
    1,350
    
    
    
    842Debt retirement costs
    
    
    3,781
    
    
    
    Write-off of deferred financing costs
    
    
    6,333
    
    
    
    Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (9,434
    )
    
    
    (28,252
    )Increase in inventories
    
    
    (51,510
    )
    
    
    (18,844
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (26,228
    )
    
    
    3,723Decrease in accounts payable, accrued expenses and income taxes payable
    
    
    39,406
    
    
    
    8,319Other, net
    
    
    11
    
    
    
    Net cash used in operating activities
    
    
    (9,691
    )
    
    
    (22,051
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (8,685
    )
    
    
    (14,270
    )Capital expenditures
    
    
    (17,753
    )
    
    
    (29,338
    )Proceeds from disposal of property and equipment
    
    
    1,738
    
    
    
    14,273Net cash used in investing activities
    
    
    (24,700
    )
    
    
    (29,335
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (385,067
    )
    
    
    (2,319
    )Proceeds
from loans, notes payable and long-term obligations, net of debt
issuance costs of $6,218
    
    
    418,507
    
    
    
    48,450Proceeds from capital contributions and exercise of options, net of retirements
    
    
    4,700
    
    
    
    1,614Net cash provided by financing activities
    
    
    38,140
    
    
    
    47,745Effect of exchange rate changes on cash and cash equivalents
    
    
    1,531
    
    
    
    1,298Net increase (decrease) in cash and cash equivalents
    
    
    5,280
    
    
    
    (2,343
    )Cash and cash equivalents at beginning of period
    
    
    4,966
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    10,246
    
    
    $
    6,402Supplemental disclosures:Interest paid
    
    $
    36,126
    
    
    $
    31,934Income taxes paid
    
    $
    9,419
    
    
    $
    3,975
  7




---



##### Table of Contents



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




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Dollars in thousands, except share and per share amounts)
 (Unaudited)
    Note 4  Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006Finished goods
    
    $
    272,823
    
    
    $
    215,069Raw materials
    
    
    13,521
    
    
    
    12,105Work-in-process
    
    
    6,131
    
    
    
    5,579292,475
    
    
    
    232,753Less: reserve for slow moving and obsolete inventory
    
    
    (7,720
    )
    
    
    (5,303
    )$
    284,755
    
    
    $
    227,450
  Note 5  Income Taxes
      9




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
   Note 6  Restructuring
  Note 7  Comprehensive Income (Loss)
  Three months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    424
    
    
    $
    (5,675
    )
    
    $
    (6,440
    )
    
    $
    (12,841
    )Cumulative change from adoption of FIN 48 (see Note 5)
    
    
    
    
    
    
    
    
    
    
    (31
    )Net change in cumulative translation adjustment
    
    
    895
    
    
    
    202
    
    
    
    1,710
    
    
    
    1,727Change in fair value of interest rate swap contracts,
net of income tax expense (benefit) of $192, $(132),
$(113), and $35
    
    
    (328
    )
    
    
    (224
    )
    
    
    (269
    )
    
    
    60Change in fair value of foreign exchange contracts,
net of income tax (benefit) expense of $(184) and
$(324)
    
    $
    (313
    )
    
    $
    
    
    
    $
    (491
    )
    
    $
    $
    678
    
    
    $
    (5,697
    )
    
    $
    (5,521
    )
    
    $
    (11,054
    )
  September 30,
    
    
    December 31,2007
    
    
    2006Cumulative translation adjustment
    
    $
    3,159
    
    
    $
    1,449Interest rate swap contracts, net of
income tax (benefit) expense of
$(113), and $44
    
    
    (194
    )
    
    
    75Foreign exchange contracts, net of
income tax (benefit) of $(324), and
$(36)
    
    
    (552
    )
    
    
    (61
    )Total accumulated other comprehensive income
    
    $
    2,413
    
    
    $
    1,463
 10




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 Note 8  Capital Stock
     Note 9  Segment Information
 Industry Segments
   Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended September 30, 2007Revenues:Net sales
    
    $
    169,566
    
    
    $
    153,950
    
    
    $
    (45,952
    )
    
    $
    277,564Royalties and franchise fees
    
    
    
    
    
    
    5,783
    
    
    
    
    
    
    
    5,783Total revenues
    
    $
    169,566
    
    
    $
    159,733
    
    
    $
    (45,952
    )
    
    $
    283,347Income from operations
    
    $
    19,666
    
    
    $
    38
    
    
    $
    (5,204
    )
    
    $
    14,500Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,936Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209Income (loss) before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,355Long-lived assets
    
    $
    473,731
    
    
    $
    396,368
    
    
    $
    (15,957
    )
    
    $
    854,142
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended September 30, 2006Revenues:Net sales
    
    $
    135,134
    
    
    $
    105,176
    
    
    $
    (19,796
    )
    
    $
    220,514Royalties and franchise fees
    
    
    
    
    
    
    4,505
    
    
    
    
    
    
    
    4,505Total revenues
    
    $
    135,134
    
    
    $
    109,681
    
    
    $
    (1,976
    )
    
    $
    225,019Income from operations
    
    $
    16,059
    
    
    $
    (7,508
    )
    
    $
    (3,240
    )
    
    $
    5,311Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,226Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Income (loss) before income tax
benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,234
    )Long-lived assets
    
    $
    455,876
    
    
    $
    358,371
    
    
    $
    (5,264
    )
    
    $
    808,983
 11




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedNine Months Ended September 30, 2007Revenues:Net sales
    
    $
    458,329
    
    
    $
    454,268
    
    
    $
    (118,080
    )
    
    $
    794,517Royalties and franchise fees
    
    
    
    
    
    
    16,425
    
    
    
    
    
    
    
    16,425Total revenues
    
    $
    458,329
    
    
    $
    470,693
    
    
    $
    (118,080
    )
    
    $
    810,942Income from operations
    
    $
    38,614
    
    
    $
    18,997
    
    
    $
    (10,387
    )
    
    $
    47,224Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,918Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,916Income (loss) before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,610
    )Long-lived assets
    
    $
    473,731
    
    
    $
    396,368
    
    
    $
    (15,957
    )
    
    $
    854,142
 Wholesale
    
    
    Retail
    
    
    Eliminations
    
    
    ConsolidatedNine Months Ended September 30, 2006Revenues:Net sales
    
    $
    375,093
    
    
    $
    322,278
    
    
    $
    (48,827
    )
    
    $
    648,544Royalties and franchise fees
    
    
    
    
    
    
    13,548
    
    
    
    
    
    
    
    13,548Total revenues
    
    $
    375,093
    
    
    $
    335,826
    
    
    $
    (48,827
    )
    
    $
    662,092Income (loss) from operations
    
    $
    34,576
    
    
    $
    (7,200
    )
    
    $
    (8,619
    )
    
    $
    18,757Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,329Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,638
    )Income (loss) before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (20,934
    )Long-lived assets
    
    $
    455,876
    
    
    $
    358,371
    
    
    $
    (5,264
    )
    
    $
    808,983
 Geographic Segments
  12




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
  Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended September 30, 2007Revenues:Net sales to unaffiliated customers
    
    $
    254,770
    
    
    $
    22,794
    
    
    $
    
    
    
    $
    277,564Net sales between geographic areas
    
    
    7,545
    
    
    
    
    
    
    
    (7,545
    )
    
    
    Net sales
    
    
    262,315
    
    
    
    22,794
    
    
    
    (7,545
    )
    
    
    277,564Royalties and franchise fees
    
    
    5,783
    
    
    
    
    
    
    
    
    
    
    
    5,783Total revenues
    
    $
    268,098
    
    
    $
    22,794
    
    
    $
    (7,545
    )
    
    $
    283,347Income from operations
    
    $
    11,081
    
    
    $
    3,223
    
    
    $
    196
    
    
    $
    14,500Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,936Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209Income (loss) before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,355Long-lived assets
    
    $
    866,054
    
    
    $
    18,422
    
    
    $
    (50,333
    )
    
    $
    854,142
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended September 30, 2006Revenues:Net sales to unaffiliated customers
    
    $
    199,959
    
    
    $
    20,555
    
    
    $
    
    
    
    $
    220,514Net sales between geographic areas
    
    
    5,920
    
    
    
    
    
    
    
    (5,920
    )
    
    
    Net sales
    
    
    205,879
    
    
    
    20,555
    
    
    
    (5,920
    )
    
    
    220,514Royalties and franchise fees
    
    
    4,505
    
    
    
    
    
    
    
    
    
    
    
    4,505Total revenues
    
    $
    210,384
    
    
    $
    20,555
    
    
    $
    (5,920
    )
    
    $
    225,019Income from operations
    
    $
    2,040
    
    
    $
    3,197
    
    
    $
    74
    
    
    $
    5,311Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,226Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Income (loss) before income tax benefit and minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,234
    )Long-lived assets
    
    $
    841,436
    
    
    $
    11,802
    
    
    $
    (44,255
    )
    
    $
    808,983
 13




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedNine Months Ended September 30, 2007Revenues:Net sales to unaffiliated customers
    
    $
    734,501
    
    
    $
    60,016
    
    
    $
    
    
    
    $
    794,517Net sales between geographic areas
    
    
    17,991
    
    
    
    
    
    
    
    (17,991
    )
    
    
    Net sales
    
    
    752,492
    
    
    
    60,016
    
    
    
    (17,991
    )
    
    
    794,517Royalties and franchise fees
    
    
    16,425
    
    
    
    
    
    
    
    
    
    
    
    16,425Total revenues
    
    $
    768,917
    
    
    $
    60,016
    
    
    $
    (17,991
    )
    
    $
    810,942Income from operations
    
    $
    40,663
    
    
    $
    5,687
    
    
    $
    874
    
    
    $
    47,224Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,918Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,916Income (loss) before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,610
    )Long-lived assets
    
    $
    866,054
    
    
    $
    18,422
    
    
    $
    (50,333
    )
    
    $
    854,142
 Domestic
    
    
    Foreign
    
    
    Eliminations
    
    
    ConsolidatedNine Months Ended September 30, 2006Revenues:Net sales to unaffiliated customers
    
    $
    596,478
    
    
    $
    52,066
    
    
    $
    
    
    
    $
    648,544Net sales between geographic areas
    
    
    15,110
    
    
    
    
    
    
    
    (15,110
    )
    
    
    Net sales
    
    
    611,588
    
    
    
    52,066
    
    
    
    (15,110
    )
    
    
    648,544Royalties and franchise fees
    
    
    13,548
    
    
    
    
    
    
    
    
    
    
    
    13,548Total revenues
    
    $
    625,136
    
    
    $
    52,066
    
    
    $
    (15,110
    )
    
    $
    662,092Income from operations
    
    $
    12,409
    
    
    $
    5,339
    
    
    $
    1,009
    
    
    $
    18,757Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,329Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,638
    )Income (loss) before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (20,934
    )Long-lived assets
    
    $
    841,436
    
    
    $
    11,802
    
    
    $
    (44,255
    )
    
    $
    808,983
 Note 10  Legal Proceedings
  Note 11  Related Party Transactions
  14




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
      Note 14  Recently Issued Accounting Standards
   Note 15  Subsequent Events
 Amendment of existing ABL Agreement
  Unrestricted Subsidiary Credit Agreement
  18




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 Credit Agreement
  Interest Rate and Fees
 1 2
 Prepayments
  Amortization
  Guarantee and Security
  Certain Covenants and events of default
  Franchise
related transactions
   19




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
  Note 16  Condensed Consolidating Financial Information
   
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    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.
  20




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,283
    
    
    $
    963
    
    
    $
    
    
    
    $
    10,246Accounts receivable, net of allowances
    
    
    90,004
    
    
    
    22,415
    
    
    
    
    
    
    
    112,419Inventories, net of allowances
    
    
    272,331
    
    
    
    13,084
    
    
    
    (660
    )
    
    
    284,755Prepaid expenses and other current assets
    
    
    46,449
    
    
    
    2,079
    
    
    
    
    
    
    
    48,528Total current assets
    
    
    418,067
    
    
    
    38,541
    
    
    
    (660
    )
    
    
    455,948Property, plant and equipment, net
    
    
    155,654
    
    
    
    2,351
    
    
    
    
    
    
    
    158,005Goodwill
    
    
    475,699
    
    
    
    4,382
    
    
    
    
    
    
    
    480,081Trade names
    
    
    143,000
    
    
    
    
    
    
    
    
    
    
    
    143,000Other intangible assets, net
    
    
    45,403
    
    
    
    
    
    
    
    
    
    
    
    45,403Other assets, net
    
    
    66,297
    
    
    
    11,689
    
    
    
    (50,333
    )
    
    
    27,653Total assets
    
    $
    1,304,120
    
    
    $
    56,963
    
    
    $
    (50,993
    )
    
    $
    1,310,090LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    61,000
    
    
    
    
    
    
    
    
    
    
    
    61,000Accounts payable
    
    
    128,006
    
    
    
    2,615
    
    
    
    
    
    
    
    130,621Accrued expenses
    
    
    80,530
    
    
    
    10,700
    
    
    
    
    
    
    
    91,230Income taxes payable
    
    
    929
    
    
    
    (77
    )
    
    
    (43
    )
    
    
    809Current portion of long-term obligations
    
    
    4,549
    
    
    
    121
    
    
    
    
    
    
    
    4,670Total current liabilities
    
    
    275,013
    
    
    
    13,359
    
    
    
    (43
    )
    
    
    288,329Long-term obligations, excluding current portion
    
    
    557,989
    
    
    
    33
    
    
    
    
    
    
    
    558,022Deferred income tax liabilities
    
    
    82,573
    
    
    
    723
    
    
    
    
    
    
    
    83,296Other
    
    
    18,280
    
    
    
    40,329
    
    
    
    (47,841
    )
    
    
    10,768Total liabilities
    
    
    933,855
    
    
    
    54,444
    
    
    
    (47,884
    )
    
    
    940,415Redeemable common securities
    
    
    17,083
    
    
    
    
    
    
    
    
    
    
    
    17,083Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    329,386
    
    
    
    
    
    
    
    
    
    
    
    329,386Retained earnings
    
    
    21,383
    
    
    
    1,654
    
    
    
    (2,244
    )
    
    
    20,793Accumulated other comprehensive income (loss)
    
    
    2,413
    
    
    
    526
    
    
    
    (526
    )
    
    
    2,413Total stockholders equity
    
    
    353,182
    
    
    
    2,519
    
    
    
    (3,109
    )
    
    
    352,592Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,304,120
    
    
    $
    56,963
    
    
    $
    (50,993
    )
    
    $
    1,310,090
 21




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
 AHI and
    
    
    CombinedCombined
    
    
    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
    
    $
    1,217,131
    
    
    $
    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
 22




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    262,315
    
    
    $
    22,794
    
    
    $
    (7,545
    )
    
    $
    277,564Royalties and franchise fees
    
    
    5,783
    
    
    
    
    
    
    
    
    
    
    
    5,783Total revenues
    
    
    268,098
    
    
    
    22,794
    
    
    
    (7,545
    )
    
    
    283,347Expenses:Cost of sales
    
    
    173,323
    
    
    
    14,869
    
    
    
    (7,411
    )
    
    
    180,781Selling expenses
    
    
    7,995
    
    
    
    2,478
    
    
    
    
    
    
    
    10,473Retail operating expenses
    
    
    44,931
    
    
    
    
    
    
    
    
    
    
    
    44,931Franchise expenses
    
    
    3,234
    
    
    
    
    
    
    
    
    
    
    
    3,234General and administrative expenses
    
    
    24,606
    
    
    
    2,224
    
    
    
    (330
    )
    
    
    26,500Art and development costs
    
    
    2,928
    
    
    
    
    
    
    
    
    
    
    
    2,928Total expenses
    
    
    257,017
    
    
    
    19,571
    
    
    
    (7,741
    )
    
    
    268,847Income from operations
    
    
    11,081
    
    
    
    3,223
    
    
    
    196
    
    
    
    14,500Interest expense, net
    
    
    12,902
    
    
    
    34
    
    
    
    
    
    
    
    12,936Other income, net
    
    
    (2,254
    )
    
    
    89
    
    
    
    2,374
    
    
    
    209Loss before income taxes and minority interests
    
    
    433
    
    
    
    3,100
    
    
    
    (2,178
    )
    
    
    1,355Income tax (benefit) expense
    
    
    (75
    )
    
    
    1,052
    
    
    
    (50
    )
    
    
    927Minority interests
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net loss
    
    $
    508
    
    
    $
    2,044
    
    
    $
    (2,128
    )
    
    $
    424
 23




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    752,492
    
    
    $
    60,016
    
    
    $
    (17,991
    )
    
    $
    794,517Royalties and franchise fees
    
    
    16,425
    
    
    
    
    
    
    
    
    
    
    
    16,425Total revenues
    
    
    768,917
    
    
    
    60,016
    
    
    
    (17,991
    )
    
    
    810,942Expenses:Cost of sales
    
    
    498,961
    
    
    
    40,543
    
    
    
    (17,875
    )
    
    
    521,629Selling expenses
    
    
    24,222
    
    
    
    7,217
    
    
    
    
    
    
    
    31,439Retail operating expenses
    
    
    116,373
    
    
    
    
    
    
    
    
    
    
    
    116,373Franchise expenses
    
    
    9,640
    
    
    
    
    
    
    
    
    
    
    
    9,640General and administrative expenses
    
    
    70,176
    
    
    
    6,569
    
    
    
    (990
    )
    
    
    75,755Art and development costs
    
    
    8,882
    
    
    
    
    
    
    
    
    
    
    
    8,882Total expenses
    
    
    728,254
    
    
    
    54,329
    
    
    
    (18,865
    )
    
    
    763,718Income from operations
    
    
    40,663
    
    
    
    5,687
    
    
    
    874
    
    
    
    47,224Interest expense, net
    
    
    40,821
    
    
    
    97
    
    
    
    
    
    
    
    40,918Other income, net
    
    
    11,264
    
    
    
    2
    
    
    
    4,650
    
    
    
    15,916Loss before income taxes and minority interests
    
    
    (11,422
    )
    
    
    5,588
    
    
    
    (3,776
    )
    
    
    (9,610
    )Income tax (benefit) expense
    
    
    (5,057
    )
    
    
    1,862
    
    
    
    (43
    )
    
    
    (3,238
    )Minority interests
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Net loss
    
    $
    (6,365
    )
    
    $
    3,658
    
    
    $
    (3,733
    )
    
    $
    (6,440
    )
 24




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    205,879
    
    
    $
    20,555
    
    
    $
    (5,920
    )
    
    $
    220,514Royalties and franchise fees
    
    
    4,505
    
    
    
    
    
    
    
    
    
    
    
    4,505Total revenues
    
    
    210,384
    
    
    
    20,555
    
    
    
    (5,920
    )
    
    
    225,019Expenses:Cost of sales
    
    
    149,021
    
    
    
    13,026
    
    
    
    (5,664
    )
    
    
    156,383Selling expenses
    
    
    7,782
    
    
    
    2,196
    
    
    
    
    
    
    
    9,978Retail operating expenses
    
    
    27,668
    
    
    
    
    
    
    
    
    
    
    
    27,668Franchise expenses
    
    
    3,424
    
    
    
    
    
    
    
    
    
    
    
    3,424General and administrative expenses
    
    
    17,945
    
    
    
    2,136
    
    
    
    (330
    )
    
    
    19,751Art and development costs
    
    
    2,504
    
    
    
    
    
    
    
    
    
    
    
    2,504Total expenses
    
    
    208,344
    
    
    
    17,358
    
    
    
    (5,994
    )
    
    
    219,708Income from operations
    
    
    2,040
    
    
    
    3,197
    
    
    
    74
    
    
    
    5,311Interest expense, net
    
    
    14,178
    
    
    
    48
    
    
    
    
    
    
    
    14,226Other (income) expense, net
    
    
    (2,046
    )
    
    
    (99
    )
    
    
    2,464
    
    
    
    319(Loss) income before income taxes and minority
interests
    
    
    (10,092
    )
    
    
    3,248
    
    
    
    (2,390
    )
    
    
    (9,234
    )Income tax (benefit) expense
    
    
    (4,578
    )
    
    
    1,002
    
    
    
    (95
    )
    
    
    (3,671
    )Minority interests
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    112Net (loss) income
    
    $
    (5,514
    )
    
    $
    2,134
    
    
    $
    (2,295
    )
    
    $
    (5,675
    )
 25




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    611,588
    
    
    $
    52,066
    
    
    $
    (15,110
    )
    
    $
    648,544Royalties and franchise fees
    
    
    13,548
    
    
    
    
    
    
    
    
    
    
    
    13,548Total revenues
    
    
    625,136
    
    
    
    52,066
    
    
    
    (15,110
    )
    
    
    662,092Expenses:Cost of sales
    
    
    442,927
    
    
    
    34,456
    
    
    
    (15,129
    )
    
    
    462,254Selling expenses
    
    
    22,534
    
    
    
    6,062
    
    
    
    
    
    
    
    28,596Retail operating expenses
    
    
    76,230
    
    
    
    
    
    
    
    
    
    
    
    76,230Franchise expenses
    
    
    9,403
    
    
    
    
    
    
    
    
    
    
    
    9,403General and administrative expenses
    
    
    54,171
    
    
    
    6,209
    
    
    
    (990
    )
    
    
    59,390Art and development costs
    
    
    7,462
    
    
    
    
    
    
    
    
    
    
    
    7,462Total expenses
    
    
    612,727
    
    
    
    46,727
    
    
    
    (16,119
    )
    
    
    643,335Income from operations
    
    
    12,409
    
    
    
    5,339
    
    
    
    (1,009
    )
    
    
    18,757Interest expense, net
    
    
    41,209
    
    
    
    120
    
    
    
    
    
    
    
    41,329Other (income) expense, net
    
    
    (6,150
    )
    
    
    237
    
    
    
    4,275
    
    
    
    (1,638
    )(Loss) income before
income taxes and minority
interests
    
    
    (22,650
    )
    
    
    4,982
    
    
    
    (3,266
    )
    
    
    (20,934
    )Income tax (benefit) expense
    
    
    (9,798
    )
    
    
    1,479
    
    
    
    8
    
    
    
    (8,311
    )Minority interests
    
    
    
    
    
    
    218
    
    
    
    
    
    
    
    218Net (loss) income
    
    $
    (12,852
    )
    
    $
    3,285
    
    
    $
    (3,274
    )
    
    $
    (12,841
    )
 26




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (6,365
    )
    
    $
    3,658
    
    
    $
    (3,733
    )
    
    $
    (6,440
    )Adjustments to reconcile net (loss) income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    27,252
    
    
    
    694
    
    
    
    
    
    
    
    27,946Amortization of deferred financing costs
    
    
    1,586
    
    
    
    
    
    
    
    
    
    
    
    1,586Provision for doubtful accounts
    
    
    780
    
    
    
    186
    
    
    
    
    
    
    
    966Deferred income tax expense (benefit)
    
    
    1,007
    
    
    
    
    
    
    
    
    
    
    
    1,007Deferred rent
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    526Undistributed loss (gain) in unconsolidated joint venture
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    (184
    )(Gain) Loss on disposal of equipment
    
    
    1,192
    
    
    
    
    
    
    
    
    
    
    
    1,192Equity based compensation
    
    
    1,350
    
    
    
    
    
    
    
    
    
    
    
    1,350Debt retirement costs
    
    
    3,781
    
    
    
    
    
    
    
    
    
    
    
    3,781Write-off of deferred financing costs
    
    
    6,333
    
    
    
    
    
    
    
    
    
    
    
    6,333Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    (106
    )
    
    
    (9,328
    )
    
    
    
    
    
    
    (9,434
    )(Increase) decrease in inventories
    
    
    (51,855
    )
    
    
    229
    
    
    
    116
    
    
    
    (51,510
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (25,722
    )
    
    
    (508
    )
    
    
    2
    
    
    
    (26,228
    )Increase (decrease) in accounts payable, accrued expenses and
income taxes payable
    
    
    31,256
    
    
    
    4,536
    
    
    
    3,614
    
    
    
    39,406Other, net
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Net cash used in operating activities
    
    
    (9,158
    )
    
    
    (533
    )
    
    
    (1
    )
    
    
    (9,691
    )Cash flows used in investing activities:Cash paid in connection with store acquisitions
    
    
    (8,685
    )
    
    
    
    
    
    
    
    
    
    
    (8,685
    )Capital expenditures
    
    
    (17,250
    )
    
    
    (503
    )
    
    
    
    
    
    
    (17,753
    )Proceeds from disposal of property and equipment
    
    
    1,738
    
    
    
    
    
    
    
    
    
    
    
    1,738Net cash used in investing activities
    
    
    (24,197
    )
    
    
    (503
    )
    
    
    
    
    
    
    (24,700
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (384,949
    )
    
    
    (118
    )
    
    
    
    
    
    
    (385,067
    )Proceeds from loans, notes payable and long-term obligations
    
    
    418,507
    
    
    
    
    
    
    
    
    
    
    
    418,507Proceeds from capital contributions and exercise of options
    
    
    4,700
    
    
    
    
    
    
    
    
    
    
    
    4,700Net cash provided by financing activities
    
    
    38,258
    
    
    
    (118
    )
    
    
    
    
    
    
    38,140Effect of exchange rate changes on cash and cash equivalents
    
    
    (15
    )
    
    
    1,546
    
    
    
    
    
    
    
    1,531Net decrease in cash and cash equivalents
    
    
    4,888
    
    
    
    392
    
    
    
    (1
    )
    
    
    5,280Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    9,283
    
    
    $
    963
    
    
    $
    (1
    )
    
    $
    10,246
 27




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2006
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (12,852
    )
    
    $
    3,285
    
    
    $
    (3,274
    )
    
    $
    (12,841
    )Adjustments to reconcile net (loss) income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    30,026
    
    
    
    600
    
    
    
    
    
    
    
    30,626Amortization of deferred financing costs
    
    
    1,986
    
    
    
    
    
    
    
    
    
    
    
    1,986Provision for doubtful accounts
    
    
    988
    
    
    
    295
    
    
    
    
    
    
    
    1,283Deferred income tax benefit
    
    
    (7,553
    )
    
    
    
    
    
    
    
    
    
    
    (7,553
    )Undistributed gain in unconsolidated joint venture
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    (184
    )Gain on disposal of property, plant and equipment
    
    
    (1,152
    )
    
    
    (4
    )
    
    
    
    
    
    
    (1,156
    )Equity based compensation
    
    
    842
    
    
    
    
    
    
    
    
    
    
    
    842Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (20,563
    )
    
    
    (7,689
    )
    
    
    
    
    
    
    (28,252
    )(Increase) decrease in inventories
    
    
    (19,337
    )
    
    
    512
    
    
    
    (19
    )
    
    
    (18,844
    )(Increase) decrease in prepaid expenses, other
current assets and other, net
    
    
    (90
    )
    
    
    528
    
    
    
    3,285
    
    
    
    3,723Increase in accounts payable, accrued expenses,
income taxes payable and other liabilities
    
    
    6,646
    
    
    
    1,665
    
    
    
    8
    
    
    
    8,319Net cash used in operating activities
    
    
    (21,243
    )
    
    
    (808
    )
    
    
    
    
    
    
    (22,051
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (14,270
    )
    
    
    
    
    
    
    
    
    
    
    (14,270
    )Capital expenditures
    
    
    (28,819
    )
    
    
    (519
    )
    
    
    
    
    
    
    (29,338
    )Proceeds from disposal of property, plant and equipment
    
    
    14,229
    
    
    
    44
    
    
    
    
    
    
    
    14,273Net cash used in investing activities
    
    
    (28,860
    )
    
    
    (475
    )
    
    
    
    
    
    
    (29,335
    )Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term
obligations
    
    
    (2,115
    )
    
    
    (204
    )
    
    
    
    
    
    
    (2,319
    )Proceeds from short term obligations
    
    
    48,450
    
    
    
    
    
    
    
    
    
    
    
    48,450Proceeds from the sale of common stock
    
    
    1,614
    
    
    
    
    
    
    
    
    
    
    
    1,614Net cash provided by (used in) financing activities
    
    
    47,949
    
    
    
    (204
    )
    
    
    
    
    
    
    47,745Effect of exchange rate changes on cash and cash equivalents
    
    
    56
    
    
    
    1,242
    
    
    
    
    
    
    
    1,298Net decrease in cash and cash equivalents
    
    
    (2,098
    )
    
    
    (245
    )
    
    
    
    
    
    
    (2,343
    )Cash and cash equivalents at beginning of period
    
    
    7,695
    
    
    
    1,050
    
    
    
    
    
    
    
    8,745Cash and cash equivalents at end of period
    
    $
    5,597
    
    
    $
    805
    
    
    $
    
    
    
    $
    6,402
 28




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Acquisitions
 The Party America Acquisition
    Other acquisitions
 st
 Pending acquisition
  Subsequent Events
 Amendment of existing ABL Agreement
  Unrestricted Subsidiary Credit Agreement
  29




---



##### Table of Contents



Credit Agreement
  Interest Rate and Fees
 1 2
 Prepayments
  Amortization
  Guarantee and Security
  Certain Covenants and events of default
  Completion of Acquisition
  30




---



##### Table of Contents



31




---



##### Table of Contents



THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006
 Percentage of Total Revenues
  Three Months Ended September 30,2007
    
    2006Revenues:Net sales
    
    
    98.0
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    2.0
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.8
    
    
    
    69.5Selling expenses
    
    
    3.7
    
    
    
    4.4Retail operating expenses
    
    
    15.9
    
    
    
    12.3Franchise expenses
    
    
    1.1
    
    
    
    1.5General and administrative expenses
    
    
    9.4
    
    
    
    8.8Art and development costs
    
    
    1.0
    
    
    
    1.1Total expenses
    
    
    94.9
    
    
    
    97.6Income from operations
    
    
    5.1
    
    
    
    2.4Interest expense, net
    
    
    4.6
    
    
    
    6.3Other expense (income), net
    
    
    0.1
    
    
    
    0.1Income (loss) before income taxes
and minority interests
    
    
    0.5
    
    
    
    (4.1
    )Income tax (benefit) expense
    
    
    0.3
    
    
    
    (1.6
    )Minority interests
    
    
    0.0
    
    
    
    0.0Net income (loss )
    
    
    0.1
    %
    
    
    (2.5
    )%
 Total Revenues
  Three Months Ended September 30,2007
    
    2006Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofRevenues
    
    Thousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueSalesWholesale
    
    $
    169,566
    
    
    
    59.8
    %
    
    $
    135,134
    
    
    
    60.1
    %Eliminations
    
    
    (45,952
    )
    
    
    (16.2
    )
    
    
    (19,796
    )
    
    
    (8.8
    )Net wholesale
    
    
    123,614
    
    
    
    43.6
    
    
    
    115,338
    
    
    
    51.3Retail
    
    
    153,950
    
    
    
    54.3
    
    
    
    105,176
    
    
    
    46.7Total net sales
    
    
    277,564
    
    
    
    98.0
    
    
    
    220,514
    
    
    
    98.0Franchise related
    
    
    5,783
    
    
    
    2.0
    
    
    
    4,505
    
    
    
    2.0Total revenues
    
    $
    283,347
    
    
    
    100.0
    %
    
    $
    225,019
    
    
    
    100.0
    %
 32




---



##### Table of Contents



Wholesale
   Retail
   Royalties and franchise fees
  Gross Profit
  Three Months Ended September 30,2007
    
    2006Dollars in
    
    % of associated
    
    Dollars in
    
    % of associatedThousands
    
    sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    39,749
    
    
    
    32.2
    %
    
    $
    33,271
    
    
    
    28.8
    %Net Retail
    
    
    57,034
    
    
    
    37.0
    
    
    
    30,860
    
    
    
    29.3Total Gross Profit
    
    $
    96,783
    
    
    
    34.9
    %
    
    $
    64,131
    
    
    
    29.1
    %
  33




---



##### Table of Contents



Operating expenses
      Interest expense, net
  Other expense, net
  Income tax expense (benefit)
  34




---



##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
 Percentage of Total Revenues
  Nine Months EndedSeptember 30,2007
    
    2006Revenues:Net sales
    
    
    98.0
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    2.0
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    64.3
    
    
    
    69.8Selling expenses
    
    
    3.9
    
    
    
    4.3Retail operating expenses
    
    
    14.4
    
    
    
    11.5Franchise expenses
    
    
    1.2
    
    
    
    1.4General and administrative expenses
    
    
    9.3
    
    
    
    9.0Art and development costs
    
    
    1.1
    
    
    
    1.1Total expenses
    
    
    94.2
    
    
    
    97.2Income from operations
    
    
    5.8
    
    
    
    2.8Interest expense, net
    
    
    5.0
    
    
    
    6.2Other expense (income), net
    
    
    2.0
    
    
    
    (0.2
    )Income (loss) before income taxes and
minority interests
    
    
    (1.2
    )
    
    
    (3.2
    )Income tax (benefit) expense
    
    
    (0.4
    )
    
    
    (1.3
    )Minority interests
    
    
    0.0
    
    
    
    0.0Net income (loss )
    
    
    (0.8
    )%
    
    
    (1.9
    )%
 Total Revenues
  Nine Months Ended September 30,2007
    
    2006Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofRevenues
    
    Thousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueSalesWholesale
    
    $
    458,329
    
    
    
    56.5
    %
    
    $
    375,093
    
    
    
    56.7
    %Eliminations
    
    
    (118,080
    )
    
    
    (14.6
    )
    
    
    (48,827
    )
    
    
    (7.4
    )Net wholesale
    
    
    340,249
    
    
    
    42.0
    
    
    
    326,266
    
    
    
    49.3Retail
    
    
    454,268
    
    
    
    56.0
    
    
    
    322,278
    
    
    
    48.7Total net sales
    
    
    794,517
    
    
    
    98.0
    
    
    
    648,544
    
    
    
    98.0Franchise related
    
    
    16,425
    
    
    
    2.0
    
    
    
    13,548
    
    
    
    2.0Total revenues
    
    $
    810,942
    
    
    
    100.0
    %
    
    $
    662,092
    
    
    
    100.0
    %
 35




---



##### Table of Contents



Wholesale
   Retail
   Royalties and franchise fees
  Gross Profit
  Nine Months Ended September 30,2007
    
    2006Dollars in
    
    % of associated
    
    Dollars in
    
    % of associatedThousands
    
    sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    102,662
    
    
    
    30.2
    %
    
    $
    91,848
    
    
    
    28.2
    %Net Retail
    
    
    170,226
    
    
    
    37.5
    
    
    
    94,442
    
    
    
    29.3Total Gross Profit
    
    $
    272,888
    
    
    
    34.3
    %
    
    $
    186,290
    
    
    
    28.7
    %
 36




---



##### 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
  37




---



##### Table of Contents



ABL Credit Agreement
     38




---



##### Table of Contents



39




---



##### Table of Contents



Cash Flow Data  Nine months ended
September 30, 2007 Compared to Nine months ended September 30,
2006
    Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  40




---



##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
   41




---



##### 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.
 42




---



##### Table of Contents



AMSCAN HOLDINGS, INC.By:
    
    /s/ Michael A. CorrealeMichael A. CorrealeChief Financial Officer(on behalf of the registrant and as principalDate: November 14, 2007
    
    
    
    financial and accounting officer)
 43