##### 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 March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 March 31, 2009
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statement of Equity for the Three Months Ended March 31, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4 Controls and Procedures
    
    
    24PART IIItem 5 Other Information
    
    
    24Item 6 Exhibits
    
    
    24Signature
    
    
    25EX-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)
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,805
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    97,514
    
    
    
    89,443Inventories, net of allowances
    
    
    343,703
    
    
    
    366,965Prepaid expenses and other current assets
    
    
    49,973
    
    
    
    47,812Total current assets
    
    
    502,995
    
    
    
    517,278Property, plant and equipment, net
    
    
    183,571
    
    
    
    187,026Goodwill
    
    
    544,420
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    157,283Other intangible assets, net
    
    
    59,689
    
    
    
    61,626Other assets, net
    
    
    42,438
    
    
    
    41,033Total assets
    
    $
    1,490,396
    
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND EQUITYCurrent liabilities:Loans and notes payable
    
    $
    180,345
    
    
    $
    136,878Accounts payable
    
    
    65,303
    
    
    
    126,638Accrued expenses
    
    
    90,379
    
    
    
    87,985Income taxes payable
    
    
    27,130
    
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    38,988
    
    
    
    34,002Total current liabilities
    
    
    417,589
    
    
    
    429,552Long-term obligations, excluding current portion
    
    
    543,673
    
    
    
    550,755Deferred income tax liabilities
    
    
    87,501
    
    
    
    87,824Deferred rent and other long-term liabilities
    
    
    9,557
    
    
    
    9,558Total liabilities
    
    
    1,058,320
    
    
    
    1,077,689Redeemable common securities (including 585.15 common shares issued and outstanding at
March 31, 2009 and December 31, 2008)
    
    
    18,171
    
    
    
    18,171Commitments and contingenciesEquity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50 shares
issued and
outstanding at March 31, 2009 and December 31, 2008,)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    335,295
    
    
    
    335,076Retained earnings
    
    
    89,407
    
    
    
    87,004Accumulated other comprehensive loss
    
    
    (12,697
    )
    
    
    (11,852
    )Amscan Holdings, Inc. shareholders equity
    
    
    412,005
    
    
    
    410,228Noncontrolling interests
    
    
    1,900
    
    
    
    1,889Total equity
    
    
    413,905
    
    
    
    412,117Total liabilities, redeemable common securities and equity
    
    $
    1,490,396
    
    
    $
    1,507,977
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (Amounts in thousands)
 Three Months Ended March 31,2009
    
    
    2008Revenues:Net sales
    
    $
    309,046
    
    
    $
    325,032Royalties and franchise fees
    
    
    3,694
    
    
    
    5,342Total revenues
    
    
    312,740
    
    
    
    330,374Expenses:Cost of sales
    
    
    205,417
    
    
    
    214,685Selling expenses
    
    
    10,171
    
    
    
    10,749Retail operating expenses
    
    
    51,501
    
    
    
    57,926Franchise expenses
    
    
    2,889
    
    
    
    3,631General and administrative expenses
    
    
    27,435
    
    
    
    31,503Art and development costs
    
    
    3,126
    
    
    
    3,102Total expenses
    
    
    300,539
    
    
    
    321,596Income from operations
    
    
    12,201
    
    
    
    8,778Interest expense, net
    
    
    10,665
    
    
    
    14,308Other expense (income), net
    
    
    207
    
    
    
    (486
    )Income (loss) before income taxes
    
    
    1,329
    
    
    
    (5,044
    )Income tax benefit
    
    
    (1,132
    )
    
    
    (1,912
    )Net income (loss)
    
    
    2,461
    
    
    
    (3,132
    )Less: Net income (loss) attributable to
noncontrolling interests
    
    
    58
    
    
    
    (595
    )Net income (loss) attributable to Amscan
Holdings Inc.
    
    $
    2,403
    
    
    $
    (2,537
    )
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF EQUITY
 Three Months Ended March 31, 2009
 (Unaudited)
 (Amounts in thousands, except share amounts)
 Accumulated
    
    AmscanAdditional
    
    
    
    
    
    Other
    
    Holdings, Inc.Common
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Shareholders
    
    Noncontrolling
    
    TotalShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income /(Loss)
    
    Equity
    
    Interests
    
    EquityBalance at December 31, 2008
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,076
    
    
    $
    87,004
    
    
    $
    (11,852
    )
    
    $
    410,228
    
    
    $
    1,889
    
    
    $
    412,117Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,403
    
    
    
    
    
    
    
    2,403
    
    
    
    58
    
    
    
    2,461Net change in cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (743
    )
    
    
    (743
    )
    
    
    (47
    )
    
    
    (790
    )Change in fair value of interest rate swap
contracts, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    115
    
    
    
    
    
    
    
    115Change in fair value of foreign exchange
contracts, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )
    
    
    (217
    )
    
    
    
    
    
    
    (217
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,558
    
    
    
    11
    
    
    
    1,569Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    219Balance at March 31, 2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,295
    
    
    $
    89,407
    
    
    $
    (12,697
    )
    
    $
    412,005
    
    
    $
    1,900
    
    
    $
    413,905
  5




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Amounts in thousands)
 Three Months Ended March 31,2009
    
    
    2008Cash flows used in operating activities:Net income (loss) attributable to Amscan Holdings Inc.
    
    $
    2,403
    
    
    $
    (2,537
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization expense
    
    
    10,646
    
    
    
    11,173Amortization of deferred financing costs
    
    
    544
    
    
    
    493Provision for doubtful accounts
    
    
    437
    
    
    
    440Deferred income tax benefit
    
    
    (1,818
    )
    
    
    (2,186
    )Deferred rent
    
    
    366
    
    
    
    350Undistributed loss/(income) in unconsolidated joint venture
    
    
    130
    
    
    
    (514
    )Loss on disposal of equipment
    
    
    175
    
    
    
    20Equity based compensation
    
    
    219
    
    
    
    598Changes in operating assets and liabilities:Decrease in accounts receivable
    
    
    3,930
    
    
    
    596Decrease (increase) in inventories
    
    
    22,962
    
    
    
    (16,329
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (7,915
    )
    
    
    5,132Decrease in accounts payable, accrued expenses and income taxes
payable
    
    
    (66,074
    )
    
    
    (25,488
    )Net cash used in operating activities
    
    
    (33,995
    )
    
    
    (28,252
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (2
    )
    
    
    Capital expenditures
    
    
    (5,961
    )
    
    
    (11,493
    )Proceeds from disposal of property and equipment
    
    
    24
    
    
    
    59Net cash used in investing activities
    
    
    (5,939
    )
    
    
    (11,434
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (2,091
    )
    
    
    (1,437
    )Proceeds from loans, notes payable and long-term obligations, net
of debt
issuance costs
    
    
    40,124
    
    
    
    38,646Net cash provided by financing activities
    
    
    38,033
    
    
    
    37,209Effect of exchange rate changes on cash and cash equivalents
    
    
    648
    
    
    
    95Net decrease in cash and cash equivalents
    
    
    (1,253
    )
    
    
    (2,382
    )Cash and cash equivalents at beginning of period
    
    
    13,058
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    11,805
    
    
    $
    14,892
  6




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Amounts in thousands, except share amounts)
 Note 1  Description of Business
  Note 2  Acquisitions
   Note 3  Basis of Presentation
   7




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
(Amounts in thousands, except share amounts)
 Note 4  Inventories
  March 31,
    
    
    December 31,2009
    
    
    2008Finished goods
    
    $
    331,235
    
    
    $
    353,713Raw Materials
    
    
    13,911
    
    
    
    13,756Work in Process
    
    
    6,898
    
    
    
    7,814352,044
    
    
    
    375,283Reserve for slow-moving and obsolete inventories
    
    
    (8,341
    )
    
    
    (8,318
    )$
    343,703
    
    
    $
    366,965
  Note 5  Income Taxes
  Note 6  Restructuring
   Note 7  Comprehensive Income (Loss)
  Three Months Ended March 31,2009
    
    
    2008Net income (loss)
    
    $
    2,403
    
    
    $
    (2,537
    )Net change in cumulative translation adjustment
    
    
    (743
    )
    
    
    114Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $68, $(239)
    
    
    115
    
    
    
    (407
    )Change in fair value of foreign exchange
contracts, net of income tax benefit of
$(127), $(53)
    
    
    (217
    )
    
    
    (90
    )Comprehensive income (loss)
    
    $
    1,558
    
    
    $
    (2,920
    )
 8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 8  Capital Stock
    Note 9  Segment Information
 Industry Segments
   Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended March 31, 2009Revenues:Net sales
    
    $
    157,328
    
    
    $
    202,004
    
    
    $
    359,332Royalties and franchise fees
    
    
    
    
    
    
    3,694
    
    
    
    3,694Total revenues
    
    
    157,328
    
    
    
    205,698
    
    
    
    363,026Eliminations
    
    
    (50,286
    )
    
    
    
    
    
    
    (50,286
    )Net Revenues
    
    $
    107,042
    
    
    $
    205,698
    
    
    $
    312,740Income (loss) from operations
    
    $
    16,598
    
    
    $
    (4,397
    )
    
    $
    12,201Interest expense, net
    
    
    
    
    
    
    
    
    
    
    10,665Other expense, net
    
    
    
    
    
    
    
    
    
    
    207Income before income tax
    
    
    
    
    
    
    
    
    
    $
    1,329Long-lived assets
    
    $
    434,160
    
    
    $
    553,241
    
    
    $
    987,401
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended March 31, 2008Revenues:Net sales
    
    $
    164,319
    
    
    $
    214,157
    
    
    $
    378,476Royalties and franchise fees
    
    
    
    
    
    
    5,342
    
    
    
    5,342Total revenues
    
    
    164,319
    
    
    
    219,499
    
    
    
    383,818Eliminations
    
    
    (53,444
    )
    
    
    
    
    
    
    (53,444
    )Net Revenues
    
    $
    110,875
    
    
    $
    219,499
    
    
    $
    330,374Income (loss) from operations
    
    $
    14,646
    
    
    $
    (5,868
    )
    
    $
    8,778Interest expense, net
    
    
    
    
    
    
    
    
    
    
    14,308Other income, net
    
    
    
    
    
    
    
    
    
    
    (486
    )Loss before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    (5,044
    )Long-lived assets
    
    $
    422,199
    
    
    $
    574,982
    
    
    $
    997,181
 9




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
   Note 12  Long Term Obligations
   i.e
  Note 13  Hedging Transactions, Derivative Financial Instruments and Fair Value
  10




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Interest Rate Risk Management
   Foreign Exchange Risk Management
   11




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Fair Value Measurement
   
  
   SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Inputs
    
    Inputs
    
    March 31,Liabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2009Derivative assets
    
    
    
    $
    2,350
    
    
    
    
    $
    2,350Derivative liabilities
    
    
    
    
    (8,290
    )
    
    
    
    
    (8,290
    )
 SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Inputs
    
    Inputs
    
    December 31,Liabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2009Derivative assets
    
    
    
    $
    2,695
    
    
    
    
    $
    2,695Derivative liabilities
    
    
    
    
    (8,403
    )
    
    
    
    
    (8,403
    )
    March 31, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueTerm Loan
    
    $
    367,500
    
    
    $
    286,7000
    
    
    $
    368,437
    
    
    $
    247,000$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    126,000
    
    
    
    175,000
    
    
    
    107,000
  12




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 14  Recently Issued Accounting Standards
     
    
    FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP FAS 157-4). FSP
FAS 157-4 relates to determining fair values when there is no active
market or where the price inputs being used represent distressed
sales. It reaffirms the need to use judgment to ascertain if a
formerly active market has become inactive and in determining fair
values when markets have become inactive.
    
    FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP is intended to bring
consistency to the timing of impairment recognition, and provide
improved disclosures about the credit and noncredit components of
impaired debt securities that are not expected to be sold. The measure
of impairment in comprehensive income remains fair value. The FSP also
requires increased and more timely disclosures regarding expected cash
flows, credit losses, and an aging of securities with unrealized
losses.
    
    FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments. This FSP relates to fair value disclosures for
financial instruments that are not currently reflected on the balance
sheet at fair value. Prior to issuing this FSP, fair values for these
assets and liabilities were only disclosed once a year. The FSP now
requires these disclosures on a quarterly basis, providing qualitative
and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value.
  Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
 13




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 15  Condensed Consolidating Financial Information
  
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.
  
    
    Amscan (Asia-Pacific) Pty. Ltd.
    
    Amscan de Mexico, S.A. de C.V.
    
    Amscan Distributors (Canada) Ltd.
    
    Anagram Espana, S.A.
    
    Anagram France S.C.S.
    
    Amscan Holdings Limited
    
    Anagram International (Japan) Co., Ltd.
    
    Amscan Partyartikel GmbH
    
    JCS Hong Kong Ltd.
    
    Party City Franchise Group Holdings, LLC
  14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2009
(Amounts in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,536
    
    
    $
    5,269
    
    
    $
    
    
    
    $
    11,805Accounts receivable, net of allowances
    
    
    80,756
    
    
    
    16,758
    
    
    
    
    
    
    
    97,514Inventories, net of allowances
    
    
    307,076
    
    
    
    37,083
    
    
    
    (456
    )
    
    
    343,703Prepaid expenses and other current assets
    
    
    43,655
    
    
    
    6,436
    
    
    
    (118
    )
    
    
    49,973Total current assets
    
    
    438,023
    
    
    
    65,546
    
    
    
    (574
    )
    
    
    502,995Property, plant and equipment, net
    
    
    172,328
    
    
    
    11,243
    
    
    
    
    
    
    
    183,571Goodwill
    
    
    509,910
    
    
    
    34,510
    
    
    
    
    
    
    
    544,420Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    34,050
    
    
    
    25,639
    
    
    
    
    
    
    
    59,689Other assets, net
    
    
    147,382
    
    
    
    11,482
    
    
    
    (116,426
    )
    
    
    42,438Total assets
    
    $
    1,458,976
    
    
    $
    148,420
    
    
    $
    (117,000
    )
    
    $
    1,490,396LIABILITIES, REDEEMABLE COMMON SECURITIES AND EQUITYCurrent liabilities:Loans and notes payable
    
    
    180,345
    
    
    
    
    
    
    
    
    
    
    
    180,345Accounts payable
    
    
    56,594
    
    
    
    8,709
    
    
    
    
    
    
    
    65,303Accrued expenses
    
    
    82,285
    
    
    
    8,094
    
    
    
    
    
    
    
    90,379Income taxes payable
    
    
    27,158
    
    
    
    
    
    
    
    (28
    )
    
    
    27,130Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    11,979
    
    
    
    27,009
    
    
    
    
    
    
    
    38,988Total current liabilities
    
    
    373,805
    
    
    
    43,812
    
    
    
    (28
    )
    
    
    417,589Long-term obligations, excluding current portion
    
    
    543,673
    
    
    
    
    
    
    
    
    
    
    
    543,673Deferred income tax liabilities
    
    
    86,992
    
    
    
    509
    
    
    
    
    
    
    
    87,501Other
    
    
    18,844
    
    
    
    60,848
    
    
    
    (70,135
    )
    
    
    9,557Total liabilities
    
    
    1,023,314
    
    
    
    105,169
    
    
    
    (70,163
    )
    
    
    1,058,320Redeemable common securities
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    18,171Commitments and contingenciesEquity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    335,203
    
    
    
    46,167
    
    
    
    (46,075
    )
    
    
    335,295Retained earnings
    
    
    94,985
    
    
    
    (5,202
    )
    
    
    (376
    )
    
    
    89,407Accumulated other comprehensive (loss) income
    
    
    (12,697
    )
    
    
    47
    
    
    
    (47
    )
    
    
    (12,697
    )Amscan Holdings Inc shareholders equity
    
    
    417,491
    
    
    
    41,351
    
    
    
    (46,837
    )
    
    
    412,005Noncontrolling Interests
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    1,900Total equity
    
    
    417,491
    
    
    
    43,251
    
    
    
    (46,837
    )
    
    
    413,905Total liabilities, redeemable common
securities and equity
    
    $
    1,458,976
    
    
    $
    148,420
    
    
    $
    (117,000
    )
    
    $
    1,490,396
 15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONSOLIDATING BALANCE SHEET
December 31, 2008
(Amounts in thousands)
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,544
    
    
    $
    4,514
    
    
    $
    
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    73,932
    
    
    
    15,511
    
    
    
    
    
    
    
    89,443Inventories, net of allowances
    
    
    331,059
    
    
    
    36,605
    
    
    
    (699
    )
    
    
    366,965Prepaid expenses and other current assets
    
    
    42,033
    
    
    
    5,779
    
    
    
    
    
    
    
    47,812Total current assets
    
    
    455,568
    
    
    
    62,409
    
    
    
    (699
    )
    
    
    517,278Property, plant and equipment, net
    
    
    175,532
    
    
    
    11,494
    
    
    
    
    
    
    
    187,026Goodwill
    
    
    497,197
    
    
    
    46,534
    
    
    
    
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    35,496
    
    
    
    26,130
    
    
    
    
    
    
    
    61,626Other assets, net
    
    
    123,315
    
    
    
    12,207
    
    
    
    (94,489
    )
    
    
    41,033Total assets
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND EQUITYCurrent liabilities:Loans and notes payable
    
    $
    136,878
    
    
    $
    
    
    
    $
    
    
    
    $
    136,878Accounts payable
    
    
    98,636
    
    
    
    28,002
    
    
    
    
    
    
    
    126,638Accrued expenses
    
    
    77,470
    
    
    
    10,515
    
    
    
    
    
    
    
    87,985Income taxes payable
    
    
    27,802
    
    
    
    860
    
    
    
    (57
    )
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    6,488
    
    
    
    27,514
    
    
    
    
    
    
    
    34,002Total current liabilities
    
    
    362,718
    
    
    
    66,891
    
    
    
    (57
    )
    
    
    429,552Long-term obligations, excluding current portion
    
    
    550,755
    
    
    
    
    
    
    
    
    
    
    
    550,755Deferred income tax liabilities
    
    
    76,360
    
    
    
    11,464
    
    
    
    
    
    
    
    87,824Other
    
    
    21,988
    
    
    
    36,107
    
    
    
    (48,537
    )
    
    
    9,558Total liabilities
    
    
    1,011,821
    
    
    
    114,462
    
    
    
    (48,594
    )
    
    
    1,077,689Redeemable common securities
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    18,171Commitments and contingenciesEquity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    334,983
    
    
    
    45,629
    
    
    
    (45,536
    )
    
    
    335,076Retained earnings
    
    
    91,268
    
    
    
    (3,776
    )
    
    
    (488
    )
    
    
    87,004Accumulated other comprehensive (loss) income
    
    
    (11,852
    )
    
    
    231
    
    
    
    (231
    )
    
    
    (11,852
    )Amscan Holdings Inc. shareholders equity
    
    
    414,399
    
    
    
    42,423
    
    
    
    (46,594
    )
    
    
    410,228Noncontrolling interest
    
    
    
    
    
    
    1,889
    
    
    
    
    
    
    
    1,889Total equity
    
    
    414,399
    
    
    
    44,312
    
    
    
    (46,594
    )
    
    
    412,117Total liabilities, redeemable common securities and equity
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977
 16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2009
(Amounts in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    275,263
    
    
    $
    39,672
    
    
    $
    (5,889
    )
    
    $
    309,046Royalties and franchise fees
    
    
    3,694
    
    
    
    
    
    
    
    
    
    
    
    3,694Total revenues
    
    
    278,957
    
    
    
    39,672
    
    
    
    (5,889
    )
    
    
    312,740Expenses:Cost of sales
    
    
    184,859
    
    
    
    26,690
    
    
    
    (6,132
    )
    
    
    205,417Selling expenses
    
    
    8,217
    
    
    
    1,954
    
    
    
    
    
    
    
    10,171Retail operating expenses
    
    
    43,599
    
    
    
    7,902
    
    
    
    
    
    
    
    51,501Franchise expenses
    
    
    2,889
    
    
    
    
    
    
    
    
    
    
    
    2,889General and administrative expenses
    
    
    24,301
    
    
    
    3,464
    
    
    
    (330
    )
    
    
    27,435Art and development costs
    
    
    3,126
    
    
    
    
    
    
    
    
    
    
    
    3,126Total expenses
    
    
    266,991
    
    
    
    40,010
    
    
    
    (6,462
    )
    
    
    300,539Income (loss) from operations
    
    
    11,966
    
    
    
    (338
    )
    
    
    573
    
    
    
    12,201Interest expense, net
    
    
    10,151
    
    
    
    514
    
    
    
    
    
    
    
    10,665Other (income) expense, net
    
    
    (1,182
    )
    
    
    14
    
    
    
    1,375
    
    
    
    207Income (loss) before income taxes
    
    
    2,997
    
    
    
    (866
    )
    
    
    (802
    )
    
    
    1,329Income tax benefit
    
    
    (662
    )
    
    
    (560
    )
    
    
    90
    
    
    
    (1,132
    )Net income (loss)
    
    
    3,659
    
    
    
    (306
    )
    
    
    (892
    )
    
    
    2,461Less Net income attributed to
noncontrolling interest
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    58Net income (loss) attributable to Amscan
Holdings Inc.
    
    $
    3,659
    
    
    $
    (364
    )
    
    $
    (892
    )
    
    $
    2,403
 17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2008
(Amounts in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    286,760
    
    
    $
    43,873
    
    
    $
    (5,601
    )
    
    $
    325,032Royalties and franchise fees
    
    
    5,342
    
    
    
    
    
    
    
    
    
    
    
    5,342Total revenues
    
    
    292,102
    
    
    
    43,873
    
    
    
    (5,601
    )
    
    
    330,374Expenses:Cost of sales
    
    
    192,850
    
    
    
    27,092
    
    
    
    (5,257
    )
    
    
    214,685Selling expenses
    
    
    8,188
    
    
    
    2,561
    
    
    
    
    
    
    
    10,749Retail operating expenses
    
    
    47,904
    
    
    
    10,022
    
    
    
    
    
    
    
    57,926Franchise expenses
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    3,631General and administrative expenses
    
    
    27,305
    
    
    
    4,528
    
    
    
    (330
    )
    
    
    31,503Art and development costs
    
    
    3,102
    
    
    
    
    
    
    
    
    
    
    
    3,102Total expenses
    
    
    282,980
    
    
    
    44,203
    
    
    
    (5,587
    )
    
    
    321,596Income (loss) from operations
    
    
    9,122
    
    
    
    (330
    )
    
    
    (14
    )
    
    
    8,778Interest expense, net
    
    
    13,354
    
    
    
    954
    
    
    
    
    
    
    
    14,308Other (income) expense, net
    
    
    (1,637
    )
    
    
    22
    
    
    
    1,129
    
    
    
    (486
    )Loss before income taxes
    
    
    (2,595
    )
    
    
    (1,306
    )
    
    
    (1,143
    )
    
    
    (5,044
    )Income tax (benefit) expense
    
    
    (2,116
    )
    
    
    331
    
    
    
    (127
    )
    
    
    (1,912
    )Net loss
    
    
    (479
    )
    
    
    (1,637
    )
    
    
    (1016
    )
    
    
    (3,132
    )Less Net loss attributed to noncontrolling interest
    
    
    
    
    
    
    (595
    )
    
    
    
    
    
    
    (595
    )Net loss attributable to Amscan Holdings Inc.
    
    $
    (479
    )
    
    $
    (1,042
    )
    
    $
    (1,016
    )
    
    $
    (2,537
    )
 18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2009
(Amounts in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows (used in) provided by operating activities:Net income (loss) attributable to Amscan Holdings Inc.
    
    $
    3,659
    
    
    $
    (364
    )
    
    $
    (892
    )
    
    $
    2,403Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:Depreciation and amortization expense
    
    
    9,504
    
    
    
    1,142
    
    
    
    
    
    
    
    10,646Amortization of deferred financing costs
    
    
    478
    
    
    
    66
    
    
    
    
    
    
    
    544Provision for doubtful accounts
    
    
    387
    
    
    
    50
    
    
    
    
    
    
    
    437Deferred income tax expense (benefit)
    
    
    (1,818
    )
    
    
    
    
    
    
    
    
    
    
    (1,818
    )Deferred rent
    
    
    366
    
    
    
    
    
    
    
    
    
    
    
    366Undistributed loss in unconsolidated joint venture
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Loss on disposal of equipment
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Equity based compensation
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    219Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    5,389
    
    
    
    (1,459
    )
    
    
    
    
    
    
    3,930Decrease (increase) in inventories
    
    
    23,982
    
    
    
    (777
    )
    
    
    (243
    )
    
    
    22,962Increase in prepaid expenses and other current assets
    
    
    (3,110
    )
    
    
    (4,805
    )
    
    
    
    
    
    
    (7,915
    )(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (74,138
    )
    
    
    6,929
    
    
    
    1,135
    
    
    
    (66,074
    )Net cash (used in) provided by operating activities
    
    
    (34,777
    )
    
    
    782
    
    
    
    
    
    
    
    (33,995
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Capital expenditures
    
    
    (5,520
    )
    
    
    (441
    )
    
    
    
    
    
    
    (5,961
    )Proceeds from disposal of property and equipment
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Net cash used in investing activities
    
    
    (5,498
    )
    
    
    (441
    )
    
    
    
    
    
    
    (5,939
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (1,591
    )
    
    
    (500
    )
    
    
    
    
    
    
    (2,091
    )Proceeds from loans, notes payable and long-term obligations
    
    
    40,124
    
    
    
    
    
    
    
    
    
    
    
    40,124Net cash provided by (used in) financing activities
    
    
    38,533
    
    
    
    (500
    )
    
    
    
    
    
    
    38,033Effect of exchange rate changes on cash and cash equivalents
    
    
    (266
    )
    
    
    914
    
    
    
    
    
    
    
    648Net (decrease) increase in cash and cash equivalents
    
    
    (2,008
    )
    
    
    755
    
    
    
    
    
    
    
    (1,253
    )Cash and cash equivalents at beginning of period
    
    
    8,544
    
    
    
    4,514
    
    
    
    
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    6,536
    
    
    $
    5,269
    
    
    $
    
    
    
    $
    11,805
 19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three months Ended March 31, 2008
(Amounts in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net loss attributable to Amscan Holdings Inc.
    
    $
    (479
    )
    
    $
    (1,042
    )
    
    $
    (1,016
    )
    
    $
    (2,537
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization expense
    
    
    9,756
    
    
    
    1,417
    
    
    
    
    
    
    
    11,173Amortization of deferred financing costs
    
    
    493
    
    
    
    
    
    
    
    
    
    
    
    493Provision for doubtful accounts
    
    
    380
    
    
    
    60
    
    
    
    
    
    
    
    440Deferred income tax benefit
    
    
    (2,186
    )
    
    
    
    
    
    
    
    
    
    
    (2,186
    )Deferred rent
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    350Undistributed gain in unconsolidated joint venture
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    (514
    )Loss (gain) on disposal of equipment
    
    
    49
    
    
    
    (29
    )
    
    
    
    
    
    
    20Equity based compensation
    
    
    598
    
    
    
    
    
    
    
    
    
    
    
    598Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    2,335
    
    
    
    (1,739
    )
    
    
    
    
    
    
    596(Increase) in inventories
    
    
    (15,796
    )
    
    
    (877
    )
    
    
    344
    
    
    
    (16,329
    )Decrease in prepaid expenses and other current assets
    
    
    1,628
    
    
    
    3,504
    
    
    
    
    
    
    
    5,132Decrease in accounts payable, accrued expenses and income taxes
payable
    
    
    (20,902
    )
    
    
    (5,258
    )
    
    
    672
    
    
    
    (25,488
    )Net cash used in operating activities
    
    
    (24,288
    )
    
    
    (3,964
    )
    
    
    
    
    
    
    (28,252
    )Cash flows used in investing activities:Capital expenditures
    
    
    (10,569
    )
    
    
    (924
    )
    
    
    
    
    
    
    (11,493
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Net cash used in investing activities
    
    
    (10,569
    )
    
    
    (865
    )
    
    
    
    
    
    
    (11,434
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (937
    )
    
    
    (500
    )
    
    
    
    
    
    
    (1,437
    )Proceeds from loans, notes payable and long-term obligations
    
    
    33,145
    
    
    
    5,501
    
    
    
    
    
    
    
    38,646Net cash provided by financing activities
    
    
    32,208
    
    
    
    5,001
    
    
    
    
    
    
    
    37,209Effect of exchange rate changes on cash and cash equivalents
    
    
    (81
    )
    
    
    176
    
    
    
    
    
    
    
    95Net (decrease) increase in cash and cash equivalents
    
    
    (2,730
    )
    
    
    348
    
    
    
    
    
    
    
    (2,382
    )Cash and cash equivalents at beginning of period
    
    
    8,391
    
    
    
    8,883
    
    
    
    
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    5,661
    
    
    $
    9,231
    
    
    $
    
    
    
    $
    14,892
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008
  Three Months Ended March 31,2009
    
    
    2008Revenues:Net sales
    
    
    98.8
    %
    
    
    98.4
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.6Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    65.7
    
    
    
    65.0Selling expenses
    
    
    3.3
    
    
    
    3.3Retail operating expenses
    
    
    16.5
    
    
    
    17.5Franchise expenses
    
    
    0.9
    
    
    
    1.1General and administrative expenses
    
    
    8.8
    
    
    
    9.5Art and development costs
    
    
    0.9
    
    
    
    0.9Total expenses
    
    
    96.1
    
    
    
    97.3Income from operations
    
    
    3.9
    
    
    
    2.7Interest expense, net
    
    
    3.4
    
    
    
    4.3Other expense (income), net
    
    
    0.1
    
    
    
    (0.1
    )Income (loss) before income taxes
    
    
    0.4
    
    
    
    (1.5
    )Income tax expense (benefit)
    
    
    (0.4
    )
    
    
    (0.6
    )Net income (loss)
    
    
    0.8
    
    
    
    (0.9
    )Less: Net income (loss)
attributable to noncontrolling
interests
    
    
    0.0
    
    
    
    (0.2
    )Net income (loss) attributable to
Amscan Holdings Inc.
    
    
    0.8
    %
    
    
    (0.7
    )%
 Three Months Ended March 31,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenues:Sales:Wholesale
    
    $
    157,328
    
    
    
    50.3
    %
    
    $
    164,319
    
    
    
    49.7
    %Eliminations
    
    
    (50,286
    )
    
    
    (16.1
    )%
    
    
    (53,444
    )
    
    
    (16.2
    )%Net wholesale
    
    
    107,042
    
    
    
    34.2
    %
    
    
    110,875
    
    
    
    33.6
    %Retail
    
    
    202,004
    
    
    
    64.6
    %
    
    
    214,157
    
    
    
    64.8
    %Total net sales
    
    
    309,046
    
    
    
    98.8
    %
    
    
    325,032
    
    
    
    98.4
    %Franchise related
    
    
    3,694
    
    
    
    1.2
    %
    
    
    5,342
    
    
    
    1.6
    %Total revenues
    
    $
    312,740
    
    
    
    100.0
    %
    
    $
    330,374
    
    
    
    100.0
    %
 Wholesale
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Retail
 i.e
 Gross Profit
  Three Months Ended March 31,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueNet Wholesale
    
    $
    36,905
    
    
    
    34.5
    %
    
    $
    35,973
    
    
    
    32.4
    %Net Retail
    
    
    66,724
    
    
    
    33.0
    %
    
    
    74,375
    
    
    
    34.7
    %Total Gross Profit
    
    $
    103,629
    
    
    
    33.5
    %
    
    $
    110,348
    
    
    
    33.9
    %
   Operating expenses
     Interest expense, net
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Other (income) expense, net
  Income tax benefit
  Liquidity and Capital Resources
       Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  23




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   
 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.
 24




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AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: May 15, 2009
    
    Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 25