##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3911462(I.R.S. Employer Identification No.)
 80 Grasslands Road Elmsford, NY(Address of Principal Executive Offices)
    
    10523(Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 þ o
 o o
  Large
accelerated
filer oAccelerated
filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting
company o o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 June 30, 2010
 TABLE OF CONTENTS
 PagePART IItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2010 and 2009
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2010
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30Item 5. Other Events
    
    
    30PART IIItem 6. Exhibits
    
    
    31Signature
    
    
    32EX-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)
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,046
    
    
    $
    15,420Accounts receivable, net of allowances
    
    
    88,923
    
    
    
    82,781Inventories, net of allowances
    
    
    345,520
    
    
    
    335,950Prepaid expenses and other current assets
    
    
    77,214
    
    
    
    69,541Total current assets
    
    
    527,703
    
    
    
    503,692Property, plant and equipment, net
    
    
    183,332
    
    
    
    174,994Goodwill
    
    
    577,368
    
    
    
    548,439Trade names
    
    
    157,355
    
    
    
    157,283Other intangible assets, net
    
    
    63,303
    
    
    
    54,669Other assets, net
    
    
    15,541
    
    
    
    41,424Total assets
    
    $
    1,524,602
    
    
    $
    1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    130,235
    
    
    $
    77,635Accounts payable
    
    
    82,985
    
    
    
    76,901Accrued expenses
    
    
    101,148
    
    
    
    93,680Income taxes payable
    
    
    4,011
    
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    7,209
    
    
    
    34,906Total current liabilities
    
    
    341,032
    
    
    
    330,627Long-term obligations, excluding current portion
    
    
    538,417
    
    
    
    538,892Deferred income tax liabilities
    
    
    102,370
    
    
    
    101,570Deferred rent and other long-term liabilities
    
    
    8,942
    
    
    
    11,901Total liabilities
    
    
    990,761
    
    
    
    982,990Redeemable common securities (including 592.84 common shares issued and
outstanding at June 30, 2010 and December 31, 2009)
    
    
    18,389
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50 shares
issued and outstanding at June 30, 2010 and December 31, 2009)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    357,099
    
    
    
    335,823Retained earnings
    
    
    165,606
    
    
    
    149,557Accumulated other comprehensive loss
    
    
    (9,519
    )
    
    
    (8,395
    )Amscan Holdings, Inc. stockholders equity
    
    
    513,186
    
    
    
    476,985Noncontrolling interests
    
    
    2,266
    
    
    
    2,137Total stockholders equity
    
    
    515,452
    
    
    
    479,122Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,524,602
    
    
    $
    1,480,501
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Three Months Ended June 30,2010
    
    
    2009Revenues:Net sales
    
    $
    352,705
    
    
    $
    337,536Royalties and franchise fees
    
    
    4,453
    
    
    
    4,536Total revenues
    
    
    357,158
    
    
    
    342,072Expenses:Cost of sales
    
    
    210,865
    
    
    
    209,111Wholesale selling expenses
    
    
    10,845
    
    
    
    9,959Retail operating expenses
    
    
    64,416
    
    
    
    58,164Franchise expenses
    
    
    3,149
    
    
    
    2,876General and administrative expenses
    
    
    28,882
    
    
    
    30,989Art and development costs
    
    
    3,634
    
    
    
    3,155Total expenses
    
    
    321,791
    
    
    
    314,254Income from operations
    
    
    35,367
    
    
    
    27,818Interest expense, net
    
    
    9,126
    
    
    
    10,492Other expense (income), net
    
    
    122
    
    
    
    (292
    )Income before income taxes
    
    
    26,119
    
    
    
    17,618Income tax expense
    
    
    9,588
    
    
    
    6,607Net income
    
    
    16,531
    
    
    
    11,011Less: net income attributable to noncontrolling interest
    
    
    71
    
    
    
    59Net income attributable to Amscan Holdings, Inc.
    
    $
    16,460
    
    
    $
    10,952
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,2010
    
    
    2009Revenues:Net sales
    
    $
    657,084
    
    
    $
    646,582Royalties and franchise fees
    
    
    8,297
    
    
    
    8,230Total revenues
    
    
    665,381
    
    
    
    654,812Expenses:Cost of sales
    
    
    410,765
    
    
    
    414,528Wholesale selling expenses
    
    
    21,235
    
    
    
    20,130Retail operating expenses
    
    
    117,376
    
    
    
    109,665Franchise expenses
    
    
    6,273
    
    
    
    5,765General and administrative expenses
    
    
    58,807
    
    
    
    58,424Art and development costs
    
    
    7,269
    
    
    
    6,281Total expenses
    
    
    621,725
    
    
    
    614,793Income from operations
    
    
    43,656
    
    
    
    40,019Interest expense, net
    
    
    18,427
    
    
    
    21,157Other expense (income), net
    
    
    53
    
    
    
    (85
    )Income before income taxes
    
    
    25,176
    
    
    
    18,947Income tax expense
    
    
    9,013
    
    
    
    5,475Net income
    
    
    16,163
    
    
    
    13,472Less: net income attributable to noncontrolling interest
    
    
    114
    
    
    
    117Net income attributable to Amscan Holdings, Inc.
    
    $
    16,049
    
    
    $
    13,355
  5




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AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2010
(Unaudited)
(Amounts in thousands, except share amounts)
 Accumulated
    
    AmscanAdditional
    
    
    
    
    
    Other
    
    Holdings, Inc.Common
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Stockholders
    
    NoncontrollingShares
    
    Stock
    
    Capital
    
    Earnings
    
    Loss
    
    Equity
    
    Interests
    
    TotalBalance at December 31, 2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,823
    
    
    $
    149,557
    
    
    $
    (8,395
    )
    
    $
    476,985
    
    
    $
    2,137
    
    
    $
    479,122Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,049
    
    
    
    
    
    
    
    16,049
    
    
    
    114
    
    
    
    16,163Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,107
    )
    
    
    (2,107
    )
    
    
    15
    
    
    
    (2,092
    )Change in fair value of
interest rate swap contracts,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402
    
    
    
    402
    
    
    
    
    
    
    
    402Change in fair value of foreign
exchange contracts, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    581
    
    
    
    581
    
    
    
    
    
    
    
    581Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,925
    
    
    
    129
    
    
    
    15,054Issuance of non-redeemable
warrants
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000Equity based compensation
expense
    
    
    
    
    
    
    
    
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    276
    
    
    
    
    
    
    
    276Balance at June 30, 2010
    
    
    30,226.50
    
    
    $
    
    
    
    $
    357,099
    
    
    $
    165,606
    
    
    $
    (9,519
    )
    
    $
    513,186
    
    
    $
    2,266
    
    
    $
    515,452
  6




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AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,2010
    
    
    2009Cash flows provided by operating activities:Net income
    
    $
    16,163
    
    
    $
    13,472Less: net income attributable to noncontrolling interest
    
    
    114
    
    
    
    117Net income attributable to Amscan Holdings, Inc.
    
    
    16,049
    
    
    
    13,355Adjustments to reconcile net income attributable to Amscan
Holdings Inc. to net cash provided by operating activities:Depreciation and amortization expense
    
    
    23,706
    
    
    
    21,665Amortization of deferred financing costs
    
    
    1,060
    
    
    
    1,070Provision for doubtful accounts
    
    
    845
    
    
    
    2,874Deferred income tax provision
    
    
    595
    
    
    
    1,760Deferred rent
    
    
    811
    
    
    
    899Undistributed income in unconsolidated joint venture
    
    
    (364
    )
    
    
    (182
    )Loss on disposal of property and equipment
    
    
    237
    
    
    
    440Equity based compensation
    
    
    276
    
    
    
    438Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (5,203
    )
    
    
    5,523(Increase) decrease in inventories
    
    
    (9,570
    )
    
    
    26,085Increase in prepaid expenses and other current assets
    
    
    (5,941
    )
    
    
    (6,516
    )Decrease in accounts payable, accrued expenses and
income taxes payable
    
    
    (15,839
    )
    
    
    (36,484
    )Net cash provided by operating activities
    
    
    6,662
    
    
    
    30,927Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (5,261
    )
    
    
    (726
    )Capital expenditures
    
    
    (23,170
    )
    
    
    (12,281
    )Proceeds from disposal of property and equipment
    
    
    134
    
    
    
    54Net cash used in investing activities
    
    
    (28,297
    )
    
    
    (12,953
    )Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (29,242
    )
    
    
    (14,850
    )Proceeds from loans, notes payable and long-term obligations
    
    
    53,284
    
    
    
    Capital contributions and proceeds from issuance of common
stock and exercise of options
    
    
    
    
    
    
    79Net cash provided by (used in) financing activities
    
    
    24,042
    
    
    
    (14,771
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,781
    )
    
    
    2,654Net increase in cash and cash equivalents
    
    
    626
    
    
    
    5,857Cash and cash equivalents at beginning of period
    
    
    15,420
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    16,046
    
    
    $
    18,915
  7




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




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 4  Inventories
  June 30,
    
    
    December 31,2010
    
    
    2009Finished goods
    
    $
    319,687
    
    
    $
    325,421Raw Materials
    
    
    31,117
    
    
    
    12,650Work in Process
    
    
    5,712
    
    
    
    6,431356,516
    
    
    
    344,502Reserve for slow-moving and obsolete inventory
    
    
    (10,996
    )
    
    
    (8,552
    )$
    345,520
    
    
    $
    335,950
  Note 5  Income Taxes
  Note 6  Restructuring
   Note 7  Comprehensive Income
  Three months ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    16,460
    
    
    $
    10,952
    
    
    $
    16,049
    
    
    $
    13,355Net change in cumulative translation adjustment
    
    
    (1,075
    )
    
    
    5,308
    
    
    
    (2,107
    )
    
    
    4,565Change in fair value of interest rate swap
contracts, net of income tax (benefit)
expense of $(54), $653, $235, and $720
    
    
    (92
    )
    
    
    1,111
    
    
    
    402
    
    
    
    1,226Change in fair value of foreign exchange
contracts, net of income tax expense
(benefit) of $29, $(579), $342, $(707)
    
    
    49
    
    
    
    (986
    )
    
    
    581
    
    
    
    (1,203
    )Comprehensive income
    
    $
    15,342
    
    
    $
    16,385
    
    
    $
    14,925
    
    
    $
    17,943
 9




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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 June 30, 2010Revenues:Net sales
    
    $
    183,465
    
    
    $
    239,938
    
    
    $
    423,403Royalties and franchise fees
    
    
    
    
    
    
    4,453
    
    
    
    4,453Total revenues
    
    
    183,465
    
    
    
    244,391
    
    
    
    427,856Eliminations
    
    
    (70,698
    )
    
    
    
    
    
    
    (70,698
    )Net Revenues
    
    $
    112,767
    
    
    $
    244,391
    
    
    $
    357,158Income from operations
    
    $
    22,997
    
    
    $
    12,370
    
    
    $
    35,367Interest expense, net
    
    
    
    
    
    
    
    
    
    
    9,126Other expense, net
    
    
    
    
    
    
    
    
    
    
    122Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    26,119Total assets
    
    $
    810,928
    
    
    $
    713,674
    
    
    $
    1,524,602
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended June 30, 2009Revenues:Net sales
    
    $
    147,871
    
    
    $
    244,149
    
    
    $
    392,020Royalties and franchise fees
    
    
    
    
    
    
    4,536
    
    
    
    4,536Total revenues
    
    
    147,871
    
    
    
    248,685
    
    
    
    396,556Eliminations
    
    
    (54,484
    )
    
    
    
    
    
    
    (54,484
    )Net Revenues
    
    $
    93,387
    
    
    $
    248,685
    
    
    
    342,072Income from operations
    
    $
    9,744
    
    
    $
    18,074
    
    
    $
    27,818Interest expense, net
    
    
    
    
    
    
    
    
    
    
    10,492Other income, net
    
    
    
    
    
    
    
    
    
    
    (292
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    17,618Total assets
    
    $
    741,070
    
    
    $
    734,208
    
    
    $
    1,475,278
 10




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2010Revenues:Net sales
    
    $
    344,424
    
    
    $
    438,394
    
    
    $
    782,818Royalties and franchise fees
    
    
    
    
    
    
    8,297
    
    
    
    8,297Total revenues
    
    
    344,424
    
    
    
    446,691
    
    
    
    791,115Eliminations
    
    
    (125,734
    )
    
    
    
    
    
    
    (125,734
    )Net Revenues
    
    $
    218,690
    
    
    $
    446,691
    
    
    $
    665,381Income from operations
    
    $
    42,482
    
    
    $
    1,174
    
    
    $
    43,656Interest expense, net
    
    
    
    
    
    
    
    
    
    
    18,427Other expense, net
    
    
    
    
    
    
    
    
    
    
    53Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    25,176Total assets
    
    $
    810,928
    
    
    $
    713,674
    
    
    $
    1,524,602
 Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2009Revenues:Net sales
    
    $
    305,199
    
    
    $
    446,154
    
    
    $
    751,353Royalties and franchise fees
    
    
    
    
    
    
    8,230
    
    
    
    8,230Total revenues
    
    
    305,199
    
    
    
    454,384
    
    
    
    759,583Eliminations
    
    
    (104,771
    )
    
    
    
    
    
    
    (104,771
    )Net Revenues
    
    $
    200,428
    
    
    $
    454,384
    
    
    $
    654,812Income from operations
    
    $
    26,291
    
    
    $
    13,728
    
    
    $
    40,019Interest expense, net
    
    
    
    
    
    
    
    
    
    
    21,157Other income, net
    
    
    
    
    
    
    
    
    
    
    (85
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    18,947Total assets
    
    $
    741,070
    
    
    $
    734,208
    
    
    $
    1,475,278
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
    11




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 12  Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   Foreign Exchange Risk Management
   Fair Value Measurement
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
 
    
    Level 2  Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
 12




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 
    
    Level 3  Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
  Quoted Prices in
    
    SignificantActive Markets for
    
    Other
    
    UnobservableIdentical Assets or
    
    Observable
    
    Inputs
    
    Total as ofLiabilities (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)
    
    June 30, 2010Derivative assets
    
    
    
    
    
    $
    703
    
    
    
    
    
    
    $
    703Derivative liabilities
    
    
    
    
    
    
    (5,724
    )
    
    
    
    
    
    
    (5,724
    )
 Quoted Prices in
    
    SignificantActive Markets for
    
    Other
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Observable
    
    Inputs
    
    December 31,Liabilities (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)
    
    2009Derivative assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative liabilities
    
    
    
    
    
    
    (6,582
    )
    
    
    
    
    
    
    (6,582
    )
    June 30, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueTerm Loan
    
    $
    341,635
    
    
    $
    327,116
    
    
    $
    364,688
    
    
    $
    331,866$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    166,250
    
    
    
    175,000
    
    
    
    166,250
   Derivative Assets
    
    
    Derivative LiabilitiesNotional Amounts
    
    
    June 30, 2010
    
    
    December 31, 2009
    
    
    June 30, 2010
    
    
    December 31, 2009Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceDecember 31,
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairDerivative Instrument
    
    June 30, 2010
    
    
    2009
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    ValueInterest Rate Hedge
    
    $
    142,972
    
    
    $
    163,441
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b) AE
    
    
    ($5,675
    )
    
    (b) AE
    
    
    ($6,313
    )Foreign Exchange
Contracts
    
    $
    9,600
    
    
    $
    19,200
    
    
    (a) PP
    
    $
    703
    
    
    (a) PP
    
    
    
    
    
    (a) PP
    
    
    ($49
    )
    
    (b) AE
    
    
    ($269
    )Total Hedges
    
    $
    152,572
    
    
    $
    182,641
    
    
    
    
    
    
    $
    703
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    ($5,724
    )
    
    
    
    
    
    
    ($6,582
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses 13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 13  Recently Issued Accounting Pronouncements
   Note 14  Subsequent Events
         14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 15  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
   15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,654
    
    
    $
    4,392
    
    
    $
    
    
    
    $
    16,046Accounts receivable, net of allowances
    
    
    66,521
    
    
    
    22,402
    
    
    
    
    
    
    
    88,923Inventories, net of allowances
    
    
    305,390
    
    
    
    46,703
    
    
    
    (6,573
    )
    
    
    345,520Prepaid expenses and other current assets
    
    
    68,785
    
    
    
    6,363
    
    
    
    2,066
    
    
    
    77,214Total current assets
    
    
    452,350
    
    
    
    79,860
    
    
    
    (4,507
    )
    
    
    527,703Property, plant and equipment, net
    
    
    173,312
    
    
    
    10,020
    
    
    
    
    
    
    
    183,332Goodwill
    
    
    539,583
    
    
    
    37,177
    
    
    
    608
    
    
    
    577,368Trade names
    
    
    157,355
    
    
    
    
    
    
    
    
    
    
    
    157,355Other intangible assets, net
    
    
    39,288
    
    
    
    24,015
    
    
    
    
    
    
    
    63,303Investment in unconsolidated subsidiaries
    
    
    45,167
    
    
    
    
    
    
    
    (45,167
    )
    
    
    Intercompany receivable
    
    
    41,377
    
    
    
    
    
    
    
    (41,377
    )
    
    
    Other assets, net
    
    
    42,443
    
    
    
    3,210
    
    
    
    (30,112
    )
    
    
    15,541Total assets
    
    $
    1,490,875
    
    
    $
    154,282
    
    
    $
    (120,555
    )
    
    $
    1,524,602LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS
EQUITYCurrent liabilities:Loans and notes payable
    
    
    130,235
    
    
    
    
    
    
    
    
    
    
    
    130,235Intercompany payable
    
    
    
    
    
    
    41,377
    
    
    
    (41,377
    )
    
    
    Accounts payable
    
    
    75,436
    
    
    
    7,549
    
    
    
    
    
    
    
    82,985Accrued expenses
    
    
    91,776
    
    
    
    9,372
    
    
    
    
    
    
    
    101,148Income taxes payable
    
    
    5,253
    
    
    
    (940
    )
    
    
    (302
    )
    
    
    4,011Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    3,175
    
    
    
    4,034
    
    
    
    
    
    
    
    7,209Total current liabilities
    
    
    321,319
    
    
    
    61,392
    
    
    
    (41,679
    )
    
    
    341,032Long-term obligations, excluding current portion
    
    
    523,209
    
    
    
    15,208
    
    
    
    
    
    
    
    538,417Deferred income tax liabilities
    
    
    101,831
    
    
    
    539
    
    
    
    
    
    
    
    102,370Deferred rent and other long-term liabilities
    
    
    8,958
    
    
    
    956
    
    
    
    (972
    )
    
    
    8,942Total liabilities
    
    
    955,317
    
    
    
    78,095
    
    
    
    (42,651
    )
    
    
    990,761Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    336
    
    
    
    336
    
    
    
    (672
    )
    
    
    Additional paid-in capital
    
    
    357,049
    
    
    
    46,775
    
    
    
    (46,725
    )
    
    
    357,099Retained earnings
    
    
    169,303
    
    
    
    32,894
    
    
    
    (36,591
    )
    
    
    165,606Accumulated other comprehensive loss
    
    
    (9,519
    )
    
    
    (6,084
    )
    
    
    6,084
    
    
    
    (9,519
    )Amscan Holdings, Inc. stockholders equity
    
    
    517,169
    
    
    
    73,921
    
    
    
    (77,904
    )
    
    
    513,186Noncontrolling interests
    
    
    
    
    
    
    2,266
    
    
    
    
    
    
    
    2,266Total stockholders equity
    
    
    517,169
    
    
    
    76,187
    
    
    
    (77,904
    )
    
    
    515,452Total liabilities, redeemable common securities
and
stockholders equity
    
    $
    1,490,875
    
    
    $
    154,282
    
    
    $
    (120,555
    )
    
    $
    1,524,602
 16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONSOLIDATING BALANCE SHEET
December 31, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,240
    
    
    $
    7,180
    
    
    $
    
    
    
    $
    15,420Accounts receivable, net of allowances
    
    
    60,655
    
    
    
    22,126
    
    
    
    
    
    
    
    82,781Inventories, net of allowances
    
    
    295,004
    
    
    
    46,708
    
    
    
    (5,762
    )
    
    
    335,950Prepaid expenses and other current assets
    
    
    63,529
    
    
    
    4,231
    
    
    
    1,781
    
    
    
    69,541Total current assets
    
    
    427,428
    
    
    
    80,245
    
    
    
    (3,981
    )
    
    
    503,692Property, plant and equipment, net
    
    
    163,999
    
    
    
    10,995
    
    
    
    
    
    
    
    174,994Goodwill
    
    
    510,400
    
    
    
    37,988
    
    
    
    51
    
    
    
    548,439Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    29,948
    
    
    
    24,721
    
    
    
    
    
    
    
    54,669Investment in   unconsolidated subsidiaries
    
    
    76,032
    
    
    
    
    
    
    
    (76,032
    )
    
    
    Intercompany receivable
    
    
    42,335
    
    
    
    9,760
    
    
    
    (52,095
    )
    
    
    Other assets, net
    
    
    41,622
    
    
    
    (198
    )
    
    
    
    
    
    
    41,424Total assets
    
    $
    1,449,047
    
    
    $
    163,511
    
    
    $
    (132,057
    )
    
    $
    1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS
EQUITYCurrent liabilities:Loans and notes payable
    
    $
    77,635
    
    
    $
    
    
    
    $
    
    
    
    $
    77,635Accounts payable
    
    
    67,235
    
    
    
    9,666
    
    
    
    
    
    
    
    76,901Accrued expenses
    
    
    83,430
    
    
    
    10,250
    
    
    
    
    
    
    
    93,680Income taxes payable
    
    
    32,969
    
    
    
    (552
    )
    
    
    (356
    )
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    27,761
    
    
    
    7,145
    
    
    
    
    
    
    
    34,906Total current liabilities
    
    
    304,474
    
    
    
    26,509
    
    
    
    (356
    )
    
    
    330,627Long-term obligations, excluding current portion
    
    
    522,392
    
    
    
    16,500
    
    
    
    
    
    
    
    538,892Intercompany payable
    
    
    9,760
    
    
    
    42,335
    
    
    
    (52,095
    )
    
    
    Deferred income tax liabilities
    
    
    101,000
    
    
    
    570
    
    
    
    
    
    
    
    101,570Deferred rent and other long term-liabilities
    
    
    12,087
    
    
    
    786
    
    
    
    (972
    )
    
    
    11,901Total liabilities
    
    
    949,713
    
    
    
    86,700
    
    
    
    (53,423
    )
    
    
    982,990Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    336
    
    
    
    336
    
    
    
    (672
    )
    
    
    Additional paid-in capital
    
    
    336,331
    
    
    
    47,333
    
    
    
    (47,841
    )
    
    
    335,823Retained earnings
    
    
    152,673
    
    
    
    31,561
    
    
    
    (34,677
    )
    
    
    149,557Accumulated other comprehensive loss
    
    
    (8,395
    )
    
    
    (4,556
    )
    
    
    4,556
    
    
    
    (8,395
    )Amscan Holdings Inc. stockholders equity
    
    
    480,945
    
    
    
    74,674
    
    
    
    (78,634
    )
    
    
    476,985Noncontrolling interests
    
    
    
    
    
    
    2,137
    
    
    
    
    
    
    
    2,137Total stockholders equity
    
    
    480,945
    
    
    
    76,811
    
    
    
    (78,634
    )
    
    
    479,122Total liabilities, redeemable common securities and
stockholders equity
    
    $
    1,449,047
    
    
    $
    163,511
    
    
    $
    (132,057
    )
    
    $
    1,480,501
 17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    313,882
    
    
    $
    54,042
    
    
    $
    (15,219
    )
    
    $
    352,705Royalties and franchise fees
    
    
    5,716
    
    
    
    
    
    
    
    (1,263
    )
    
    
    4,453Total revenues
    
    
    319,598
    
    
    
    54,042
    
    
    
    (16,482
    )
    
    
    357,158Expenses:Cost of sales
    
    
    188,513
    
    
    
    37,395
    
    
    
    (15,043
    )
    
    
    210,865Wholesale selling expenses
    
    
    8,415
    
    
    
    2,430
    
    
    
    
    
    
    
    10,845Retail operating expenses
    
    
    56,763
    
    
    
    8,916
    
    
    
    (1,263
    )
    
    
    64,416Franchise expenses
    
    
    3,149
    
    
    
    
    
    
    
    
    
    
    
    3,149General and administrative expenses
    
    
    26,066
    
    
    
    3,146
    
    
    
    (330
    )
    
    
    28,882Art and development costs
    
    
    3,656
    
    
    
    (22
    )
    
    
    
    
    
    
    3,634Total expenses
    
    
    286,562
    
    
    
    51,865
    
    
    
    (16,636
    )
    
    
    321,791Income from operations
    
    
    33,036
    
    
    
    2,177
    
    
    
    154
    
    
    
    35,367Interest expense, net
    
    
    8,528
    
    
    
    598
    
    
    
    
    
    
    
    9,126Other (income) expense, net
    
    
    (1,786
    )
    
    
    214
    
    
    
    1,694
    
    
    
    122Income before income taxes
    
    
    26,294
    
    
    
    1,365
    
    
    
    (1,540
    )
    
    
    26,119Income tax expense
    
    
    10,150
    
    
    
    266
    
    
    
    (828
    )
    
    
    9,588Net income
    
    
    16,144
    
    
    
    1,099
    
    
    
    (712
    )
    
    
    16,531Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Net income attributable to Amscan Holdings, Inc.
    
    $
    16,144
    
    
    $
    1,028
    
    
    $
    (712
    )
    
    $
    16,460
 18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    578,401
    
    
    $
    107,650
    
    
    $
    (28,967
    )
    
    $
    657,084Royalties and franchise fees
    
    
    10,785
    
    
    
    
    
    
    
    (2,488
    )
    
    
    8,297Total revenues
    
    
    589,186
    
    
    
    107,650
    
    
    
    (31,455
    )
    
    
    665,381Expenses:Cost of sales
    
    
    363,425
    
    
    
    75,437
    
    
    
    (28,097
    )
    
    
    410,765Wholesale selling expenses
    
    
    16,172
    
    
    
    5,063
    
    
    
    
    
    
    
    21,235Retail operating expenses
    
    
    102,647
    
    
    
    17,217
    
    
    
    (2,488
    )
    
    
    117,376Franchise expenses
    
    
    6,273
    
    
    
    
    
    
    
    
    
    
    
    6,273General and administrative expenses
    
    
    53,176
    
    
    
    6,291
    
    
    
    (660
    )
    
    
    58,807Art and development costs
    
    
    7,315
    
    
    
    (46
    )
    
    
    
    
    
    
    7,269Total expenses
    
    
    549,008
    
    
    
    103,962
    
    
    
    (31,245
    )
    
    
    621,725Income from operations
    
    
    40,178
    
    
    
    3,688
    
    
    
    (210
    )
    
    
    43,656Interest expense, net
    
    
    17,181
    
    
    
    1,246
    
    
    
    
    
    
    
    18,427Other (income) expense, net
    
    
    (3,049
    )
    
    
    536
    
    
    
    2,566
    
    
    
    53Income before income taxes
    
    
    26,046
    
    
    
    1,906
    
    
    
    (2,776
    )
    
    
    25,176Income tax expense
    
    
    9,335
    
    
    
    355
    
    
    
    (677
    )
    
    
    9,013Net income
    
    $
    16,711
    
    
    $
    1,551
    
    
    $
    (2,099
    )
    
    $
    16,163Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    $
    16,711
    
    
    $
    1,437
    
    
    $
    (2,099
    )
    
    $
    16,049
 19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2009
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    302,586
    
    
    $
    50,510
    
    
    $
    (15,560
    )
    
    $
    337,536Royalties and franchise fees
    
    
    4,536
    
    
    
    
    
    
    
    
    
    
    
    4,536Total revenues
    
    
    307,122
    
    
    
    50,510
    
    
    
    (15,560
    )
    
    
    342,072Expenses:Cost of sales
    
    
    187,337
    
    
    
    34,817
    
    
    
    (13,043
    )
    
    
    209,111Selling expenses
    
    
    7,946
    
    
    
    2,013
    
    
    
    
    
    
    
    9,959Retail operating expenses
    
    
    50,165
    
    
    
    9,254
    
    
    
    (1,255
    )
    
    
    58,164Franchise expenses
    
    
    2,876
    
    
    
    
    
    
    
    
    
    
    
    2,876General and administrative expenses
    
    
    26,459
    
    
    
    4,860
    
    
    
    (330
    )
    
    
    30,989Art and development costs
    
    
    3,155
    
    
    
    
    
    
    
    
    
    
    
    3,155Total expenses
    
    
    277,938
    
    
    
    50,944
    
    
    
    (14,628
    )
    
    
    314,254Income (loss) from operations
    
    
    29,184
    
    
    
    (434
    )
    
    
    (932
    )
    
    
    27,818Interest expense, net
    
    
    9,896
    
    
    
    596
    
    
    
    
    
    
    
    10,492Other (income), net
    
    
    (988
    )
    
    
    (25
    )
    
    
    721
    
    
    
    (292
    )Income (loss) before income taxes
    
    
    20,276
    
    
    
    (1,005
    )
    
    
    (1,653
    )
    
    
    17,618Income tax expense (benefit)
    
    
    7,358
    
    
    
    (110
    )
    
    
    (641
    )
    
    
    6,607Net income (loss)
    
    
    12,918
    
    
    
    (895
    )
    
    
    (1,012
    )
    
    
    11,011Less net income attributed to noncontrolling interest
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Net income (loss) attributable to Amscan Holdings,
Inc.
    
    $
    12,918
    
    
    $
    (954
    )
    
    $
    (1,012
    )
    
    $
    10,952
 20




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2009
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    577,850
    
    
    $
    98,774
    
    
    $
    (30,042
    )
    
    $
    646,582Royalties and franchise fees
    
    
    8,230
    
    
    
    
    
    
    
    
    
    
    
    8,230Total revenues
    
    
    586,080
    
    
    
    98,774
    
    
    
    (30,042
    )
    
    
    654,812Expenses:Cost of sales
    
    
    372,195
    
    
    
    68,384
    
    
    
    (26,051
    )
    
    
    414,528Selling expenses
    
    
    16,163
    
    
    
    3,967
    
    
    
    
    
    
    
    20,130Retail operating expenses
    
    
    93,764
    
    
    
    18,403
    
    
    
    (2,502
    )
    
    
    109,665Franchise expenses
    
    
    5,765
    
    
    
    
    
    
    
    
    
    
    
    5,765General and administrative expenses
    
    
    50,760
    
    
    
    8,324
    
    
    
    (660
    )
    
    
    58,424Art and development costs
    
    
    6,281
    
    
    
    
    
    
    
    
    
    
    
    6,281Total expenses
    
    
    544,928
    
    
    
    99,078
    
    
    
    (29,213
    )
    
    
    614,793Income (loss) from operations
    
    
    41,152
    
    
    
    (304
    )
    
    
    (829
    )
    
    
    40,019Interest expense, net
    
    
    20,047
    
    
    
    1,110
    
    
    
    
    
    
    
    21,157Other (income) expense, net
    
    
    (2,170
    )
    
    
    (11
    )
    
    
    2,096
    
    
    
    (85
    )Income (loss) before income taxes
    
    
    23,275
    
    
    
    (1,403
    )
    
    
    (2,925
    )
    
    
    18,947Income tax expense (benefit)
    
    
    6,695
    
    
    
    (669
    )
    
    
    (551
    )
    
    
    5,475Net income (loss)
    
    
    16,580
    
    
    
    (734
    )
    
    
    (2,374
    )
    
    
    13,472Less net income attributed to noncontrolling interest
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    117Net income (loss) attributable to Amscan Holdings,
Inc.
    
    $
    16,580
    
    
    $
    (851
    )
    
    $
    (2,374
    )
    
    $
    13,355
 21




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2010
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by operating activities:Net income
    
    $
    16,711
    
    
    $
    1,551
    
    
    $
    (2,099
    )
    
    $
    16,163Less net income attributable
to noncontrolling interest
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    
    16,711
    
    
    
    1,437
    
    
    
    (2,099
    )
    
    
    16,049Adjustments to reconcile net income attributable to Amscan Holdings, Inc.
to net cash provided by operating activities:Depreciation and amortization expense
    
    
    21,680
    
    
    
    2,026
    
    
    
    
    
    
    
    23,706Amortization of deferred financing costs
    
    
    928
    
    
    
    132
    
    
    
    
    
    
    
    1,060Provision for doubtful accounts
    
    
    729
    
    
    
    116
    
    
    
    
    
    
    
    845Deferred income tax expense
    
    
    595
    
    
    
    
    
    
    
    
    
    
    
    595Deferred rent
    
    
    641
    
    
    
    170
    
    
    
    
    
    
    
    811Undistributed income in unconsolidated joint venture
    
    
    (364
    )
    
    
    
    
    
    
    
    
    
    
    (364
    )Loss on disposal of property and equipment
    
    
    100
    
    
    
    137
    
    
    
    
    
    
    
    237Equity based compensation
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    276Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (5,189
    )
    
    
    (14
    )
    
    
    
    
    
    
    (5,203
    )Increase in inventories
    
    
    (10,386
    )
    
    
    (122
    )
    
    
    938
    
    
    
    (9,570
    )Increase in prepaid expenses and other current assets
    
    
    (3,629
    )
    
    
    (2,027
    )
    
    
    (285
    )
    
    
    (5,941
    )(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (18,966
    )
    
    
    1,681
    
    
    
    1,446
    
    
    
    (15,839
    )Net cash provided by operating activities
    
    
    3,126
    
    
    
    3,536
    
    
    
    0
    
    
    
    6,662Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (5,263
    )
    
    
    2
    
    
    
    
    
    
    
    (5,261
    )Capital expenditures
    
    
    (22,447
    )
    
    
    (723
    )
    
    
    
    
    
    
    (23,170
    )Proceeds from disposal of property and equipment
    
    
    104
    
    
    
    30
    
    
    
    
    
    
    
    134Net cash used in investing activities
    
    
    (27,606
    )
    
    
    (691
    )
    
    
    
    
    
    
    (28,297
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (25,345
    )
    
    
    (3,897
    )
    
    
    
    
    
    
    (29,242
    )Proceeds from loans, notes payable and long-term obligations
    
    
    53,245
    
    
    
    39
    
    
    
    
    
    
    
    53,284Net cash provided by (used in) financing activities
    
    
    27,900
    
    
    
    (3,858
    )
    
    
    
    
    
    
    24,042Effect of exchange rate changes on cash and cash equivalents
    
    
    (5
    )
    
    
    (1,776
    )
    
    
    
    
    
    
    (1,781
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,415
    
    
    
    (2,789
    )
    
    
    
    
    
    
    626Cash and cash equivalents at beginning of period
    
    
    8,239
    
    
    
    7,181
    
    
    
    
    
    
    
    15,420Cash and cash equivalents at end of period
    
    $
    11,654
    
    
    $
    4,392
    
    
    $
    
    
    
    $
    16,046
 22




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six months Ended June 30, 2009
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by operating activities:Net income (loss)
    
    $
    16,580
    
    
    $
    (734
    )
    
    $
    (2,374
    )
    
    $
    13,472Less net income attributable
to noncontrolling interest
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    117Net income (loss) attributable to
Amscan Holdings, Inc.
    
    
    16,580
    
    
    
    (851
    )
    
    
    (2,374
    )
    
    
    13,355Adjustments to reconcile net income (loss) attributable to Amscan Holdings,
Inc. to net cash provided by operating activities:Depreciation and amortization expense
    
    
    19,222
    
    
    
    2,443
    
    
    
    
    
    
    
    21,665Amortization of deferred financing costs
    
    
    945
    
    
    
    125
    
    
    
    
    
    
    
    1,070Provision for doubtful accounts
    
    
    1,662
    
    
    
    1,212
    
    
    
    
    
    
    
    2,874Deferred income tax expense
    
    
    1,760
    
    
    
    
    
    
    
    
    
    
    
    1,760Deferred rent
    
    
    259
    
    
    
    640
    
    
    
    
    
    
    
    899Undistributed loss in unconsolidated joint venture
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    (182
    )Gain on disposal of property and equipment
    
    
    360
    
    
    
    80
    
    
    
    
    
    
    
    440Equity based compensation
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    438Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    8,001
    
    
    
    (2,478
    )
    
    
    
    
    
    
    5,523Decrease (increase) in inventories
    
    
    26,944
    
    
    
    (983
    )
    
    
    124
    
    
    
    26,085Increase in prepaid expenses and other current assets
    
    
    (796
    )
    
    
    (5,720
    )
    
    
    
    
    
    
    (6,516
    )(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (50,376
    )
    
    
    11,642
    
    
    
    2,250
    
    
    
    (36,484
    )Net cash provided by operating activities
    
    
    24,817
    
    
    
    6,110
    
    
    
    
    
    
    
    30,927Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (726
    )
    
    
    
    
    
    
    
    
    
    
    (726
    )Capital expenditures
    
    
    (11,414
    )
    
    
    (867
    )
    
    
    
    
    
    
    (12,281
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54Net cash used in investing activities
    
    
    (12,086
    )
    
    
    (867
    )
    
    
    
    
    
    
    (12,953
    )Cash flows used in financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (13,850
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    (14,850
    )Capital contributions
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Net cash used in financing activities
    
    
    (13,771
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    (14,771
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    166
    
    
    
    2,488
    
    
    
    
    
    
    
    2,654Net (decrease) increase in cash and cash equivalents
    
    
    (874
    )
    
    
    6,731
    
    
    
    
    
    
    
    5,857Cash and cash equivalents at beginning of period
    
    
    8,544
    
    
    
    4,514
    
    
    
    
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    7,670
    
    
    $
    11,245
    
    
    $
    
    
    
    $
    18,915
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE MONTHS ENDED JUNE 30, 2009
  Three Months Ended June 30,2010
    
    
    2009Revenues:Net sales
    
    
    98.8
    %
    
    
    98.7
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.3Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    59.0
    
    
    
    61.1Wholesale selling expenses
    
    
    3.0
    
    
    
    2.9Retail operating expenses
    
    
    18.0
    
    
    
    17.0Franchise expenses
    
    
    0.9
    
    
    
    0.9General and administrative expenses
    
    
    8.1
    
    
    
    9.1Art and development costs
    
    
    1.0
    
    
    
    0.9Total expenses
    
    
    90.0
    
    
    
    91.9Income from operations
    
    
    10.0
    
    
    
    8.1Interest expense, net
    
    
    2.6
    
    
    
    3.1Other expense (income), net
    
    
    0.0
    
    
    
    (0.1
    )Income before income taxes
    
    
    7.4
    
    
    
    5.1Income tax expense
    
    
    2.8
    
    
    
    1.9Net income
    
    
    4.6
    
    
    
    3.2Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    4.6
    %
    
    
    3.2
    %
 Three Months Ended June 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    183,465
    
    
    
    51.4
    %
    
    $
    147,871
    
    
    
    43.2
    %Eliminations
    
    
    (70,698
    )
    
    
    (19.8
    )
    
    
    (54,484
    )
    
    
    (15.9
    )Net wholesale
    
    
    112,767
    
    
    
    31.6
    
    
    
    93,387
    
    
    
    27.3Retail
    
    
    239,938
    
    
    
    67.2
    
    
    
    244,149
    
    
    
    71.4Total net sales
    
    
    352,705
    
    
    
    98.8
    
    
    
    337,536
    
    
    
    98.7Franchise related
    
    
    4,453
    
    
    
    1.2
    
    
    
    4,536
    
    
    
    1.3Total revenues
    
    $
    357,158
    
    
    
    100.0
    %
    
    $
    342,072
    
    
    
    100.0
    %
 Wholesale
  24




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##### Table of Contents



Retail
 i.e
 Gross Profit
  Three Months Ended June 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    44,023
    
    
    
    39.0
    %
    
    $
    32,085
    
    
    
    34.4
    %Retail
    
    
    97,817
    
    
    
    40.8
    %
    
    
    96,340
    
    
    
    39.5
    %Total
    
    $
    141,840
    
    
    
    40.2
    %
    
    $
    128,425
    
    
    
    38.0
    %
   Operating expenses
     Interest expense, net
  25




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##### Table of Contents



Other expense, net
  Income tax expense
  SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO SIX MONTHS ENDED JUNE 30, 2009
  Six Months Ended June 30,2010
    
    2009Revenues:Net sales
    
    
    98.8
    %
    
    
    98.7
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.3Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    61.7
    
    
    
    63.3Wholesale selling expenses
    
    
    3.2
    
    
    
    3.1Retail operating expenses
    
    
    17.6
    
    
    
    16.7Franchise expenses
    
    
    0.9
    
    
    
    0.9General and administrative expenses
    
    
    8.8
    
    
    
    8.9Art and development costs
    
    
    1.1
    
    
    
    1.0Total expenses
    
    
    93.3
    
    
    
    93.9Income from operations
    
    
    6.7
    
    
    
    6.1Interest expense, net
    
    
    2.8
    
    
    
    3.2Other expense (income), net
    
    
    0.0
    
    
    
    0.0Income before income taxes
    
    
    3.9
    
    
    
    2.9Income tax expense
    
    
    1.4
    
    
    
    0.8Net income
    
    
    2.5
    %
    
    
    2.1
    %Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    2.5
    %
    
    
    2.1
    %
 Six Months Ended June 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    344,424
    
    
    
    51.8
    %
    
    $
    305,199
    
    
    
    46.6
    %Eliminations
    
    
    (125,734
    )
    
    
    (18.9
    )
    
    
    (104,771
    )
    
    
    (16.0
    )Net wholesale
    
    
    218,690
    
    
    
    32.9
    
    
    
    200,428
    
    
    
    30.6Retail
    
    
    438,394
    
    
    
    65.9
    
    
    
    446,154
    
    
    
    68.1Total net sales
    
    
    657,084
    
    
    
    98.8
    
    
    
    646,582
    
    
    
    98.7Franchise related
    
    
    8,297
    
    
    
    1.2
    
    
    
    8,230
    
    
    
    1.3Total revenues
    
    $
    665,381
    
    
    
    100.0
    %
    
    $
    654,812
    
    
    
    100.0
    %
 26




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##### Table of Contents



Wholesale
   Retail
 i.e
 Gross Profit
  Six Months Ended June 30,2010
    
    2009Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    83,971
    
    
    
    38.4
    %
    
    $
    68,990
    
    
    
    34.4
    %Retail
    
    
    162,348
    
    
    
    37.0
    %
    
    
    163,064
    
    
    
    36.5
    %Total
    
    $
    246,319
    
    
    
    37.5
    %
    
    $
    232,054
    
    
    
    35.9
    %
   Operating expenses
    27




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##### Table of Contents



Interest expense, net
  Other expense (income), net
  Income tax expense
  Liquidity and Capital Resources
        28




---



##### Table of Contents



Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  29




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##### Table of Contents



Item 4. Controls and Procedures
   
 Item 5. Other Events
      30




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##### Table of Contents



PART II
 
 Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.32
    
    Certification of Chief Executive and Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 31




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##### Table of Contents



AMSCAN HOLDINGS, INC.Date: August 16, 2010
    By:
    /s/ Michael A. CorrealeMichael A. CorrealeChief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 32