##### 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, 2008
 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
  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




---



##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 March 31, 2008
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4 Controls and Procedures
    
    
    22PART IIItem 5 Other Information
    
    
    23Item 6 Exhibits
    
    
    23Signature
    
    
    24EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32 Section 906 Certification of CEO and CFO
   http://www.sec.gov.
 2




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,892
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    99,070
    
    
    
    98,425Inventories, net of allowances
    
    
    335,950
    
    
    
    319,621Prepaid expenses and other current assets
    
    
    54,299
    
    
    
    62,046Total current assets
    
    
    504,211
    
    
    
    497,366Property, plant and equipment, net
    
    
    173,271
    
    
    
    174,198Goodwill
    
    
    549,061
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    186,187Other intangible assets, net
    
    
    68,740
    
    
    
    42,526Other assets, net
    
    
    33,226
    
    
    
    39,625Total assets
    
    $
    1,501,392
    
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    192,798
    
    
    $
    153,170Accounts payable
    
    
    110,032
    
    
    
    120,293Accrued expenses
    
    
    84,233
    
    
    
    94,328Income taxes payable
    
    
    5,952
    
    
    
    12,581Current portion of long-term obligations
    
    
    8,660
    
    
    
    8,620Total current liabilities
    
    
    401,675
    
    
    
    388,992Long-term obligations, excluding current portion
    
    
    582,169
    
    
    
    584,336Deferred income tax liabilities
    
    
    99,280
    
    
    
    94,360Deferred rent and other long-term liabilities
    
    
    11,220
    
    
    
    21,789Total liabilities
    
    
    1,094,344
    
    
    
    1,089,477Redeemable common securities
    
    
    35,359
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,436.96 shares issued
and outstanding at March 31, 2008 and December 31, 2007)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    325,763
    
    
    
    326,741Retained earnings
    
    
    43,957
    
    
    
    46,494Accumulated other comprehensive income
    
    
    1,969
    
    
    
    2,351Total stockholders equity
    
    
    371,689
    
    
    
    375,586Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,501,392
    
    
    $
    1,498,845
  3




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Revenues:Net sales
    
    $
    325,032
    
    
    $
    243,529Royalties and franchise fees
    
    
    5,342
    
    
    
    4,895Total revenues
    
    
    330,374
    
    
    
    248,424Expenses:Cost of sales
    
    
    214,685
    
    
    
    165,823Selling expenses
    
    
    10,749
    
    
    
    10,480Retail operating expenses
    
    
    57,926
    
    
    
    34,883Franchise expenses
    
    
    3,631
    
    
    
    3,350General and administrative expenses
    
    
    31,503
    
    
    
    24,132Art and development costs
    
    
    3,102
    
    
    
    2,919Total expenses
    
    
    321,596
    
    
    
    241,587Income from operations
    
    
    8,778
    
    
    
    6,837Interest expense, net
    
    
    14,308
    
    
    
    14,075Other (income) expense, net
    
    
    (486
    )
    
    
    (138
    )Income (loss) before income taxes and minority interests
    
    
    (5,044
    )
    
    
    (7,100
    )Income tax expense (benefit)
    
    
    (1,912
    )
    
    
    (2,706
    )Minority interests
    
    
    (595
    )
    
    
    8Net income (loss)
    
    $
    (2,537
    )
    
    $
    (4,402
    )
  4




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Three Months Ended March 31, 2008
 (Dollars in thousands)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    OtherCommon
    
    Common
    
    Paid-in
    
    Retained
    
    ComprehensiveShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income / (Loss)
    
    TotalBalance at December 31, 2007
    
    
    30,436.96
    
    
    $
    
    
    
    $
    326,741
    
    
    $
    46,494
    
    
    $
    2,351
    
    
    $
    375,586Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,537
    )
    
    
    
    
    
    
    (2,537
    )Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    115Change in fair value of
interest rate swap contracts,
net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (407
    )
    
    
    (407
    )Change in fair value of foreign
exchange contracts, net of
income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    (90
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,919
    )Revaluation of redeemable
common securities
    
    
    
    
    
    
    
    
    
    
    (1,576
    )
    
    
    
    
    
    
    
    
    
    
    (1,576
    )Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    598
    
    
    
    
    
    
    
    
    
    
    
    598Balance at March 31, 2008
    
    
    30,436.96
    
    
    $
    
    
    
    $
    325,763
    
    
    $
    43,957
    
    
    $
    1,969
    
    
    $
    371,689
  5




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Three Months Ended March
31,2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income (loss)
    
    $
    (2,537
    )
    
    $
    (4,402
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization expense
    
    
    11,173
    
    
    
    9,940Amortization of deferred financing costs
    
    
    493
    
    
    
    663Provision for doubtful accounts
    
    
    440
    
    
    
    448Deferred
income tax expense (benefit)
    
    
    (2,186
    )
    
    
    (1,046
    )Deferred rent
    
    
    350
    
    
    
    593Undistributed (income) loss in unconsolidated joint venture
    
    
    (514
    )
    
    
    51Loss (gain) on disposal of equipment
    
    
    20
    
    
    
    45Equity based compensation
    
    
    598
    
    
    
    367Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    596
    
    
    
    (319
    )(Increase) decrease in inventories
    
    
    (16,329
    )
    
    
    (7,615
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    5,132
    
    
    
    (2,034
    )(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (25,488
    )
    
    
    (38,035
    )Other, net
    
    
    
    
    
    
    5Net cash provided by (used in) operating activities
    
    
    (28,252
    )
    
    
    (41,339
    )Cash flows provided by (used in) investing activities:Cash paid in connection with acquisitions
    
    
    
    
    
    
    (350
    )Capital expenditures
    
    
    (11,493
    )
    
    
    (3,799
    )Proceeds from disposal of property and equipment
    
    
    59
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (11,434
    )
    
    
    (4,149
    )Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (1,437
    )
    
    
    (125
    )Proceeds from loans, notes payable and long-term obligations,
net of debt issuance costs
    
    
    38,646
    
    
    
    43,835Capital contributions and proceeds from issuance of common
stock and exercise of options, net of retirements
    
    
    
    
    
    
    28Net cash provided by (used in) financing activities
    
    
    37,209
    
    
    
    43,738Effect of exchange rate changes on cash and cash equivalents
    
    
    95
    
    
    
    134Net increase (decrease) in cash and cash equivalents
    
    
    (2,382
    )
    
    
    (1,616
    )Cash and cash equivalents at beginning of period
    
    
    17,274
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    14,892
    
    
    $
    3,350
  6




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 Note 1  Description of Business
  Note 2  Acquisitions
 Party City Franchise Group Transaction
   The Factory Card & Party Outlet Acquisition
  Note 3  Basis of Presentation
  Note 4  Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007Finished goods
    
    $
    315,836
    
    
    $
    299,436Raw materials
    
    
    12,535
    
    
    
    13,690Work in process
    
    
    7,579
    
    
    
    6,495$
    335,950
    
    
$
 319,621
 7




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (Unaudited)
  Note 5  Income Taxes
  Note 6  Restructuring
    Note 7  Comprehensive Income (Loss)
  Three months ended March 31,2008
    
    
    2007Net income (loss)
    
    $
    (2,537
    )
    
    $
    (4,402
    )Net change in cumulative translation adjustment
    
    
    114
    
    
    
    179Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $(239), $(85)
    
    
    (407
    )
    
    
    (144
    )Change in fair value of foreign exchange
contracts, net of income tax expense (benefit)
 of $(53), $(81)
    
    
    (90
    )
    
    
    (139
    )Comprehensive income (loss)
    
    $
    (2,920
    )
    
    $
    (4,506
    )
 8




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 8  Capital Stock
      Note 9  Segment Information
 Industry Segments
   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 from operations
    
    $
    11,735
    
    
    $
    (2,956
    )
    
    $
    8,779Interest expense, net
    
    
    
    
    
    
    
    
    
    
    14,308Other (income) expense, net
    
    
    
    
    
    
    
    
    
    
    (486
    )Income (loss) before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    (5,043
    )Long-lived assets
    
    $
    416,447
    
    
    $
    574,982
    
    
    $
    991,429
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended March 31, 2007Revenues:Net sales
    
    $
    139,993
    
    
    $
    135,409
    
    
    $
    275,402Royalties and franchise fees
    
    
    
    
    
    
    4,895
    
    
    
    4,895Total revenues
    
    
    139,993
    
    
    
    140,304
    
    
    
    280,297Eliminations
    
    
    (31,873
    )
    
    
    
    
    
    
    (31,873
    )Net revenues
    
    $
    108,120
    
    
    $
    140,304
    
    
    $
    248,424Income from operations
    
    $
    7,894
    
    
    $
    (1,057
    )
    
    $
    6,837Interest expense, net
    
    
    
    
    
    
    
    
    
    
    14,075Other (income) expense, net
    
    
    
    
    
    
    
    
    
    
    (138
    )Income (loss) before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    (7,100
    )Long-lived assets
    
    $
    452,732
    
    
    $
    393,913
    
    
    $
    846,645
 9




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
   Note 12  Long Term Obligations
  Term Loan Credit Agreement
    ABL Credit Agreement
    PCFG Credit Agreement
  10




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
   Note 13  Recently Issued Accounting Standards
    Note 14  Condensed Consolidating Financial Information
  
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.
    
    Trisar, Inc.
    
    Factory Card & Party Outlet Corp.Non-guarantor subsidiaries (Non-guarantors) include the following:
    
    Amscan (Asia-Pacific) Pty. Ltd.
 11




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    
    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
  12




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2008
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,662
    
    
    $
    9,230
    
    
    $
    
    
    
    $
    14,892Accounts receivable, net of allowances
    
    
    80,023
    
    
    
    19,047
    
    
    
    
    
    
    
    99,070Inventories, net of allowances
    
    
    298,593
    
    
    
    38,245
    
    
    
    (888
    )
    
    
    335,950Prepaid expenses and other current assets
    
    
    50,534
    
    
    
    3,765
    
    
    
    
    
    
    
    54,299Total current assets
    
    
    434,812
    
    
    
    70,287
    
    
    
    (888
    )
    
    
    504,211Property, plant and equipment, net
    
    
    166,796
    
    
    
    6,475
    
    
    
    
    
    
    
    173,271Goodwill
    
    
    516,233
    
    
    
    32,828
    
    
    
    
    
    
    
    549,061Trade names
    
    
    172,883
    
    
    
    
    
    
    
    
    
    
    
    172,883Other intangible assets, net
    
    
    41,131
    
    
    
    27,609
    
    
    
    
    
    
    
    68,740Other assets, net
    
    
    103,638
    
    
    
    (21,022
    )
    
    
    (49,390
    )
    
    
    33,226Total assets
    
    $
    1,435,493
    
    
    $
    116,177
    
    
    $
    (50,278
    )
    
    $
    1,501,392LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    186,797
    
    
    
    6,001
    
    
    
    
    
    
    
    192,798Accounts payable
    
    
    93,385
    
    
    
    16,647
    
    
    
    
    
    
    
    110,032Accrued expenses
    
    
    74,591
    
    
    
    9,642
    
    
    
    
    
    
    
    84,233Income taxes payable
    
    
    6,550
    
    
    
    (471
    )
    
    
    (127
    )
    
    
    5,952Current portion of long-term obligations
    
    
    6,596
    
    
    
    2,064
    
    
    
    
    
    
    
    8,660Total current liabilities
    
    
    367,919
    
    
    
    33,883
    
    
    
    (127
    )
    
    
    401,675Long-term obligations, excluding current portion
    
    
    555,156
    
    
    
    27,013
    
    
    
    
    
    
    
    582,169Deferred income tax liabilities
    
    
    98,566
    
    
    
    714
    
    
    
    
    
    
    
    99,280Other
    
    
    17,902
    
    
    
    42,863
    
    
    
    (49,545
    )
    
    
    11,220Total liabilities
    
    
    1,039,543
    
    
    
    104,473
    
    
    
    (49,672
    )
    
    
    1,094,344Redeemable common securities
    
    
    21,915
    
    
    
    13,444
    
    
    
    
    
    
    
    35,359Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    325,716
    
    
    
    47
    
    
    
    
    
    
    
    325,763Retained earnings
    
    
    46,351
    
    
    
    (2,046
    )
    
    
    (347
    )
    
    
    43,958Accumulated other comprehensive income (loss)
    
    
    1,968
    
    
    
    (80
    )
    
    
    80
    
    
    
    1,968Total stockholders equity
    
    
    374,035
    
    
    
    (1,740
    )
    
    
    (606
    )
    
    
    371,689Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,435,493
    
    
    $
    116,177
    
    
    $
    (50,278
    )
    
    $
    1,501,392
 13




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,391
    
    
    $
    8,883
    
    
    $
    
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    81,057
    
    
    
    17,368
    
    
    
    
    
    
    
    98,425Inventories, net of allowances
    
    
    282,954
    
    
    
    37,368
    
    
    
    (701
    )
    
    
    319,621Prepaid expenses and other current assets
    
    
    54,810
    
    
    
    7,236
    
    
    
    
    
    
    
    62,046Total current assets
    
    
    427,212
    
    
    
    70,856
    
    
    
    (701
    )
    
    
    497,366Property, plant and equipment, net
    
    
    168,033
    
    
    
    6,165
    
    
    
    
    
    
    
    174,198Goodwill
    
    
    509,114
    
    
    
    49,829
    
    
    
    
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    13,304
    
    
    
    
    
    
    
    186,187Other intangible assets, net
    
    
    42,526
    
    
    
    
    
    
    
    
    
    
    
    42,526Other assets, net
    
    
    111,428
    
    
    
    (20,137
    )
    
    
    (51,666
    )
    
    
    39,625Total assets
    
    $
    1,431,195
    
    
    $
    120,017
    
    
    $
    (52,367
    )
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES
AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    152,670
    
    
    
    500
    
    
    
    
    
    
    
    153,170Accounts payable
    
    
    100,467
    
    
    
    19,826
    
    
    
    
    
    
    
    120,293Accrued expenses
    
    
    81,600
    
    
    
    12,728
    
    
    
    
    
    
    
    94,328Income taxes payable
    
    
    12,958
    
    
    
    (319
    )
    
    
    (58
    )
    
    
    12,581Current portion of long-term obligations
    
    
    6,524
    
    
    
    2,096
    
    
    
    
    
    
    
    8,620Total current liabilities
    
    
    354,219
    
    
    
    34,831
    
    
    
    (58
    )
    
    
    388,992Long-term obligations, excluding current portion
    
    
    556,817
    
    
    
    27,519
    
    
    
    
    
    
    
    584,336Deferred income tax liabilities
    
    
    93,523
    
    
    
    837
    
    
    
    
    
    
    
    94,360Other
    
    
    30,327
    
    
    
    43,258
    
    
    
    (51,796
    )
    
    
    21,789Total liabilities
    
    
    1,034,886
    
    
    
    106,445
    
    
    
    (51,854
    )
    
    
    1,089,477Redeemable common securities
    
    
    20,338
    
    
    
    13,444
    
    
    
    
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    326,695
    
    
    
    46
    
    
    
    
    
    
    
    326,741Retained earnings
    
    
    46,925
    
    
    
    (178
    )
    
    
    (254
    )
    
    
    46,494Accumulated other comprehensive income (loss)
    
    
    2,351
    
    
    
    (80
    )
    
    
    80
    
    
    
    2,351Total stockholders equity
    
    
    375,971
    
    
    
    128
    
    
    
    (514
    )
    
    
    375,586Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,431,195
    
    
    $
    120,017
    
    
    $
    (52,367
    )
    
    $
    1,498,845
 14




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2008
 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
    )Income (loss) before income taxes and minority interests
    
    
    (2,595
    )
    
    
    (1,306
    )
    
    
    (1,143
    )
    
    
    (5,044
    )Income tax expense (benefit)
    
    
    (2,116
    )
    
    
    331
    
    
    
    (127
    )
    
    
    (1,912
    )Minority interests
    
    
    
    
    
    
    (595
    )
    
    
    
    
    
    
    (595
    )Net income (loss)
    
    $
    (479
    )
    
    $
    (1,042
    )
    
    $
    (1,016
    )
    
    $
    (2,537
    )
 15




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2007
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    230,226
    
    
    $
    17,727
    
    
    $
    (4,424
    )
    
    $
    243,529Royalties and franchise fees
    
    
    4,895
    
    
    
    
    
    
    
    
    
    
    
    4,895Total revenues
    
    
    235,121
    
    
    
    17,727
    
    
    
    (4,424
    )
    
    
    248,424Expenses:Cost of sales
    
    
    158,004
    
    
    
    12,372
    
    
    
    (4,553
    )
    
    
    165,823Selling expenses
    
    
    8,111
    
    
    
    2,369
    
    
    
    
    
    
    
    10,480Retail operating expenses
    
    
    34,883
    
    
    
    
    
    
    
    
    
    
    
    34,883Franchise expenses
    
    
    3,350
    
    
    
    
    
    
    
    
    
    
    
    3,350General and administrative expenses
    
    
    22,342
    
    
    
    2,120
    
    
    
    (330
    )
    
    
    24,132Art and development costs
    
    
    2,919
    
    
    
    
    
    
    
    
    
    
    
    2,919Total expenses
    
    
    229,609
    
    
    
    16,861
    
    
    
    (4,883
    )
    
    
    241,587Income (loss) from operations
    
    
    5,512
    
    
    
    866
    
    
    
    459
    
    
    
    6,837Interest expense, net
    
    
    14,046
    
    
    
    29
    
    
    
    
    
    
    
    14,075Other (income) expense, net
    
    
    (965
    )
    
    
    83
    
    
    
    744
    
    
    
    (138
    )Income (loss) before
income taxes and minority
interests
    
    
    (7,569
    )
    
    
    754
    
    
    
    (285
    )
    
    
    (7,100
    )Income tax expense (benefit)
    
    
    (3,085
    )
    
    
    331
    
    
    
    48
    
    
    
    (2,706
    )Minority interests
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Net income (loss)
    
    $
    (4,484
    )
    
    $
    415
    
    
    $
    (333
    )
    
    $
    (4,402
    )
 16




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months Ended March 31, 2008
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income (loss)
    
    $
    (479
    )
    
    $
    (1,042
    )
    
    $
    (1,016
    )
    
    $
    (2,537
    )Adjustments to reconcile net income (loss) to net cash provided by (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 expense (benefit)
    
    
    (2,186
    )
    
    
    
    
    
    
    
    
    
    
    (2,186
    )Deferred rent
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    350Undistributed
(income) loss  in unconsolidated joint venture
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    (514
    )Loss (gain) on disposal of equipment
    
    
    49
    
    
    
    (29
    )
    
    
    
    
    
    
    20Equity based compensation
    
    
    598
    
    
    
    
    
    
    
    
    
    
    
    598Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    2,335
    
    
    
    (1,739
    )
    
    
    
    
    
    
    596(Increase) decrease in inventories
    
    
    (15,796
    )
    
    
    (877
    )
    
    
    344
    
    
    
    (16,329
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    1,628
    
    
    
    3,504
    
    
    
    
    
    
    
    5,132Increase (decrease) in accounts payable, accrued expenses and
income taxes payable
    
    
    (20,902
    )
    
    
    (5,258
    )
    
    
    672
    
    
    
    (25,488
    )Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) operating activities
    
    
    (24,288
    )
    
    
    (3,964
    )
    
    
    
    
    
    
    (28,252
    )Cash flows provided by (used in) investing activities:Capital expenditures
    
    
    (10,569
    )
    
    
    (924
    )
    
    
    
    
    
    
    (11,493
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Net cash provided by (used in) investing activities
    
    
    (10,569
    )
    
    
    (865
    )
    
    
    
    
    
    
    (11,434
    )Cash flows provided by (used in) 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 (used in) financing activities
    
    
    32,208
    
    
    
    5,001
    
    
    
    
    
    
    
    37,209Effect of exchange rate changes on cash and cash equivalents
    
    
    (81
    )
    
    
    176
    
    
    
    
    
    
    
    95Net decrease 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
 17




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income (loss)
    
    $
    (4,483
    )
    
    $
    415
    
    
    $
    (334
    )
    
    $
    (4,402
    )Adjustments
to reconcile net income (loss) to net cash provided by (used
in) operating activities:Depreciation and amortization expense
    
    
    9,705
    
    
    
    235
    
    
    
    
    
    
    
    9,940Amortization of deferred financing costs
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    663Provision for doubtful accounts
    
    
    411
    
    
    
    37
    
    
    
    
    
    
    
    448Deferred income tax benefit
    
    
    (1,046
    )
    
    
    
    
    
    
    
    
    
    
    (1,046
    )Deferred rent
    
    
    593
    
    
    
    
    
    
    
    
    
    
    
    593Undistributed
(income) loss in unconsolidated joint venture
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Loss (gain) on disposal of equipment
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Equity based compensation
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    367Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    2,867
    
    
    
    (3,186
    )
    
    
    
    
    
    
    (319
    )(Increase) decrease in inventories
    
    
    (8,753
    )
    
    
    1,267
    
    
    
    (129
    )
    
    
    (7,615
    )(Increase)
decrease in prepaid expenses and other current assets
    
    
    (1,415
    )
    
    
    (619
    )
    
    
    
    
    
    
    (2,034
    )Increase
(decrease) in accounts payable, accrued expenses and income taxes payable
    
    
    (39,894
    )
    
    
    1,811
    
    
    
    48
    
    
    
    (38,035
    )Other, net
    
    
    (480
    )
    
    
    70
    
    
    
    415
    
    
    
    5Net cash provided by (used in) operating activities
    
    
    (41,369
    )
    
    
    30
    
    
    
    
    
    
    
    (41,339
    )Cash flows
provided by (used in) investing activities:Cash paid in connection with store acquisitions
    
    
    (350
    )
    
    
    
    
    
    
    
    
    
    
    (350
    )Capital expenditures
    
    
    (3,722
    )
    
    
    (77
    )
    
    
    
    
    
    
    (3,799
    )Net cash
provided by (used in) investing activities
    
    
    (4,072
    )
    
    
    (77
    )
    
    
    
    
    
    
    (4,149
    )Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term
obligations
    
    
    (73
    )
    
    
    (52
    )
    
    
    
    
    
    
    (125
    )Proceeds from short-term obligations
    
    
    43,835
    
    
    
    
    
    
    
    
    
    
    
    43,835Proceeds from capital contribution and exercise of
options
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Net cash provided by (used in) financing activities
    
    
    43,790
    
    
    
    (52
    )
    
    
    
    
    
    
    43,738Effect of exchange rate changes on cash and cash
equivalents
    
    
    (31
    )
    
    
    165
    
    
    
    
    
    
    
    134Net increase (decrease) in cash and cash equivalents
    
    
    (1,682
    )
    
    
    66
    
    
    
    
    
    
    
    (1,616
    )Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    2,713
    
    
    $
    637
    
    
    $
    
    
    
    $
    3,350
 18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
  Three Months Ended March 31,2008
    
    2007Revenues:Net sales
    
    
    98.4
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    1.6
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    65.0
    
    
    
    66.8Selling expenses
    
    
    3.3
    
    
    
    4.2Retail operating expenses
    
    
    17.5
    
    
    
    14.0Franchise expenses
    
    
    1.1
    
    
    
    1.3General and administrative expenses
    
    
    9.5
    
    
    
    9.7Art and development costs
    
    
    0.9
    
    
    
    1.2Total expenses
    
    
    97.3
    
    
    
    97.2Income from operations
    
    
    2.7
    
    
    
    2.8Interest expense, net
    
    
    4.3
    
    
    
    5.7Other (income) expense, net
    
    
    (0.1
    )
    
    
    (0.1
    )Income (loss) before income taxes and minority interests
    
    
    (1.5
    )
    
    
    (2.9
    )Income tax expense (benefit)
    
    
    (0.6
    )
    
    
    (1.1
    )Minority interests
    
    
    (0.2
    )
    
    
    0.0Net income (loss )
    
    
    (0.8
    %)
    
    
    (1.8
    %)
 Three Months Ended March 31,2008
    
    2007Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    164,319
    
    
    
    49.7
    %
    
    $
    139,993
    
    
    
    56.4
    %Eliminations
    
    
    (53,444
    )
    
    
    (16.2
    )
    
    
    (31,873
    )
    
    
    (12.8
    )Net wholesale
    
    
    110,875
    
    
    
    33.6
    
    
    
    108,120
    
    
    
    43.5Retail
    
    
    214,157
    
    
    
    64.8
    
    
    
    135,409
    
    
    
    54.5Total net sales
    
    
    325,032
    
    
    
    98.4
    
    
    
    243,529
    
    
    
    98.0Franchise related
    
    
    5,342
    
    
    
    1.6
    
    
    
    4,895
    
    
    
    2.0Total revenues
    
    $
    330,374
    
    
    
    100.0
    %
    
    $
    248,424
    
    
    
    100.0
    %
 19




---



##### Table of Contents



Wholesale
   Retail
   Gross Profit
  Three Months Ended March 31,2008
    
    2007Dollars in
    
    % of associated
    
    Dollars in
    
    % of associatedNet Wholesale
    
    $
    37,240
    
    
    
    33.6
    %
    
    $
    32,566
    
    
    
    30.1
    %Net Retail
    
    
    73,107
    
    
    
    34.1
    %
    
    
    45,140
    
    
    
    33.3
    %Total Gross Profit
    
    $
    110,347
    
    
    
    33.9
    %
    
    $
    77,706
    
    
    
    31.9
    %
   Operating expenses
    Interest expense, net
  Other (income) expense, net
  20




---



##### Table of Contents



Income tax expense (benefit)
  Liquidity and Capital Resources
        Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  21




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
   22




---



##### Table of Contents



PART II
 
 Item 5. Other Information
  
 Item 6. Exhibits
 31(1)
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.31(2)
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.32
    
    Certification of Chief Executive and Financial Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 23




---



##### Table of Contents



AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeChief Financial Officer

(on behalf of the registrant and as principal
financial and accounting officer) 
 
  24