##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 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
    
    13-3911462(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 80 Grasslands Road Elmsford, NY
    
    10523(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 March 31, 2010
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at March 31, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2010
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4 Controls and Procedures
    
    
    23PART IIItem 6 Exhibits
    
    
    23Signature
    
    
    24EX-31.1EX-31.2EX-32
  http://www.sec.gov.
  2




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,054
    
    
    $
    15,420Accounts receivable, net of allowances
    
    
    88,699
    
    
    
    82,781Inventories, net of allowances
    
    
    333,199
    
    
    
    335,950Prepaid expenses and other current assets
    
    
    72,217
    
    
    
    69,541Total current assets
    
    
    511,169
    
    
    
    503,692Property, plant and equipment, net
    
    
    175,837
    
    
    
    174,994Goodwill
    
    
    576,200
    
    
    
    548,439Trade names
    
    
    157,283
    
    
    
    157,283Other intangible assets, net
    
    
    66,211
    
    
    
    54,669Other assets, net
    
    
    16,452
    
    
    
    41,424Total assets
    
    $
    1,503,152
    
    
    $
    1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    110,812
    
    
    $
    77,635Accounts payable
    
    
    61,631
    
    
    
    76,901Accrued expenses
    
    
    89,488
    
    
    
    93,680Income taxes payable
    
    
    25,389
    
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    34,881
    
    
    
    34,906Total current liabilities
    
    
    337,645
    
    
    
    330,627Long-term obligations, excluding current portion
    
    
    536,172
    
    
    
    538,892Deferred income tax liabilities
    
    
    102,207
    
    
    
    101,570Deferred rent and other long-term liabilities
    
    
    8,841
    
    
    
    11,901Total liabilities
    
    
    984,865
    
    
    
    982,990Redeemable common securities (including 592.84 common shares issued and
outstanding at March 31, 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 March 31, 2010 and December 31, 2009 )
    
    
    
    
    
    
    Additional paid-in capital
    
    
    356,916
    
    
    
    335,823Retained earnings
    
    
    149,145
    
    
    
    149,557Accumulated other comprehensive loss
    
    
    (8,401
    )
    
    
    (8,395
    )Amscan Holdings, Inc. stockholders equity
    
    
    497,660
    
    
    
    476,985Noncontrolling interests
    
    
    2,238
    
    
    
    2,137Total stockholders equity
    
    
    499,898
    
    
    
    479,122Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,503,152
    
    
    $
    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 March 31,2010
    
    
    2009Revenues:Net sales
    
    $
    304,379
    
    
    $
    309,046Royalties and franchise fees
    
    
    3,844
    
    
    
    3,694Total revenues
    
    
    308,223
    
    
    
    312,740Expenses:Cost of sales
    
    
    199,900
    
    
    
    205,417Wholesale selling expenses
    
    
    10,390
    
    
    
    10,171Retail operating expenses
    
    
    52,960
    
    
    
    51,501Franchise expenses
    
    
    3,124
    
    
    
    2,889General and administrative expenses
    
    
    29,925
    
    
    
    27,435Art and development costs
    
    
    3,636
    
    
    
    3,126Total expenses
    
    
    299,935
    
    
    
    300,539Income from operations
    
    
    8,288
    
    
    
    12,201Interest expense, net
    
    
    9,301
    
    
    
    10,665Other (income) expense, net
    
    
    (69
    )
    
    
    207(Loss) income before income taxes
    
    
    (944
    )
    
    
    1,329Income tax benefit
    
    
    (575
    )
    
    
    (1,132
    )Net (loss) income
    
    
    (369
    )
    
    
    2,461Less: net income attributable to noncontrolling interest
    
    
    43
    
    
    
    58Net (loss) income attributable to Amscan Holdings, Inc.
    
    $
    (412
    )
    
    $
    2,403
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Three Months Ended March 31, 2010
(Unaudited)
(Amounts in thousands, except share amounts)
 Amscan Holdings,Additional Paid-in
    
    
    
    
    
    
    Accumulated Other
    
    
    Inc. Stockholders
    
    
    NoncontrollingCommon Shares
    
    
    Common Stock
    
    
    Capital
    
    
    Retained Earnings
    
    
    Comprehensive Loss
    
    
    Equity
    
    
    Interests
    
    
    Total EquityBalance at December 31, 2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,823
    
    
    $
    149,557
    
    
    $
    (8,395
    )
    
    $
    476,985
    
    
    $
    2,137
    
    
    $
    479,122Net (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (412
    )
    
    
    
    
    
    
    (412
    )
    
    
    43
    
    
    
    (369
    )Net change in cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,032
    )
    
    
    (1,032
    )
    
    
    58
    
    
    
    (974
    )Change in fair value of interest
rate swap contracts, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    494
    
    
    
    494
    
    
    
    
    
    
    
    494Change in fair value of foreign
exchange contracts, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532
    
    
    
    532
    
    
    
    
    
    
    
    532Comprehensive (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (418
    )
    
    
    101
    
    
    
    (317
    )Issuance of non-redeemable warrants
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    93Balance at March 31, 2010
    
    
    30,226.50
    
    
    $
    
    
    
    $
    356,916
    
    
    $
    149,145
    
    
    $
    (8,401
    )
    
    $
    497,660
    
    
    $
    2,238
    
    
    $
    499,898
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 (Amounts in thousands)
 Three Months Ended March 31,2010
    
    
    2009Cash flows used in operating activities:Net (loss) income
    
    $
    (369
    )
    
    $
    2,461Less: net income attributable to noncontrolling interest
    
    
    43
    
    
    
    58Net (loss) income attributable to Amscan Holdings, Inc.
    
    
    (412
    )
    
    
    2,403Adjustments to reconcile net (loss) income to net cash
used in operating activities:Depreciation and amortization expense
    
    
    11,574
    
    
    
    10,646Amortization of deferred financing costs
    
    
    221
    
    
    
    544Provision for doubtful accounts
    
    
    304
    
    
    
    437Deferred income tax provision (benefit)
    
    
    377
    
    
    
    (1,818
    )Deferred rent
    
    
    437
    
    
    
    366Undistributed (income) loss in unconsolidated joint venture
    
    
    (288
    )
    
    
    130Loss on disposal of equipment
    
    
    303
    
    
    
    175Equity based compensation
    
    
    93
    
    
    
    219Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (4,469
    )
    
    
    3,930Decrease in inventories
    
    
    2,752
    
    
    
    22,962Increase in prepaid expenses and other current assets
    
    
    (4,140
    )
    
    
    (7,915
    )Decrease in accounts payable, accrued expenses and income
taxes payable
    
    
    (24,293
    )
    
    
    (66,074
    )Net cash used in operating activities
    
    
    (17,541
    )
    
    
    (33,995
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (3,585
    )
    
    
    (2
    )Capital expenditures
    
    
    (6,924
    )
    
    
    (5,961
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    24Net cash used in investing activities
    
    
    (10,455
    )
    
    
    (5,939
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (3,383
    )
    
    
    (2,091
    )Borrowings under revolving credit facilities
    
    
    33,815
    
    
    
    40,124Net cash provided by financing activities
    
    
    30,432
    
    
    
    38,033Effect of exchange rate changes on cash and cash equivalents
    
    
    (802
    )
    
    
    648Net increase (decrease) in cash and cash equivalents
    
    
    1,634
    
    
    
    (1,253
    )Cash and cash equivalents at beginning of period
    
    
    15,420
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    17,054
    
    
    $
    11,805
  6




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##### Table of Contents



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




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 4  Inventories
  March 31,
    
    
    December 31,2010
    
    
    2009Finished goods
    
    $
    323,398
    
    
    $
    325,421Raw Materials
    
    
    12,474
    
    
    
    12,650Work in Process
    
    
    5,667
    
    
    
    6,431341,539
    
    
    
    344,502Reserve for slow-moving and obsolete inventory
    
    
    (8,340
    )
    
    
    (8,552
    )$
    333,199
    
    
    $
    335,950
  Note 5  Income Taxes
  Note 6  Restructuring
   Note 7  Comprehensive (Loss) Income
  Three Months endedMarch 31,2010
    
    
    2009Net
(loss) income attributable to Amscan Holdings, Inc.
    
    $
    (412
    )
    
    $
    2,403Net change in cumulative translation adjustment
    
    
    (1,032
    )
    
    
    (743
    )Change in fair value of interest rate swap
contracts, net of income tax expense of $290,
and $68
    
    
    494
    
    
    
    115Change in fair value of foreign exchange
contracts, net of income tax expense (benefit)
of $313, and $(127)
    
    
    532
    
    
    
    (217
    )Comprehensive (loss) income
    
    $
    (418
    )
    
    $
    1,558
 8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Note 8  Capital Stock
    Note 9  Segment Information
 Industry Segments
   Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended March 31, 2010Revenues:Net sales
    
    $
    160,959
    
    
    $
    198,456
    
    
    $
    359,415Royalties and franchise fees
    
    
    
    
    
    
    3,844
    
    
    
    3,844Total revenues
    
    
    160,959
    
    
    
    202,300
    
    
    
    363,259Eliminations
    
    
    (55,036
    )
    
    
    
    
    
    
    (55,036
    )Net Revenues
    
    $
    105,923
    
    
    $
    202,300
    
    
    $
    308,223Income (loss) from operations
    
    $
    19,483
    
    
    $
    (11,195
    )
    
    $
    8,288Interest expense, net
    
    
    
    
    
    
    
    
    
    
    9,301Other expense, net
    
    
    
    
    
    
    
    
    
    
    (69
    )Loss before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    (944
    )Total assets
    
    $
    811,933
    
    
    $
    691,219
    
    
    $
    1,503,152
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended March 31, 2009Revenues:Net sales
    
    $
    157,328
    
    
    $
    202,004
    
    
    $
    359,332Royalties and franchise fees
    
    
    
    
    
    
    3,694
    
    
    
    3,694Total revenues
    
    
    157,328
    
    
    
    205,698
    
    
    
    363,026Eliminations
    
    
    (50,286
    )
    
    
    
    
    
    
    (50,286
    )Net Revenues
    
    $
    107,042
    
    
    $
    205,698
    
    
    $
    312,740Income (loss) from operations
    
    $
    16,598
    
    
    $
    (4,397
    )
    
    $
    12,201Interest expense, net
    
    
    
    
    
    
    
    
    
    
    10,665Other expense, net
    
    
    
    
    
    
    
    
    
    
    207Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    1,329Total assets
    
    $
    781,689
    
    
    $
    708,708
    
    
    $
    1,490,397
 9




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
    Note 12  Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   Foreign Exchange Risk Management
  10




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
  Fair Value Measurement
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
    
    Level 3  Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. This
includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
  Quoted Prices in
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    Unobservable
    
    
    Total as ofIdentical Assets or
    
    
    Observable
    
    
    Inputs
    
    
    March 31,Liabilities (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)
    
    
    2010Derivative assets
    
    
    
    
    
    $
    583
    
    
    
    
    
    
    $
    583Derivative liabilities
    
    
    
    
    
    
    (5,536
    )
    
    
    
    
    
    
    (5,536
    )
 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
    )
  11




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
   March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueTerm Loan
    
    $
    363,750
    
    
    $
    348,291
    
    
    $
    364,688
    
    
    $
    331,866$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    166,250
    
    
    
    175,000
    
    
    
    166,250
   Derivative Assets
    
    
    Derivative LiabilitiesNotional Amounts
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    March 31, 2010
    
    
    December 31, 2009Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceMarch 31,
    
    
    December 31,
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairDerivative Instrument
    
    2010
    
    
    2009
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    ValueInterest Rate Hedge
    
    $
    142,972
    
    
    $
    163,441
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b) AE
    
    $
    (5,529
    )
    
    (b) AE
    
    $
    (6,313
    )Foreign Exchange Contracts
    
    $
    14,400
    
    
    $
    19,200
    
    
    (a) PP
    
    $
    583
    
    
    (a) PP
    
    
    
    
    
    (a) PP
    
    $
    (7
    )
    
    (b) AE
    
    $
    (269
    )Total Hedges
    
    $
    157,372
    
    
    $
    182,641
    
    
    
    
    
    
    $
    583
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    (5,536
    )
    
    
    
    
    
    $
    (6,582
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses Note 13  Recently Issued Accounting Pronouncements
   12




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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 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.
  
    
    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
  13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2010
(Amounts in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,293
    
    
    $
    4,761
    
    
    $
    
    
    
    $
    17,054Accounts receivable, net of allowances
    
    
    66,872
    
    
    
    21,827
    
    
    
    
    
    
    
    88,699Inventories, net of allowances
    
    
    292,741
    
    
    
    46,930
    
    
    
    (6,472
    )
    
    
    333,199Prepaid expenses and other current assets
    
    
    65,026
    
    
    
    5,181
    
    
    
    2,010
    
    
    
    72,217Total current assets
    
    
    436,932
    
    
    
    78,699
    
    
    
    (4,462
    )
    
    
    511,169Property, plant and equipment, net
    
    
    165,442
    
    
    
    10,395
    
    
    
    
    
    
    
    175,837Goodwill
    
    
    538,268
    
    
    
    37,374
    
    
    
    558
    
    
    
    576,200Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    41,856
    
    
    
    24,355
    
    
    
    
    
    
    
    66,211Other assets, net
    
    
    139,041
    
    
    
    21,046
    
    
    
    (143,635
    )
    
    
    16,452Total assets
    
    $
    1,478,822
    
    
    $
    171,869
    
    
    $
    (147,539
    )
    
    $
    1,503,152LIABILITIES, REDEEMABLE COMMON
SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    110,805
    
    
    
    7
    
    
    
    
    
    
    
    110,812Accounts payable
    
    
    53,676
    
    
    
    7,955
    
    
    
    
    
    
    
    61,631Accrued expenses
    
    
    81,542
    
    
    
    7,946
    
    
    
    
    
    
    
    89,488Income taxes payable
    
    
    26,431
    
    
    
    (744
    )
    
    
    (298
    )
    
    
    25,389Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    28,381
    
    
    
    6,500
    
    
    
    
    
    
    
    34,881Total current liabilities
    
    
    316,279
    
    
    
    21,664
    
    
    
    (298
    )
    
    
    337,645Long-term obligations, excluding current portion
    
    
    520,672
    
    
    
    15,500
    
    
    
    
    
    
    
    536,172Deferred income tax liabilities
    
    
    101,668
    
    
    
    539
    
    
    
    
    
    
    
    102,207Other
    
    
    17,429
    
    
    
    88,840
    
    
    
    (97,428
    )
    
    
    8,841Total liabilities
    
    
    956,048
    
    
    
    126,543
    
    
    
    (97,726
    )
    
    
    984,865Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    356,876
    
    
    
    46,115
    
    
    
    (46,075
    )
    
    
    356,916Retained earnings
    
    
    155,910
    
    
    
    (2,797
    )
    
    
    (3,968
    )
    
    
    149,145Accumulated other comprehensive loss
    
    
    (8,401
    )
    
    
    (569
    )
    
    
    569
    
    
    
    (8,401
    )Amscan Holdings, Inc. stockholders equity
    
    
    504,385
    
    
    
    43,088
    
    
    
    (49,813
    )
    
    
    497,660Noncontrolling interests
    
    
    
    
    
    
    2,238
    
    
    
    
    
    
    
    2,238Total stockholders equity
    
    
    504,385
    
    
    
    45,326
    
    
    
    (49,813
    )
    
    
    499,898Total liabilities, redeemable
common securities and
stockholders equity
    
    $
    1,478,822
    
    
    $
    171,869
    
    
    $
    (147,539
    )
    
    $
    1,503,152
 14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONSOLIDATING BALANCE SHEET
December 31, 2009
(Amounts in thousands)
 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
    
    
    
    41,893
    
    
    
    (947
    )
    
    
    335,950Prepaid expenses and other current assets
    
    
    63,528
    
    
    
    6,013
    
    
    
    
    
    
    
    69,541Total current assets
    
    
    427,427
    
    
    
    77,212
    
    
    
    (947
    )
    
    
    503,692Property, plant and equipment, net
    
    
    163,999
    
    
    
    10,995
    
    
    
    
    
    
    
    174,994Goodwill
    
    
    510,400
    
    
    
    38,039
    
    
    
    
    
    
    
    548,439Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    29,948
    
    
    
    24,721
    
    
    
    
    
    
    
    54,669Other assets, net
    
    
    160,401
    
    
    
    7,033
    
    
    
    (126,010
    )
    
    
    41,424Total assets
    
    $
    1,449,458
    
    
    $
    158,000
    
    
    $
    (126,957
    )
    
    $
    1,480,501LIABILITIES, REDEEMABLE
COMMON SECURITIES
AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    76,990
    
    
    $
    645
    
    
    $
    
    
    
    $
    77,635Accounts payable
    
    
    67,235
    
    
    
    9,666
    
    
    
    
    
    
    
    76,901Accrued expenses
    
    
    83,430
    
    
    
    10,250
    
    
    
    
    
    
    
    93,680Income taxes payable
    
    
    32,969
    
    
    
    (817
    )
    
    
    (91
    )
    
    
    32,061Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    30,906
    
    
    
    4,000
    
    
    
    
    
    
    
    34,906Total current liabilities
    
    
    306,974
    
    
    
    23,744
    
    
    
    (91
    )
    
    
    330,627Long-term obligations, excluding current portion
    
    
    519,892
    
    
    
    19,000
    
    
    
    
    
    
    
    538,892Deferred income tax liabilities
    
    
    101,000
    
    
    
    570
    
    
    
    
    
    
    
    101,570Other
    
    
    20,288
    
    
    
    71,569
    
    
    
    (79,956
    )
    
    
    11,901Total liabilities
    
    
    948,154
    
    
    
    114,883
    
    
    
    (80,047
    )
    
    
    982,990Redeemable common securities
    
    
    18,389
    
    
    
    
    
    
    
    
    
    
    
    18,389Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    335,731
    
    
    
    46,167
    
    
    
    (46,075
    )
    
    
    335,823Retained earnings
    
    
    155,579
    
    
    
    (5,476
    )
    
    
    (546
    )
    
    
    149,557Accumulated other comprehensive loss
    
    
    (8,395
    )
    
    
    (50
    )
    
    
    50
    
    
    
    (8,395
    )Amscan Holdings, Inc. stockholders equity
    
    
    482,915
    
    
    
    40,980
    
    
    
    (46,910
    )
    
    
    476,985Noncontrolling interests
    
    
    
    
    
    
    2,137
    
    
    
    
    
    
    
    2,137Total stockholders equity
    
    
    482,915
    
    
    
    43,117
    
    
    
    (46,910
    )
    
    
    479,122Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,449,458
    
    
    $
    158,000
    
    
    $
    (126,957
    )
    
    $
    1,480,501
 15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2010
(Amounts in thousands)
 AHI andCombined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    266,083
    
    
    $
    53,608
    
    
    $
    (15,312
    )
    
    $
    304,379Royalties and franchise fees
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    3,844Total revenues
    
    
    269,927
    
    
    
    53,608
    
    
    
    (15,312
    )
    
    
    308,223Expenses:Cost of sales
    
    
    175,250
    
    
    
    38,027
    
    
    
    (13,377
    )
    
    
    199,900Wholesale selling expenses
    
    
    7,757
    
    
    
    2,633
    
    
    
    
    
    
    
    10,390Retail operating expenses
    
    
    45,884
    
    
    
    8,301
    
    
    
    (1,225
    )
    
    
    52,960Franchise expenses
    
    
    3,124
    
    
    
    
    
    
    
    
    
    
    
    3,124General and administrative expenses
    
    
    27,110
    
    
    
    3,145
    
    
    
    (330
    )
    
    
    29,925Art and development costs
    
    
    3,660
    
    
    
    (24
    )
    
    
    
    
    
    
    3,636Total expenses
    
    
    262,785
    
    
    
    52,082
    
    
    
    (14,932
    )
    
    
    299,935Income from operations
    
    
    7,142
    
    
    
    1,526
    
    
    
    (380
    )
    
    
    8,288Interest expense, net
    
    
    8,653
    
    
    
    648
    
    
    
    
    
    
    
    9,301Other income (expense), net
    
    
    (1,394
    )
    
    
    322
    
    
    
    1,003
    
    
    
    (69
    )(Loss) income before income taxes
    
    
    (117
    )
    
    
    556
    
    
    
    (1,383
    )
    
    
    (944
    )Income tax (benefit) expense
    
    
    (408
    )
    
    
    95
    
    
    
    (262
    )
    
    
    (575
    )Net income (loss)
    
    $
    291
    
    
    $
    461
    
    
    $
    (1,121
    )
    
    $
    (369
    )Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    43Net income (loss) attributable to Amscan Holdings, Inc.
    
    $
    291
    
    
    $
    418
    
    
    $
    (1,121
    )
    
    $
    (412
    )
 16




---



##### Table of Contents



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




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2010
(Amounts in thousands)
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net income (loss)
    
    $
    291
    
    
    $
    461
    
    
    $
    (1,121
    )
    
    $
    (369
    )Less: net income attributable to noncontrolling interest
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    43Net income (loss) attributable to Amscan Holdings, Inc.
    
    
    291
    
    
    
    418
    
    
    
    (1,121
    )
    
    
    (412
    )Adjustments to reconcile net income (loss) to net cash used in
operating activities:Depreciation and amortization expense
    
    
    10,547
    
    
    
    1,027
    
    
    
    
    
    
    
    11,574Amortization of deferred financing costs
    
    
    154
    
    
    
    67
    
    
    
    
    
    
    
    221Provision for doubtful accounts
    
    
    248
    
    
    
    56
    
    
    
    
    
    
    
    304Deferred income tax expense
    
    
    377
    
    
    
    
    
    
    
    
    
    
    
    377Deferred rent
    
    
    346
    
    
    
    91
    
    
    
    
    
    
    
    437Undistributed gain in unconsolidated joint venture
    
    
    (288
    )
    
    
    
    
    
    
    
    
    
    
    (288
    )Loss on disposal of equipment
    
    
    106
    
    
    
    197
    
    
    
    
    
    
    
    303Equity based compensation
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    93Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (4,712
    )
    
    
    243
    
    
    
    
    
    
    
    (4,469
    )Decrease (increase) in inventories
    
    
    2,264
    
    
    
    (223
    )
    
    
    711
    
    
    
    2,752Increase in prepaid expenses and other current assets
    
    
    (2,983
    )
    
    
    (928
    )
    
    
    (229
    )
    
    
    (4,140
    )Decrease in accounts payable, accrued expenses and income taxes payable
    
    
    (24,366
    )
    
    
    (566
    )
    
    
    639
    
    
    
    (24,293
    )Net cash (used in) provided by operating activities
    
    
    (17,923
    )
    
    
    382
    
    
    
    
    
    
    
    (17,541
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (3,585
    )
    
    
    
    
    
    
    
    
    
    
    (3,585
    )Capital expenditures
    
    
    (6,577
    )
    
    
    (347
    )
    
    
    
    
    
    
    (6,924
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54Net cash used in investing activities
    
    
    (10,108
    )
    
    
    (347
    )
    
    
    
    
    
    
    (10,455
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (1,745
    )
    
    
    (1,638
    )
    
    
    
    
    
    
    (3,383
    )Proceeds from loans, notes payable and long-term obligations
    
    
    33,815
    
    
    
    
    
    
    
    
    
    
    
    33,815Net cash provided by financing activities
    
    
    32,070
    
    
    
    (1,638
    )
    
    
    
    
    
    
    30,432Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    (816
    )
    
    
    
    
    
    
    (802
    )Net decrease in cash and cash equivalents
    
    
    4,053
    
    
    
    (2,419
    )
    
    
    
    
    
    
    1,634Cash and cash equivalents at beginning of period
    
    
    8,240
    
    
    
    7,180
    
    
    
    
    
    
    
    15,420Cash and cash equivalents at end of period
    
    $
    12,293
    
    
    $
    4,761
    
    
    $
    
    
    
    $
    17,054
 18




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three months Ended March 31, 2009
(Amounts in thousands)
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows (used in) provided by operating activities:Net income (loss)
    
    $
    3,659
    
    
    $
    (306
    )
    
    $
    (892
    )
    
    $
    2,461Less: net income attributable to noncontrolling interest
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    58Net income (loss) attributable to Amscan Holdings, Inc.
    
    
    3,659
    
    
    
    (364
    )
    
    
    (892
    )
    
    
    2,403Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:Depreciation and amortization expense
    
    
    9,504
    
    
    
    1,142
    
    
    
    
    
    
    
    10,646Amortization of deferred financing costs
    
    
    478
    
    
    
    66
    
    
    
    
    
    
    
    544Provision for doubtful accounts
    
    
    387
    
    
    
    50
    
    
    
    
    
    
    
    437Deferred income tax benefit
    
    
    (1,818
    )
    
    
    
    
    
    
    
    
    
    
    (1,818
    )Deferred rent
    
    
    366
    
    
    
    
    
    
    
    
    
    
    
    366Undistributed loss in unconsolidated joint venture
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Loss on disposal of equipment
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Equity based compensation
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    219Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    5,389
    
    
    
    (1,459
    )
    
    
    
    
    
    
    3,930Decrease (increase) in inventories
    
    
    23,982
    
    
    
    (777
    )
    
    
    (243
    )
    
    
    22,962Increase in prepaid expenses and other current assets
    
    
    (3,110
    )
    
    
    (4,805
    )
    
    
    
    
    
    
    (7,915
    )(Decrease) increase in accounts payable, accrued expenses and
income taxes payable
    
    
    (74,138
    )
    
    
    6,929
    
    
    
    1,135
    
    
    
    (66,074
    )Net cash (used in) provided by operating activities
    
    
    (34,777
    )
    
    
    782
    
    
    
    
    
    
    
    (33,995
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Capital expenditures
    
    
    (5,520
    )
    
    
    (441
    )
    
    
    
    
    
    
    (5,961
    )Proceeds from disposal of property and equipment
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Net cash used in investing activities
    
    
    (5,498
    )
    
    
    (441
    )
    
    
    
    
    
    
    (5,939
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (1,591
    )
    
    
    (500
    )
    
    
    
    
    
    
    (2,091
    )Proceeds from loans, notes payable and long-term obligations
    
    
    40,124
    
    
    
    
    
    
    
    
    
    
    
    40,124Net cash provided by (used in) financing activities
    
    
    38,533
    
    
    
    (500
    )
    
    
    
    
    
    
    38,033Effect of exchange rate changes on cash and cash equivalents
    
    
    (266
    )
    
    
    914
    
    
    
    
    
    
    
    648Net (decrease) increase in cash and cash equivalents
    
    
    (2,008
    )
    
    
    755
    
    
    
    
    
    
    
    (1,253
    )Cash and cash equivalents at beginning of period
    
    
    8,544
    
    
    
    4,514
    
    
    
    
    
    
    
    13,058Cash and cash equivalents at end of period
    
    $
    6,536
    
    
    $
    5,269
    
    
    $
    
    
    
    $
    11,805
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THREE MONTHS ENDED MARCH 31, 2009
  Three Months Ended March 31,2010
    
    
    2009Revenues:Net sales
    
    
    98.8
    %
    
    
    98.8
    %Royalties and franchise fees
    
    
    1.2
    
    
    
    1.2Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    64.9
    
    
    
    65.7Wholesale selling expenses
    
    
    3.4
    
    
    
    3.3Retail operating expenses
    
    
    17.2
    
    
    
    16.5Franchise expenses
    
    
    1.0
    
    
    
    0.9General and administrative expenses
    
    
    9.7
    
    
    
    8.8Art and development costs
    
    
    1.1
    
    
    
    0.9Total expenses
    
    
    97.3
    
    
    
    96.1Income from operations
    
    
    2.7
    
    
    
    3.9Interest expense, net
    
    
    3.0
    
    
    
    3.4Other expense, net
    
    
    0.0
    
    
    
    0.1(Loss) income before income taxes
    
    
    (0.3
    )
    
    
    0.4Income tax benefit
    
    
    (0.2
    )
    
    
    (0.4
    )Net (loss) income
    
    
    (0.1
    )%
    
    
    0.8
    %Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    (0.0
    )Net (loss) income attributable to Amscan Holdings, Inc.
    
    
    (0.1
    )%
    
    
    0.8
    %
 Three Months Ended March 31,2010
    
    
    2009Dollars in
    
    
    Percentage of
    
    
    Dollars in
    
    
    Percentage ofThousands
    
    
    Total Revenue
    
    
    Thousands
    
    
    Total RevenueRevenuesSalesWholesale
    
    $
    160,959
    
    
    
    52.2
    %
    
    $
    157,328
    
    
    
    50.3
    %Eliminations
    
    
    (55,036
    )
    
    
    (17.9
    )%
    
    
    (50,286
    )
    
    
    (16.1
    )%Net wholesale
    
    
    105,923
    
    
    
    34.4
    %
    
    
    107,042
    
    
    
    34.2
    %Retail
    
    
    198,456
    
    
    
    64.4
    %
    
    
    202,004
    
    
    
    64.6
    %Total net sales
    
    
    304,379
    
    
    
    98.8
    %
    
    
    309,046
    
    
    
    98.8
    %Franchise related
    
    
    3,844
    
    
    
    1.2
    %
    
    
    3,694
    
    
    
    1.2
    %Total revenues
    
    $
    308,223
    
    
    
    100.0
    %
    
    $
    312,740
    
    
    
    100.0
    %
 Wholesale
  20




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##### Table of Contents



Retail
 i.e
 Gross Profit
  Three Months Ended March 31,2010
    
    
    2009Dollars in
    
    
    Percentage of
    
    
    Dollars in
    
    
    Percentage ofThousands
    
    
    Total Revenue
    
    
    Thousands
    
    
    Total RevenueWholesale
    
    $
    39,949
    
    
    
    37.7
    %
    
    $
    36,905
    
    
    
    34.5
    %Retail
    
    
    64,531
    
    
    
    32.5
    %
    
    
    66,724
    
    
    
    33.0
    %Total
    
    $
    104,480
    
    
    
    34.3
    %
    
    $
    103,629
    
    
    
    33.5
    %
   Operating expenses
     Interest expense, net
  21




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##### Table of Contents



Other expense, net
  Income tax benefit
  Liquidity and Capital Resources
       Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  22




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   
 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 Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 23




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##### Table of Contents



AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: May 17, 2010
    

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