##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-21827
 Amscan Holdings, Inc.
  Delaware(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3911462(I.R.S. Employer Identification No.)80 Grasslands Road Elmsford, NY
    
    10523(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(914) 345-2020
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 June 30, 2009
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2009 and 2008
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4 Controls and Procedures
    
    
    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 31,2009
    
    
    2008(Unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,915
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    81,641
    
    
    
    89,443Inventories, net of allowances
    
    
    340,880
    
    
    
    366,965Prepaid expenses and other current assets
    
    
    51,120
    
    
    
    47,812Total current assets
    
    
    493,556
    
    
    
    517,278Property, plant and equipment, net
    
    
    180,644
    
    
    
    187,026Goodwill
    
    
    545,544
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    157,283Other intangible assets, net
    
    
    57,848
    
    
    
    61,626Other assets, net
    
    
    40,403
    
    
    
    41,033Total assets
    
    $
    1,475,278
    
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    129,875
    
    
    $
    136,878Accounts payable
    
    
    83,185
    
    
    
    126,638Accrued expenses
    
    
    86,598
    
    
    
    87,985Income taxes payable
    
    
    28,826
    
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    15,444Current portion of long-term obligations
    
    
    38,372
    
    
    
    34,002Total current liabilities
    
    
    382,300
    
    
    
    429,552Long-term obligations, excluding current portion
    
    
    542,228
    
    
    
    550,755Deferred income tax liabilities
    
    
    91,814
    
    
    
    87,824Deferred rent and other long-term liabilities
    
    
    10,034
    
    
    
    9,558Total liabilities
    
    
    1,026,376
    
    
    
    1,077,689Redeemable common securities (including 592.11 and 585.15 common shares
issued and outstanding at June 30, 2009 and December 31, 2008, respectively)
    
    
    18,368
    
    
    
    18,171Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50
shares issued and outstanding at June 30, 2009 and December 31, 2008)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    335,395
    
    
    
    335,076Retained earnings
    
    
    100,359
    
    
    
    87,004Accumulated other comprehensive income
    
    
    (7,264
    )
    
    
    (11,852
    )Amscan Holdings, Inc. stockholders equity
    
    
    428,490
    
    
    
    410,228Noncontrolling interests
    
    
    2,044
    
    
    
    1,889Total stockholders equity
    
    
    430,534
    
    
    
    412,117Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,475,278
    
    
    $
    1,507,977
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Three Months Ended June 30,2009
    
    
    2008Revenues:Net sales
    
    $
    337,536
    
    
    $
    365,174Royalties and franchise fees
    
    
    4,536
    
    
    
    6,350Total revenues
    
    
    342,072
    
    
    
    371,524Expenses:Cost of sales
    
    
    209,111
    
    
    
    225,760Selling expenses
    
    
    9,959
    
    
    
    10,719Retail operating expenses
    
    
    58,164
    
    
    
    62,565Franchise expenses
    
    
    2,876
    
    
    
    3,392General and administrative expenses
    
    
    30,989
    
    
    
    29,987Art and development costs
    
    
    3,155
    
    
    
    3,590Total expenses
    
    
    314,254
    
    
    
    336,013Income from operations
    
    
    27,818
    
    
    
    35,511Interest expense, net
    
    
    10,492
    
    
    
    12,029Other income, net
    
    
    (292
    )
    
    
    (237
    )Income before income taxes
    
    
    17,618
    
    
    
    23,719Income tax expense
    
    
    6,607
    
    
    
    8,990Net income
    
    
    11,011
    
    
    
    14,729Less: net income attributable to noncontrolling interest
    
    
    59
    
    
    
    60Net income attributable to Amscan Holdings, Inc.
    
    $
    10,952
    
    
    $
    14,669
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,2009
    
    
    2008Revenues:Net sales
    
    $
    646,582
    
    
    $
    690,206Royalties and franchise fees
    
    
    8,230
    
    
    
    11,692Total revenues
    
    
    654,812
    
    
    
    701,898Expenses:Cost of sales
    
    
    414,528
    
    
    
    440,444Selling expenses
    
    
    20,130
    
    
    
    21,468Retail operating expenses
    
    
    109,665
    
    
    
    120,491Franchise expenses
    
    
    5,765
    
    
    
    7,023General and administrative expenses
    
    
    58,424
    
    
    
    61,490Art and development costs
    
    
    6,281
    
    
    
    6,692Total expenses
    
    
    614,793
    
    
    
    657,608Income from operations
    
    
    40,019
    
    
    
    44,290Interest expense, net
    
    
    21,157
    
    
    
    26,336Other income, net
    
    
    (85
    )
    
    
    (722
    )Income before income taxes
    
    
    18,947
    
    
    
    18,676Income tax expense
    
    
    5,475
    
    
    
    7,078Net income
    
    
    13,472
    
    
    
    11,598Less: net income (loss) attributable to noncontrolling interest
    
    
    117
    
    
    
    (535
    )Net income attributable to Amscan Holdings, Inc.
    
    $
    13,355
    
    
    $
    12,133
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2009
(Unaudited)
(Amounts in thousands, except share amounts)
 Accumulated
    
    AmscanAdditional
    
    
    
    
    
    Other
    
    Holdings, Inc.Common
    
    Common
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Stockholders
    
    NoncontrollingShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Equity
    
    Interests
    
    TotalBalance at December 31, 2008
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,076
    
    
    $
    87,004
    
    
    $
    (11,852
    )
    
    $
    410,228
    
    
    $
    1,889
    
    
    $
    412,117Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,355
    
    
    
    
    
    
    
    13,355
    
    
    
    117
    
    
    
    13,472Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,565
    
    
    
    4,565
    
    
    
    38
    
    
    
    4,603Change in fair value of interest
rate swap contracts, net of
income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,226
    
    
    
    1,226
    
    
    
    
    
    
    
    1,226Change in fair value of foreign
exchange contracts, net of
income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,203
    )
    
    
    (1,203
    )
    
    
    
    
    
    
    (1,203
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,943
    
    
    
    155
    
    
    
    18,098Issuance of redeemable common
stock upon exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (119
    )
    
    
    
    
    
    
    
    
    
    
    (119
    )
    
    
    
    
    
    
    (119
    )Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    438
    
    
    
    
    
    
    
    438Balance at June 30, 2009
    
    
    30,226.50
    
    
    $
    
    
    
    $
    335,395
    
    
    $
    100,359
    
    
    $
    (7,264
    )
    
    $
    428,490
    
    
    $
    2,044
    
    
    $
    430,534
  6




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AMSCAN HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
 Six Ended June 30,2009
    
    
    2008Cash flows provided by operating activities:Net income
    
    $
    13,355
    
    
    $
    12,133Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization expense
    
    
    21,665
    
    
    
    21,890Amortization of deferred financing costs
    
    
    1,070
    
    
    
    977Provision for doubtful accounts
    
    
    2,874
    
    
    
    875Deferred income tax expense (benefit)
    
    
    1,760
    
    
    
    (2,512
    )Deferred rent
    
    
    899
    
    
    
    876Undistributed income in unconsolidated joint venture
    
    
    (182
    )
    
    
    (605
    )Loss on disposal of equipment
    
    
    440
    
    
    
    65Equity based compensation
    
    
    438
    
    
    
    1,195Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    5,523
    
    
    
    (1,421
    )Decrease (increase) in inventories
    
    
    26,085
    
    
    
    (20,272
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (6,516
    )
    
    
    10,519Decrease in accounts payable, accrued expenses and income taxes payable
    
    
    (36,484
    )
    
    
    (23,614
    )Net cash provided by operating activities
    
    
    30,927
    
    
    
    106Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (726
    )
    
    
    Capital expenditures
    
    
    (12,281
    )
    
    
    (24,488
    )Proceeds from disposal of property and equipment
    
    
    54
    
    
    
    50Net cash used in investing activities
    
    
    (12,953
    )
    
    
    (24,438
    )Cash flows (used in) provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (14,850
    )
    
    
    (4,695
    )Proceeds from loans, notes payable and long-term obligations, net of debt issuance costs
    
    
    
    
    
    
    18,652Sale of additional interest to minority shareholder
    
    
    
    
    
    
    2,500Capital contributions and proceeds from issuance of common stock and exercise of
options, net of retirements
    
    
    79
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (14,771
    )
    
    
    16,457Effect of exchange rate changes on cash and cash equivalents
    
    
    2,654
    
    
    
    167Net increase (decrease) in cash and cash equivalents
    
    
    5,857
    
    
    
    (7,708
    )Cash and cash equivalents at beginning of period
    
    
    13,058
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    18,915
    
    
    $
    9,566
  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
  December 31,June 30, 2009

    
    
    2008Finished goods
    
    $
    328,207
    
    
    $
    353,713Raw Materials
    
    
    14,622
    
    
    
    13,756Work in Process
    
    
    6,516
    
    
    
    7,814349,345
    
    
    
    375,283Less: reserve for slow moving and obsolete inventory
    
    
    (8,465
    )
    
    
    (8,318
    )$
    340,880
    
    
    $
    366,965
  Note 5  Income Taxes
  Note 6  Restructuring
   Note 7  Comprehensive Income
  Three Months ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    10,952
    
    
    $
    14,669
    
    
    $
    13,355
    
    
    $
    12,133Net change in cumulative translation adjustment
    
    
    5,308
    
    
    
    (14
    )
    
    
    4,565
    
    
    
    100Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $653, $199, $720, and $(40)
    
    
    1,111
    
    
    
    339
    
    
    
    1,226
    
    
    
    (68
    )Change in fair value of foreign exchange
contracts, net of income tax (benefit)
expense of $(579), $117, $(707), $64
    
    
    (986
    )
    
    
    199
    
    
    
    (1,203
    )
    
    
    109Comprehensive income of Amscan, Inc.
    
    $
    16,385
    
    
    $
    15,193
    
    
    $
    17,943
    
    
    $
    12,274
 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, 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
    
    
    
    
    
    
    
    
    
    $
    17,618Long-lived assets
    
    $
    541,902
    
    
    $
    439,820
    
    
    $
    981,722
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended June 30, 2008Revenues:Net sales
    
    $
    154,407
    
    
    $
    258,407
    
    
    $
    412,814Royalties and franchise fees
    
    
    
    
    
    
    6,350
    
    
    
    6,350Total revenues
    
    
    154,407
    
    
    
    264,757
    
    
    
    419,164Eliminations
    
    
    (47,640
    )
    
    
    
    
    
    
    (47,640
    )Net Revenues
    
    $
    106,767
    
    
    $
    264,757
    
    
    
    371,524Income from operations
    
    $
    11,531
    
    
    $
    23,980
    
    
    $
    35,511Interest expense, net
    
    
    
    
    
    
    
    
    
    
    12,029Other income, net
    
    
    
    
    
    
    
    
    
    
    (237
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    23,719Long-lived assets
    
    $
    518,782
    
    
    $
    476,639
    
    
    $
    995,421
 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)
  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
    
    
    
    
    
    
    
    
    
    $
    18,947Long-lived assets
    
    $
    541,902
    
    
    $
    439,820
    
    
    $
    981,722
 Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2008Revenues:Net sales
    
    $
    318,726
    
    
    $
    472,564
    
    
    $
    791,290Royalties and franchise fees
    
    
    
    
    
    
    11,692
    
    
    
    11,692Total revenues
    
    
    318,726
    
    
    
    484,256
    
    
    
    802,982Eliminations
    
    
    (101,084
    )
    
    
    
    
    
    
    (101,084
    )Net Revenues
    
    $
    217,642
    
    
    $
    484,256
    
    
    $
    701,898Income from operations
    
    $
    26,184
    
    
    $
    18,106
    
    
    $
    44,290Interest expense, net
    
    
    
    
    
    
    
    
    
    
    26,336Other income, net
    
    
    
    
    
    
    
    
    
    
    (722
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    18,676Long-lived assets
    
    $
    518,782
    
    
    $
    476,639
    
    
    $
    995,421
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
   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)
 Note 12  Long Term Obligations
   i.e
  Note 13  Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   12




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
 Foreign Exchange Risk Management
    Derivative Assets
    
    
    Derivative LiabilitiesBalance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceNotional Amounts
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairJune 30,

    
    
    December 31,

    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    

    
    Line
    

    
    Value
    

    
    Line
    


    
    ValueDerivative Instrument
    
    2009
    
    
    2008
    
    
    June 30, 2009
    
    
    December 31, 2008
    
    
    June 30, 2009
    
    
    December 31, 2008Interest Rate Hedge
    
    $
    163,441
    
    
    $
    118,505
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b) AE
    
    $
    (6,457
    )
    
    (b) AE
    
    $
    (8,483
    )Foreign Exchange Contracts
    
    $
    7,680
    
    
    $
    18,560
    
    
    (a) PP
    
    $
    852
    
    
    (a) PP
    
    $
    3,365
    
    
    (a) PP
    
    $
    (67
    )
    
    (a) PP
    
    $
    (670
    )Total Hedges
    
    $
    171,121
    
    
    $
    137,065
    
    
    
    
    
    
    $
    852
    
    
    
    
    
    
    $
    3,365
    
    
    
    
    
    
    $
    (6,524
    )
    
    
    
    
    
    $
    (9,153
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses Fair Value Measurement
    13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
   SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    UnobservableIdentical Assets or
    
    Inputs
    
    Inputs
    
    Total as ofLiabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    June 30, 2009Derivative assets
    
    
    
    
    
    $
    785
    
    
    
    
    
    
    $
    785Derivative liabilities
    
    
    
    
    
    
    (6,457
    )
    
    
    
    
    
    
    (6,457
    )
  SignificantQuoted Prices in
    
    OtherActive Markets for
    
    Observable
    
    Unobservable
    
    Total as ofIdentical Assets or
    
    Inputs
    
    Inputs
    
    December 31,Liabilities (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2008Derivative assets
    
    
    
    
    
    $
    2,695
    
    
    
    
    
    
    $
    2,695Derivative liabilities
    
    
    
    
    
    
    (8,403
    )
    
    
    
    
    
    
    (8,403
    )
    June 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueTerm Loan
    
    $
    366,562
    
    
    $
    317,076
    
    
    $
    368,437
    
    
    $
    247,000$175,000 Senior Subordinated Notes
    
    
    175,000
    
    
    
    126,000
    
    
    
    175,000
    
    
    
    107,000
  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 14  Recently Issued Accounting Standards
     
    
    FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (FSP FAS
157-4). FSP FAS 157-4 relates to determining fair values when
there is no active market or where the price inputs being used
represent distressed sales. It reaffirms the need to use judgment
to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive.
    
    FSP FAS 115-2 and FAS 124-2 Recognition and
Presentation of Other-Than-Temporary
Impairments. This FSP is intended to bring
consistency to the timing of impairment
recognition, and provide improved disclosures
about the credit and noncredit components of
impaired debt securities that are not expected
to be sold. The measure of impairment in
comprehensive income remains fair value. The FSP
also requires increased and more timely
disclosures regarding expected cash flows,
credit losses, and an aging of securities with
unrealized losses.
    
    FSP FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial
Instruments. This FSP relates to fair value
disclosures for financial instruments that are
not currently reflected on the balance sheet at
fair value. Prior to issuing this FSP, fair
values for these assets and liabilities were
only disclosed once a year. The FSP now requires
these disclosures on a quarterly basis,
providing qualitative and quantitative
information about fair value estimates for all
those financial instruments not measured on the
balance sheet at fair value.
   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)
  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
    
    Factory Card & Party Outlet Corporation
    
    Gags & Games, Inc.
    
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.Non-guarantor subsidiaries (Non-guarantors) include the following:
    
    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
  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)
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2009
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,670
    
    
    $
    11,245
    
    
    $
    
    
    
    $
    18,915Accounts receivable, net of allowances
    
    
    62,441
    
    
    
    19,200
    
    
    
    
    
    
    
    81,641Inventories, net of allowances
    
    
    304,114
    
    
    
    37,589
    
    
    
    (823
    )
    
    
    340,880Prepaid expenses and other current assets
    
    
    42,043
    
    
    
    11,433
    
    
    
    (1,356
    )
    
    
    52,120Total current assets
    
    
    416,268
    
    
    
    79,467
    
    
    
    (2,179
    )
    
    
    493,556Property, plant and equipment, net
    
    
    169,700
    
    
    
    10,944
    
    
    
    
    
    
    
    180,644Goodwill
    
    
    510,634
    
    
    
    34,910
    
    
    
    
    
    
    
    545,544Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    32,612
    
    
    
    25,236
    
    
    
    
    
    
    
    57,848Other assets, net
    
    
    159,533
    
    
    
    7,646
    
    
    
    (126,776
    )
    
    
    40,403Total assets
    
    $
    1,446,030
    
    
    $
    158,203
    
    
    $
    (128,955
    )
    
    $
    1,475,278LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    129,875
    
    
    
    
    
    
    
    
    
    
    
    129,875Accounts payable
    
    
    76,938
    
    
    
    6,247
    
    
    
    
    
    
    
    83,185Accrued expenses
    
    
    76,960
    
    
    
    9,638
    
    
    
    
    
    
    
    86,598Income taxes payable
    
    
    30,228
    
    
    
    
    
    
    
    (1,402
    )
    
    
    28,826Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    11,867
    
    
    
    26,505
    
    
    
    
    
    
    
    38,372Total current liabilities
    
    
    343,312
    
    
    
    42,390
    
    
    
    (1,402
    )
    
    
    382,300Long-term obligations, excluding current portion
    
    
    542,228
    
    
    
    
    
    
    
    
    
    
    
    542,228Deferred income tax liabilities
    
    
    91,223
    
    
    
    591
    
    
    
    
    
    
    
    91,814Other
    
    
    16,956
    
    
    
    73,707
    
    
    
    (80,629
    )
    
    
    10,034Total liabilities
    
    
    991,719
    
    
    
    116,688
    
    
    
    (82,031
    )
    
    
    1,026,376Redeemable common securities
    
    
    18,368
    
    
    
    
    
    
    
    
    
    
    
    18,368Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    335,303
    
    
    
    46,167
    
    
    
    (46,075
    )
    
    
    335,395Retained earnings
    
    
    107,904
    
    
    
    (6,997
    )
    
    
    (548
    )
    
    
    100,359Accumulated other comprehensive income (loss)
    
    
    (7,264
    )
    
    
    (38
    )
    
    
    38
    
    
    
    (7,264
    )Amscan Holdings Inc. stockholders equity
    
    
    435,943
    
    
    
    39,471
    
    
    
    (46,924
    )
    
    
    428,490Noncontrolling interests
    
    
    
    
    
    
    2,044
    
    
    
    
    
    
    
    2,044Total stockholders equity
    
    
    435,943
    
    
    
    41,515
    
    
    
    (46,924
    )
    
    
    430,534Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,446,030
    
    
    $
    158,203
    
    
    $
    (128,955
    )
    
    $
    1,475,278
 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)
 CONSOLIDATING BALANCE SHEET
December 31, 2008
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,544
    
    
    $
    4,514
    
    
    $
    
    
    
    $
    13,058Accounts receivable, net of allowances
    
    
    73,932
    
    
    
    15,511
    
    
    
    
    
    
    
    89,443Inventories, net of allowances
    
    
    331,059
    
    
    
    36,605
    
    
    
    (699
    )
    
    
    366,965Prepaid expenses and other current assets
    
    
    42,033
    
    
    
    5,779
    
    
    
    
    
    
    
    47,812Total current assets
    
    
    455,568
    
    
    
    62,409
    
    
    
    (699
    )
    
    
    517,278Property, plant and equipment, net
    
    
    175,532
    
    
    
    11,494
    
    
    
    
    
    
    
    187,026Goodwill
    
    
    497,197
    
    
    
    46,534
    
    
    
    
    
    
    
    543,731Trade names
    
    
    157,283
    
    
    
    
    
    
    
    
    
    
    
    157,283Other intangible assets, net
    
    
    35,496
    
    
    
    26,130
    
    
    
    
    
    
    
    61,626Other assets, net
    
    
    123,315
    
    
    
    12,207
    
    
    
    (94,489
    )
    
    
    41,033Total assets
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    136,878
    
    
    $
    
    
    
    $
    
    
    
    $
    136,878Accounts payable
    
    
    98,636
    
    
    
    28,002
    
    
    
    
    
    
    
    126,638Accrued expenses
    
    
    77,470
    
    
    
    10,515
    
    
    
    
    
    
    
    87,985Income taxes payable
    
    
    27,802
    
    
    
    860
    
    
    
    (57
    )
    
    
    28,605Redeemable warrants
    
    
    15,444
    
    
    
    
    
    
    
    
    
    
    
    15,444Current portion of long-term obligations
    
    
    6,488
    
    
    
    27,514
    
    
    
    
    
    
    
    34,002Total current liabilities
    
    
    362,718
    
    
    
    66,891
    
    
    
    (57
    )
    
    
    429,552Long-term obligations, excluding current portion
    
    
    550,755
    
    
    
    
    
    
    
    
    
    
    
    550,755Deferred income tax liabilities
    
    
    76,360
    
    
    
    11,464
    
    
    
    
    
    
    
    87,824Other
    
    
    21,988
    
    
    
    36,107
    
    
    
    (48,537
    )
    
    
    9,558Total liabilities
    
    
    1,011,821
    
    
    
    114,462
    
    
    
    (48,594
    )
    
    
    1,077,689Redeemable common securities
    
    
    18,171
    
    
    
    
    
    
    
    
    
    
    
    18,171Commitments and contingenciesEquity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    334,983
    
    
    
    45,629
    
    
    
    (45,536
    )
    
    
    335,076Retained earnings
    
    
    91,268
    
    
    
    (3,776
    )
    
    
    (488
    )
    
    
    87,004Accumulated other comprehensive (loss) income
    
    
    (11,852
    )
    
    
    231
    
    
    
    (231
    )
    
    
    (11,852
    )Amscan Holdings, Inc. stockholders equity
    
    
    414,399
    
    
    
    42,423
    
    
    
    (46,594
    )
    
    
    410,228Noncontrolling interest
    
    
    
    
    
    
    1,889
    
    
    
    
    
    
    
    1,889Total stockholders equity
    
    
    414,399
    
    
    
    44,312
    
    
    
    (46,594
    )
    
    
    412,117Total liabilities, redeemable common securities
and stockholders equity
    
    $
    1,444,391
    
    
    $
    158,774
    
    
    $
    (95,188
    )
    
    $
    1,507,977
 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
Three Months Ended June 30, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    302,586
    
    
    $
    41,119
    
    
    $
    (6,169
    )
    
    $
    337,536Royalties and franchise fees
    
    
    4,536
    
    
    
    
    
    
    
    
    
    
    
    4,536Total revenues
    
    
    307,122
    
    
    
    41,119
    
    
    
    (6,169
    )
    
    
    342,072Expenses:Cost of sales
    
    
    187,337
    
    
    
    27,576
    
    
    
    (5,802
    )
    
    
    209,111Selling expenses
    
    
    7,946
    
    
    
    2,013
    
    
    
    
    
    
    
    9,959Retail operating expenses
    
    
    50,165
    
    
    
    7,999
    
    
    
    
    
    
    
    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
    
    
    
    42,448
    
    
    
    (6,132
    )
    
    
    314,254Income (loss) from operations
    
    
    29,184
    
    
    
    (1,329
    )
    
    
    (37
    )
    
    
    27,818Interest expense, net
    
    
    9,896
    
    
    
    596
    
    
    
    
    
    
    
    10,492Other income, net
    
    
    (988
    )
    
    
    (25
    )
    
    
    721
    
    
    
    (292
    )Income (loss) before income taxes
    
    
    20,276
    
    
    
    (1,900
    )
    
    
    (758
    )
    
    
    17,618Income tax expense (benefit)
    
    
    7,358
    
    
    
    (615
    )
    
    
    (136
    )
    
    
    6,607Net income (loss)
    
    
    12,918
    
    
    
    (1,285
    )
    
    
    (622
    )
    
    
    11,011Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Net income (loss) attributable to Amscan Holdings, Inc.
    
    $
    12,918
    
    
    $
    (1,344
    )
    
    $
    (622
    )
    
    $
    10,952
 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
Six Months Ended June 30, 2009
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    577,850
    
    
    $
    80,790
    
    
    $
    (12,058
    )
    
    $
    646,582Royalties and franchise fees
    
    
    8,230
    
    
    
    
    
    
    
    
    
    
    
    8,230Total revenues
    
    
    586,080
    
    
    
    80,790
    
    
    
    (12,058
    )
    
    
    654,812Expenses:Cost of sales
    
    
    372,195
    
    
    
    54,267
    
    
    
    (11,934
    )
    
    
    414,528Selling expenses
    
    
    16,163
    
    
    
    3,967
    
    
    
    
    
    
    
    20,130Retail operating expenses
    
    
    93,764
    
    
    
    15,901
    
    
    
    
    
    
    
    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
    
    
    
    82,459
    
    
    
    (12,594
    )
    
    
    614,793Income (loss) from operations
    
    
    41,152
    
    
    
    (1,669
    )
    
    
    536
    
    
    
    40,019Interest expense, net
    
    
    20,047
    
    
    
    1,110
    
    
    
    
    
    
    
    21,157Other income, net
    
    
    (2,170
    )
    
    
    (11
    )
    
    
    2,096
    
    
    
    (85
    )Income (loss) before income taxes
    
    
    23,275
    
    
    
    (2,768
    )
    
    
    (1,560
    )
    
    
    18,947Income tax expense (benefit)
    
    
    6,695
    
    
    
    (1,174
    )
    
    
    (46
    )
    
    
    5,475Net income (loss)
    
    
    16,580
    
    
    
    (1,594
    )
    
    
    (1,514
    )
    
    
    13,472Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    117Net income (loss) attributable to Amscan Holdings, Inc.
    
    $
    16,580
    
    
    $
    (1,711
    )
    
    $
    (1,514
    )
    
    $
    13,355
 20




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##### 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 June 30, 2008
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    322,892
    
    
    $
    48,883
    
    
    $
    (6,601
    )
    
    $
    365,174Royalties and franchise fees
    
    
    6,350
    
    
    
    
    
    
    
    
    
    
    
    6,350Total revenues
    
    
    329,242
    
    
    
    48,883
    
    
    
    (6,601
    )
    
    
    371,524Expenses:Cost of sales
    
    
    202,048
    
    
    
    30,266
    
    
    
    (6,554
    )
    
    
    225,760Selling expenses
    
    
    8,086
    
    
    
    2,633
    
    
    
    
    
    
    
    10,719Retail operating expenses
    
    
    52,437
    
    
    
    10,128
    
    
    
    
    
    
    
    62,565Franchise expenses
    
    
    3,392
    
    
    
    
    
    
    
    
    
    
    
    3,392General and administrative expenses
    
    
    26,406
    
    
    
    3,911
    
    
    
    (330
    )
    
    
    29,987Art and development costs
    
    
    3,590
    
    
    
    
    
    
    
    
    
    
    
    3,590Total expenses
    
    
    295,959
    
    
    
    46,939
    
    
    
    (6,884
    )
    
    
    336,013Income from operations
    
    
    33,283
    
    
    
    1,944
    
    
    
    283
    
    
    
    35,511Interest expense, net
    
    
    11,555
    
    
    
    474
    
    
    
    
    
    
    
    12,029Other income, net
    
    
    (2,086
    )
    
    
    (90
    )
    
    
    1,940
    
    
    
    (237
    )Income before income taxes
    
    
    23,815
    
    
    
    1,561
    
    
    
    (1,657
    )
    
    
    23,719Income tax expense
    
    
    8,479
    
    
    
    529
    
    
    
    (18
    )
    
    
    8,990Net income
    
    
    15,336
    
    
    
    1,032
    
    
    
    (1,639
    )
    
    
    14,729Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60Net income attributable to Amscan Holdings, Inc.
    
    $
    15,336
    
    
    $
    972
    
    
    $
    (1,639
    )
    
    $
    14,669
 21




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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
For the Six Months Ended June 30, 2008
 AHI andCombined
    
    Combined Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net sales
    
    $
    609,652
    
    
    $
    92,756
    
    
    $
    (12,202
    )
    
    $
    690,206Royalties and franchise fees
    
    
    11,692
    
    
    
    
    
    
    
    
    
    
    
    11,692Total revenues
    
    
    621,344
    
    
    
    92,756
    
    
    
    (12,202
    )
    
    
    701,898Expenses:Cost of sales
    
    
    394,896
    
    
    
    57,359
    
    
    
    (11,811
    )
    
    
    440,444Selling expenses
    
    
    16,274
    
    
    
    5,194
    
    
    
    
    
    
    
    21,468Retail operating expenses
    
    
    100,341
    
    
    
    20,150
    
    
    
    
    
    
    
    120,491Franchise expenses
    
    
    7,023
    
    
    
    
    
    
    
    
    
    
    
    7,023General and administrative expenses
    
    
    53,711
    
    
    
    8,439
    
    
    
    (660
    )
    
    
    61,490Art and development costs
    
    
    6,692
    
    
    
    
    
    
    
    
    
    
    
    6,692Total expenses
    
    
    578,937
    
    
    
    91,142
    
    
    
    (12,471
    )
    
    
    657,608Income from operations
    
    
    42,407
    
    
    
    1,614
    
    
    
    269
    
    
    
    44,290Interest expense, net
    
    
    24,909
    
    
    
    1,427
    
    
    
    
    
    
    
    26,336Other income, net
    
    
    (3,723
    )
    
    
    (68
    )
    
    
    3,069
    
    
    
    (722
    )Income before income taxes
    
    
    21,221
    
    
    
    255
    
    
    
    (2,800
    )
    
    
    18,676Income tax expense
    
    
    6,363
    
    
    
    860
    
    
    
    (145
    )
    
    
    7,078Net income (loss)
    
    
    14,858
    
    
    
    (605
    )
    
    
    (2,655
    )
    
    
    11,598Less net loss attributable to noncontrolling interests
    
    
    
    
    
    
    (535
    )
    
    
    
    
    
    
    (535
    )Net income (loss) attributable to Amscan Holdings, Inc.
    
    $
    14,858
    
    
    $
    (70
    )
    
    $
    (2,655
    )
    
    $
    12,133
 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
    
    
    $
    (1,711
    )
    
    $
    (1,514
    )
    
    $
    13,355Adjustments
to reconcile net income (loss) 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 gain in unconsolidated joint venture
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    (182
    )Loss on disposal of 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
    )
    
    
    12,502
    
    
    
    1,390
    
    
    
    (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
    
    
    (3,207
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    (4,207
    )Proceeds from loans, notes payable and long-term obligations
    
    
    (10,643
    )
    
    
    
    
    
    
    
    
    
    
    (10,643
    )Capital contributions and proceeds from issuance of common
stock and exercise of options, net of retirements
    
    
    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



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, 2008
 AHI and
    
    CombinedCombined
    
    Non-Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income (loss)
    
    $
    14,858
    
    
    $
    (70
    )
    
    $
    (2,655
    )
    
    $
    12,133Adjustments to reconcile net income (loss) income to net cash provided by (used in) operating
activities:Depreciation and amortization expense
    
    
    19,329
    
    
    
    2,561
    
    
    
    
    
    
    
    21,890Amortization of deferred financing costs
    
    
    977
    
    
    
    
    
    
    
    
    
    
    
    977Provision for doubtful accounts
    
    
    744
    
    
    
    131
    
    
    
    
    
    
    
    875Deferred income tax benefit
    
    
    (2,512
    )
    
    
    
    
    
    
    
    
    
    
    (2,512
    )Deferred rent
    
    
    876
    
    
    
    
    
    
    
    
    
    
    
    876Undistributed gain in unconsolidated joint venture
    
    
    (605
    )
    
    
    
    
    
    
    
    
    
    
    (605
    )Loss (gain) on disposal of equipment
    
    
    86
    
    
    
    (21
    )
    
    
    
    
    
    
    65Equity based compensation
    
    
    1,195
    
    
    
    
    
    
    
    
    
    
    
    1,195Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    8,469
    
    
    
    (9,890
    )
    
    
    
    
    
    
    (1,421
    )Increase in inventories
    
    
    (19,796
    )
    
    
    (867
    )
    
    
    391
    
    
    
    (20,272
    )Decrease in prepaid expenses and other current assets
    
    
    7,112
    
    
    
    3,407
    
    
    
    
    
    
    
    10,519Decrease in accounts payable, accrued expenses and income
taxes payable
    
    
    (25,165
    )
    
    
    (713
    )
    
    
    2,264
    
    
    
    (23,614
    )Net cash provided by (used in) operating activities
    
    
    5,568
    
    
    
    (5,462
    )
    
    
    
    
    
    
    106Cash flows used in investing activities:Capital expenditures
    
    
    (20,654
    )
    
    
    (3,834
    )
    
    
    
    
    
    
    (24,488
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Net cash used in investing activities
    
    
    (20,654
    )
    
    
    (3,784
    )
    
    
    
    
    
    
    (24,438
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (3,633
    )
    
    
    (1,062
    )
    
    
    
    
    
    
    (4,695
    )Proceeds from loans, notes payable and long-term obligations
    
    
    12,327
    
    
    
    6,325
    
    
    
    
    
    
    
    18,652Sale of additional interest to minority shareholder
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Net cash provided by financing activities
    
    
    11,194
    
    
    
    5,263
    
    
    
    
    
    
    
    16,457Effect of exchange rate changes on cash and cash equivalents
    
    
    (20
    )
    
    
    187
    
    
    
    
    
    
    
    167Net decrease in cash and cash equivalents
    
    
    (3,912
    )
    
    
    (3,797
    )
    
    
    
    
    
    
    (7,708
    )Cash and cash equivalents at beginning of period
    
    
    8,391
    
    
    
    8,883
    
    
    
    
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    4,479
    
    
    $
    5,087
    
    
    $
    
    
    
    $
    9,566
 24




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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, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008
  Three Months Ended June 30,2009
    
    2008Revenues:Net sales
    
    
    98.7
    %
    
    
    98.3
    %Royalties and franchise fees
    
    
    1.3
    
    
    
    1.7Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    61.1
    
    
    
    60.8Selling expenses
    
    
    2.9
    
    
    
    2.9Retail operating expenses
    
    
    17.0
    
    
    
    16.8Franchise expenses
    
    
    0.9
    
    
    
    0.9General and administrative expenses
    
    
    9.1
    
    
    
    8.0Art and development costs
    
    
    0.9
    
    
    
    1.0Total expenses
    
    
    91.9
    
    
    
    90.4Income from operations
    
    
    8.1
    
    
    
    9.6Interest expense, net
    
    
    3.1
    
    
    
    3.2Other income, net
    
    
    (0.1
    )
    
    
    0.0Income before income taxes
    
    
    5.1
    
    
    
    6.4Income tax expense
    
    
    1.9
    
    
    
    2.5Net income
    
    
    3.2
    
    
    
    3.9Less net income attributable to noncontrolling
interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    3.2
    %
    
    
    3.9
    %
  Three Months Ended June 30,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    147,871
    
    
    
    43.2
    %
    
    $
    154,407
    
    
    
    41.5
    %Eliminations
    
    
    (54,484
    )
    
    
    (15.9
    )
    
    
    (47,640
    )
    
    
    (12.8
    )Net wholesale
    
    
    93,387
    
    
    
    27.3
    
    
    
    106,767
    
    
    
    28.7Retail
    
    
    244,149
    
    
    
    71.4
    
    
    
    258,407
    
    
    
    69.6Total net sales
    
    
    337,536
    
    
    
    98.7
    
    
    
    365,174
    
    
    
    98.3Franchise related
    
    
    4,536
    
    
    
    1.3
    
    
    
    6,350
    
    
    
    1.7Total revenues
    
    $
    342,072
    
    
    
    100.0
    %
    
    $
    371,524
    
    
    
    100.0
    %
 Wholesale
  25




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##### Table of Contents



Retail
 i.e
 Gross Profit
  Three Months Ended June 30,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    32,085
    
    
    
    34.4
    %
    
    $
    33,432
    
    
    
    31.3
    %Retail
    
    
    96,340
    
    
    
    39.5
    %
    
    
    105,982
    
    
    
    41.0
    %Total
    
    $
    128,425
    
    
    
    38.0
    %
    
    $
    139,414
    
    
    
    38.2
    %
   Operating expenses
     Interest expense, net
  26




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##### Table of Contents



Other income, net
  Income tax expense
  SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008
  Six Months Ended June 30,2009
    
    2008Revenues:Net sales
    
    
    98.7
    %
    
    
    98.3
    %Royalties and franchise fees
    
    
    1.3
    
    
    
    1.7Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.3
    
    
    
    62.7Selling expenses
    
    
    3.1
    
    
    
    3.0Retail operating expenses
    
    
    16.7
    
    
    
    17.2Franchise expenses
    
    
    0.9
    
    
    
    1.0General and administrative expenses
    
    
    8.9
    
    
    
    8.8Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    93.9
    
    
    
    93.7Income from operations
    
    
    6.1
    
    
    
    6.3Interest expense, net
    
    
    3.2
    
    
    
    3.7Other income, net
    
    
    (0.0
    )
    
    
    (0.1
    )Income before income taxes
    
    
    2.9
    
    
    
    2.7Income tax expense
    
    
    0.8
    
    
    
    1.0Net income
    
    
    2.1
    %
    
    
    1.7
    %Less net income attributable to noncontrolling interests
    
    
    0.0
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    
    2.1
    %
    
    
    1.7
    %
  Six Months Ended June 30,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    305,199
    
    
    
    46.6
    %
    
    $
    318,726
    
    
    
    45.4
    %Eliminations
    
    
    (104,771
    )
    
    
    (16.0
    %)
    
    
    (101,084
    )
    
    
    (14.4
    %)Net wholesale
    
    
    200,428
    
    
    
    30.6
    %
    
    
    217,642
    
    
    
    31.0
    %Retail
    
    
    446,154
    
    
    
    68.1
    %
    
    
    472,564
    
    
    
    67.3
    %Total net sales
    
    
    646,582
    
    
    
    98.7
    %
    
    
    690,206
    
    
    
    98.3
    %Franchise related
    
    
    8,230
    
    
    
    1.3
    %
    
    
    11,692
    
    
    
    1.7
    %Total revenues
    
    $
    654,812
    
    
    
    100.0
    %
    
    $
    701,898
    
    
    
    100.0
    %
 27




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##### Table of Contents



Wholesale
   Retail
 i.e
 Gross Profit
  Six Months Ended June 30,2009
    
    2008Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueWholesale
    
    $
    68,990
    
    
    
    34.4
    %
    
    $
    69,406
    
    
    
    31.9
    %Retail
    
    
    163,064
    
    
    
    36.5
    %
    
    
    180,356
    
    
    
    38.2
    %Total
    
    $
    232,054
    
    
    
    35.9
    %
    
    $
    249,762
    
    
    
    36.2
    %
   Operating expenses
    28




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##### Table of Contents



Interest expense, net
  Other income, net
  Income tax expense
  Liquidity and Capital Resources
       Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  29




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##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4.
    
    Controls and Procedures
   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) under the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) under 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.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: August 14, 2009
    
    Chief Financial Officer
(on behalf of the registrant and as principal
     financial and accounting officer) 32