##### 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 September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    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
  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
 September 30, 2008
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2008 and 2007
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2008
    
    
    6Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4 Controls and Procedures
    
    
    29PART IIItem 6 Exhibits
    
    
    30Signature
    
    
    31EX-31.1: CERTIFICATIONEX-31.2: CERTIFCATIONEX-32: CERTIFICATION
   http://www.sec.gov.
 2




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,724
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    109,339
    
    
    
    98,425Inventories, net of allowances
    
    
    438,534
    
    
    
    319,621Prepaid expenses and other current assets
    
    
    42,175
    
    
    
    62,046Total current assets
    
    
    619,772
    
    
    
    497,366Property, plant and equipment, net
    
    
    182,779
    
    
    
    174,198Goodwill
    
    
    551,761
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    186,187Other intangible assets, net
    
    
    65,433
    
    
    
    42,526Other assets, net
    
    
    42,598
    
    
    
    39,625Total assets
    
    $
    1,635,226
    
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    202,254
    
    
    $
    153,170Accounts payable
    
    
    204,813
    
    
    
    120,293Accrued expenses
    
    
    95,474
    
    
    
    94,328Income taxes payable
    
    
    2,913
    
    
    
    12,581Current portion of long-term obligations
    
    
    8,758
    
    
    
    8,620Total current liabilities
    
    
    514,212
    
    
    
    388,992Long-term obligations, excluding current portion
    
    
    578,035
    
    
    
    584,336Deferred income tax liabilities
    
    
    98,757
    
    
    
    94,360Deferred rent and other long-term liabilities
    
    
    11,634
    
    
    
    21,789Total liabilities
    
    
    1,202,638
    
    
    
    1,089,477Redeemable common securities (including 585.15 and 893.79 common shares
issued and outstanding at September 30, 2008 and December 31, 2007
respectively)
    
    
    34,115
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50
and 29,543.16 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    334,824
    
    
    
    326,741Retained earnings
    
    
    63,189
    
    
    
    46,494Accumulated other comprehensive income
    
    
    460
    
    
    
    2,351Total stockholders equity
    
    
    398,473
    
    
    
    375,586Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,635,226
    
    
    $
    1,498,845
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Three Months Ended September 30,2008
    
    
    2007Revenues:Net sales
    
    $
    356,231
    
    
    $
    277,564Royalties and franchise fees
    
    
    5,863
    
    
    
    5,783Total revenues
    
    
    362,094
    
    
    
    283,347Expenses:Cost of sales
    
    
    230,920
    
    
    
    180,781Selling expenses
    
    
    11,064
    
    
    
    10,473Retail operating expenses
    
    
    64,644
    
    
    
    44,931Franchise expenses
    
    
    3,077
    
    
    
    3,234General and administrative expenses
    
    
    30,333
    
    
    
    26,500Art and development costs
    
    
    3,483
    
    
    
    2,928Total expenses
    
    
    343,521
    
    
    
    268,847Income from operations
    
    
    18,573
    
    
    
    14,500Interest expense, net
    
    
    12,245
    
    
    
    12,936Other (income) expense, net
    
    
    (389
    )
    
    
    209Income before income taxes and minority interests
    
    
    6,717
    
    
    
    1,355Income tax expense
    
    
    2,518
    
    
    
    927Minority interests
    
    
    (364
    )
    
    
    4Net income
    
    $
    4,563
    
    
    $
    424
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Revenues:Net sales
    
    $
    1,046,437
    
    
    $
    794,517Royalties and franchise fees
    
    
    17,555
    
    
    
    16,425Total revenues
    
    
    1,063,992
    
    
    
    810,942Expenses:Cost of sales
    
    
    671,365
    
    
    
    521,629Selling expenses
    
    
    32,532
    
    
    
    31,439Retail operating expenses
    
    
    185,135
    
    
    
    116,373Franchise expenses
    
    
    10,100
    
    
    
    9,640General and administrative expenses
    
    
    91,823
    
    
    
    75,755Art and development costs
    
    
    10,176
    
    
    
    8,882Total expenses
    
    
    1,001,131
    
    
    
    763,718Income from operations
    
    
    62,861
    
    
    
    47,224Interest expense, net
    
    
    38,581
    
    
    
    40,918Other (income) expense, net
    
    
    (1,112
    )
    
    
    15,916Income (loss) before income taxes and minority interests
    
    
    25,392
    
    
    
    (9,610
    )Income tax expense (benefit)
    
    
    9,595
    
    
    
    (3,238
    )Minority interests
    
    
    (898
    )
    
    
    68Net income (loss)
    
    $
    16,695
    
    
    $
    (6,440
    )
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2008
(Dollars in thousands, except per share amounts)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    OtherCommon
    
    Common
    
    Paid-in
    
    Retained
    
    ComprehensiveShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income
    
    TotalBalance at December 31, 2007
    
    
    29,543.16
    
    
    $
    
    
    
    $
    326,741
    
    
    $
    46,494
    
    
    $
    2,351
    
    
    $
    375,586Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,695
    
    
    
    
    
    
    
    16,695Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,731
    )
    
    
    (2,731
    )Change in fair value of interest
rate swap contracts, net of
income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (411
    )
    
    
    (411
    )Change in fair value of foreign
exchange contracts, net of
income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,251
    
    
    
    1,251Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,804Purchase and revaluation of
redeemable common securities
    
    
    308.6
    
    
    
    
    
    
    
    2,168
    
    
    
    
    
    
    
    
    
    
    
    2,168Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    4,092Tax benefit on exercised options
    
    
    397.3
    
    
    
    
    
    
    
    1,823
    
    
    
    
    
    
    
    
    
    
    
    1,823Other
    
    
    (22.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Balance at September 30, 2008
    
    
    30,226.50
    
    
    $
    
    
    
    $
    334,824
    
    
    $
    63,189
    
    
    $
    460
    
    
    $
    398,473
  6




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income (loss)
    
    $
    16,695
    
    
    $
    (6,440
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization expense
    
    
    32,482
    
    
    
    27,946Amortization of deferred financing costs
    
    
    1,664
    
    
    
    1,586Provision for doubtful accounts
    
    
    1,272
    
    
    
    966Deferred income tax benefit
    
    
    (5,107
    )
    
    
    1,007Deferred rent
    
    
    1,089
    
    
    
    526Undistributed income in unconsolidated joint venture
    
    
    (561
    )
    
    
    (184
    )(Gain) loss on disposal of equipment
    
    
    (1,678
    )
    
    
    1,192Equity based compensation
    
    
    4,092
    
    
    
    1,350Tax benefit on exercised options
    
    
    (1,823
    )
    
    
    Debt retirement costs
    
    
    
    
    
    
    3,781Write-off of deferred financing costs
    
    
    
    
    
    
    6,333Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (12,041
    )
    
    
    (9,434
    )Increase in inventories
    
    
    (122,579
    )
    
    
    (51,510
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    19,871
    
    
    
    (26,228
    )Increase in accounts payable, accrued expenses and income taxes payable
    
    
    75,998
    
    
    
    39,406Other, net
    
    
    
    
    
    
    11Net cash provided by (used in) operating activities
    
    
    9,374
    
    
    
    (9,692
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (573
    )
    
    
    (8,685
    )Capital expenditures
    
    
    (39,343
    )
    
    
    (17,753
    )Proceeds from disposal of property and equipment
    
    
    2,917
    
    
    
    1,738Net cash used in investing activities
    
    
    (36,999
    )
    
    
    (24,700
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (6,774
    )
    
    
    (385,067
    )Proceeds from loans, notes payable and long-term obligations, net of debt issuance costs
    
    
    44,789
    
    
    
    418,507Tax benefit on exercised options
    
    
    1,823
    
    
    
    Sale of additional interest to minority shareholder
    
    
    2,500Capital contributions and proceeds from issuance of common stock and exercise of
options, net of retirements
    
    
    
    
    
    
    4,700Net cash provided by financing activities
    
    
    42,338
    
    
    
    38,140Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,263
    )
    
    
    1,532Net increase in cash and cash equivalents
    
    
    12,450
    
    
    
    5,280Cash and cash equivalents at beginning of period
    
    
    17,274
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    29,724
    
    
    $
    10,246
  7




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 Note 1  Description of Business
  Note 2  Acquisitions
 Party City Franchise Group Transaction
   The Factory Card & Party Outlet Acquisition
  Note 3  Basis of Presentation
  8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 4  Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Finished goods
    
    $
    418,190
    
    
    $
    299,436Raw Materials
    
    
    13,502
    
    
    
    13,690Work in Process
    
    
    6,842
    
    
    
    6,495$
    438,534
    
    
    $
    319,621
  Note 5  Income Taxes
  Note 6  Restructuring
    9




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 7  Comprehensive Income (Loss)
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    4,563
    
    
    $
    424
    
    
    $
    16,695
    
    
    $
    (6,440
    )Cumulative
change from adoption of FIN 48
    
    
    
    

$
    


    
    
    
    
    
    
    $
    (31
    )Net change in cumulative translation adjustment
    
    
    (2,831
    )
    
    
    895
    
    
    
    (2,731
    )
    
    
    1,710Change in fair value of interest rate swap
contracts, net of income tax benefit of $(201), $(192), $(241), and $(158)
    
    
    (343
    )
    
    
    (328
    )
    
    
    (411
    )
    
    
    (269
    )Change in fair value of foreign exchange
contracts, net of income tax expense
(benefit) of $724, $(184), $735, and $(289)
    
    
    1,232
    
    
    
    (313
    )
    
    
    1,251
    
    
    
    (491
    )Comprehensive income (loss)
    
    $
    2,621
    
    
    $
    678
    
    
    $
    14,804
    
    
    $
    (5,521
    )
 Note 8  Capital Stock
      10




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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)
 Note 9  Segment Information
 Industry Segments
   Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended September 30, 2008Revenues:Net sales
    
    $
    186,750
    
    
    $
    230,082
    
    
    $
    416,832Royalties and franchise fees
    
    
    
    
    
    
    5,863
    
    
    
    5,863Total revenues
    
    
    186,750
    
    
    
    235,945
    
    
    
    422,695Eliminations
    
    
    (60,601
    )
    
    
    
    
    
    
    (60,601
    )Net Revenues
    
    $
    126,149
    
    
    $
    235,945
    
    
    $
    362,094Income from operations
    
    $
    9,643
    
    
    $
    8,930
    
    
    $
    18,573Interest expense, net
    
    
    
    
    
    
    
    
    
    
    12,245Other income, net
    
    
    
    
    
    
    
    
    
    
    (389
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    6,717Long-lived assets
    
    $
    409,760
    
    
    $
    605,694
    
    
    $
    1,015,454
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended September 30, 2007Revenues:Net sales
    
    $
    169,566
    
    
    $
    153,950
    
    
    $
    323,516Royalties and franchise fees
    
    
    
    
    
    
    5,783
    
    
    
    5,783Total revenues
    
    
    169,566
    
    
    
    159,733
    
    
    
    329,299Eliminations
    
    
    (45,952
    )
    
    
    
    
    
    
    (45,952
    )Net Revenues
    
    $
    123,614
    
    
    $
    159,733
    
    
    $
    283,347Income from operations
    
    $
    9,258
    
    
    $
    5,242
    
    
    $
    14,500Interest expense, net
    
    
    
    
    
    
    
    
    
    
    12,936Other expense, net
    
    
    
    
    
    
    
    
    
    
    209Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    1,355Long-lived assets
    
    $
    457,898
    
    
    $
    396,244
    
    
    $
    854,142
 11




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedNine months ended September 30, 2008Revenues:Net sales
    
    $
    505,476
    
    
    $
    702,645
    
    
    $
    1,208,121Royalties and franchise fees
    
    
    
    
    
    
    17,555
    
    
    
    17,555Total revenues
    
    
    505,476
    
    
    
    720,200
    
    
    
    1,225,676Eliminations
    
    
    (161,684
    )
    
    
    
    
    
    
    (161,684
    )Net Revenues
    
    $
    343,792
    
    
    $
    720,200
    
    
    $
    1,063,992Income from operations
    
    $
    25,107
    
    
    $
    37,754
    
    
    $
    62,861Interest expense, net
    
    
    
    
    
    
    
    
    
    
    38,581Other income, net
    
    
    
    
    
    
    
    
    
    
    (1,112
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    25,392Long-lived assets
    
    $
    409,760
    
    
    $
    605,694
    
    
    $
    1,015,454
 Wholesale
    
    
    Retail
    
    
    ConsolidatedNine months ended September 30, 2007Revenues:Net sales
    
    $
    458,329
    
    
    $
    454,268
    
    
    $
    912,597Royalties and franchise fees
    
    
    
    
    
    
    16,425
    
    
    
    16,425Total revenues
    
    
    458,329
    
    
    
    470,693
    
    
    
    929,022Eliminations
    
    
    (118,080
    )
    
    
    
    
    
    
    (118,080
    )Net Revenues
    
    $
    340,249
    
    
    $
    470,693
    
    
    $
    810,942Income from operations
    
    $
    17,840
    
    
    $
    29,384
    
    
    $
    47,224Interest expense, net
    
    
    
    
    
    
    
    
    
    
    40,918Other expense, net
    
    
    
    
    
    
    
    
    
    
    15,916Loss before
income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    (9,610
    )Long-lived assets
    
    $
    457,898
    
    
    $
    396,244
    
    
    $
    854,142
 12




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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)
 Geographic Segments
  Note 10  Legal Proceedings
  Note 11  Stock Option Plan
  
                Note 12  Long Term Obligations
  Term Loan Credit Agreement
    ABL Credit Agreement
    13




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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)
 PCFG Credit Agreement
  Note 13  Recently Issued Accounting Standards
    14




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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 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
    
    Factory Card & Party Outlet Corp.
    
    Gags & Games, Inc.
    
    JCS Packaging Inc.
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    SSY Realty Corp.
    
    Trisar, Inc.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
  15




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,430
    
    
    $
    4,294
    
    
    $
    
    
    
    $
    29,724Accounts receivable, net of allowances
    
    
    90,172
    
    
    
    19,167
    
    
    
    
    
    
    
    109,339Inventories, net of allowances
    
    
    387,417
    
    
    
    51,965
    
    
    
    (848
    )
    
    
    438,534Prepaid expenses and other current assets
    
    
    38,090
    
    
    
    4,085
    
    
    
    
    
    
    
    42,175Total current assets
    
    
    541,109
    
    
    
    79,511
    
    
    
    (848
    )
    
    
    619,772Property, plant and equipment, net
    
    
    172,098
    
    
    
    10,681
    
    
    
    
    
    
    
    182,779Goodwill
    
    
    509,028
    
    
    
    42,733
    
    
    
    
    
    
    
    551,761Trade names
    
    
    172,883
    
    
    
    
    
    
    
    
    
    
    
    172,883Other intangible assets, net
    
    
    38,809
    
    
    
    26,624
    
    
    
    
    
    
    
    65,433Other assets, net
    
    
    113,504
    
    
    
    (18,144
    )
    
    
    (52,762
    )
    
    
    42,598Total assets
    
    $
    1,547,431
    
    
    $
    141,405
    
    
    $
    (53,610
    )
    
    $
    1,635,226LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    189,083
    
    
    $
    13,171
    
    
    $
    
    
    
    $
    202,254Accounts payable
    
    
    184,814
    
    
    
    19,999
    
    
    
    
    
    
    
    204,813Accrued expenses
    
    
    84,205
    
    
    
    11,269
    
    
    
    
    
    
    
    95,474Income taxes payable
    
    
    2,601
    
    
    
    424
    
    
    
    (112
    )
    
    
    2,913Current portion of long-term obligations
    
    
    6,726
    
    
    
    2,032
    
    
    
    
    
    
    
    8,758Total current liabilities
    
    
    467,429
    
    
    
    46,895
    
    
    
    (112
    )
    
    
    514,212Long-term obligations, excluding current portion
    
    
    552,035
    
    
    
    26,000
    
    
    
    
    
    
    
    578,035Deferred income tax liabilities
    
    
    87,160
    
    
    
    11,597
    
    
    
    
    
    
    
    98,757Other
    
    
    19,293
    
    
    
    44,994
    
    
    
    (52,653
    )
    
    
    11,634Total liabilities
    
    
    1,125,917
    
    
    
    129,486
    
    
    
    (52,765
    )
    
    
    1,202,638Redeemable common securities
    
    
    18,171
    
    
    
    15,944
    
    
    
    
    
    
    
    34,115Stockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    334,777
    
    
    
    47
    
    
    
    
    
    
    
    334,824Retained earnings
    
    
    68,106
    
    
    
    (4,412
    )
    
    
    (505
    )
    
    
    63,189Accumulated other comprehensive income (loss)
    
    
    460
    
    
    
    1
    
    
    
    (1
    )
    
    
    460Total stockholders equity
    
    
    403,343
    
    
    
    (4,025
    )
    
    
    (845
    )
    
    
    398,473Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,547,431
    
    
    $
    141,405
    
    
    $
    (53,610
    )
    
    $
    1,635,226
 16




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,391
    
    
    $
    8,883
    
    
    $
    
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    81,057
    
    
    
    17,368
    
    
    
    
    
    
    
    98,425Inventories, net of allowances
    
    
    282,954
    
    
    
    37,368
    
    
    
    (701
    )
    
    
    319,621Prepaid expenses and other current assets
    
    
    54,810
    
    
    
    7,236
    
    
    
    
    
    
    
    62,046Total current assets
    
    
    427,212
    
    
    
    70,855
    
    
    
    (701
    )
    
    
    497,366Property, plant and equipment, net
    
    
    168,033
    
    
    
    6,165
    
    
    
    
    
    
    
    174,198Goodwill
    
    
    509,114
    
    
    
    49,829
    
    
    
    
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    13,304
    
    
    
    
    
    
    
    186,187Other intangible assets, net
    
    
    42,526
    
    
    
    
    
    
    
    
    
    
    
    42,526Other assets, net
    
    
    111,428
    
    
    
    (20,137
    )
    
    
    (51,666
    )
    
    
    39,625Total assets
    
    $
    1,431,196
    
    
    $
    120,016
    
    
    $
    (52,367
    )
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    152,670
    
    
    $
    500
    
    
    $
    
    
    
    $
    153,170Accounts payable
    
    
    100,467
    
    
    
    19,826
    
    
    
    
    
    
    
    120,293Accrued expenses
    
    
    81,600
    
    
    
    12,728
    
    
    
    
    
    
    
    94,328Income taxes payable
    
    
    12,958
    
    
    
    (319
    )
    
    
    (58
    )
    
    
    12,581Current portion of long-term obligations
    
    
    6,524
    
    
    
    2,096
    
    
    
    
    
    
    
    8,620Total current liabilities
    
    
    354,219
    
    
    
    34,831
    
    
    
    (58
    )
    
    
    388,992Long-term obligations, excluding current portion
    
    
    556,817
    
    
    
    27,519
    
    
    
    
    
    
    
    584,336Deferred income tax liabilities
    
    
    93,523
    
    
    
    837
    
    
    
    
    
    
    
    94,360Other
    
    
    30,327
    
    
    
    43,258
    
    
    
    (51,796
    )
    
    
    21,789Total liabilities
    
    
    1,034,886
    
    
    
    106,445
    
    
    
    (51,854
    )
    
    
    1,089,477Redeemable common securities
    
    
    20,338
    
    
    
    13,444
    
    
    
    
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    326,695
    
    
    
    46
    
    
    
    
    
    
    
    326,741Retained earnings
    
    
    46,926
    
    
    
    (178
    )
    
    
    (254
    )
    
    
    46,494Accumulated other comprehensive income (loss)
    
    
    2,351
    
    
    
    (80
    )
    
    
    80
    
    
    
    2,351Total stockholders equity
    
    
    375,972
    
    
    
    127
    
    
    
    (513
    )
    
    
    375,586Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,431,196
    
    
    $
    120,016
    
    
    $
    (52,367
    )
    
    $
    1,498,845
 17




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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 September 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    320,473
    
    
    $
    47,237
    
    
    $
    (11,479
    )
    
    $
    356,231Royalties and franchise fees
    
    
    5,863
    
    
    
    
    
    
    
    
    
    
    
    5,863Total revenues
    
    
    326,336
    
    
    
    47,237
    
    
    
    (11,479
    )
    
    
    362,094Expenses:Cost of sales
    
    
    213,855
    
    
    
    28,631
    
    
    
    (11,566
    )
    
    
    230,920Selling expenses
    
    
    8,526
    
    
    
    2,538
    
    
    
    
    
    
    
    11,064Retail operating expenses
    
    
    54,417
    
    
    
    10,227
    
    
    
    
    
    
    
    64,644Franchise expenses
    
    
    3,077
    
    
    
    
    
    
    
    
    
    
    
    3,077General and administrative expenses
    
    
    26,280
    
    
    
    4,383
    
    
    
    (330
    )
    
    
    30,333Art and development costs
    
    
    3,483
    
    
    
    
    
    
    
    
    
    
    
    3,483Total expenses
    
    
    309,638
    
    
    
    45,779
    
    
    
    (11,896
    )
    
    
    343,521Income from operations
    
    
    16,698
    
    
    
    1,458
    
    
    
    417
    
    
    
    18,573Interest expense, net
    
    
    11,427
    
    
    
    818
    
    
    
    
    
    
    
    12,245Other (income) expense, net
    
    
    (2,999
    )
    
    
    18
    
    
    
    2,592
    
    
    
    (389
    )Income before income taxes
and minority interests
    
    
    8,270
    
    
    
    622
    
    
    
    (2,175
    )
    
    
    6,717Income tax expense
    
    
    1,849
    
    
    
    636
    
    
    
    33
    
    
    
    2,518Minority interests
    
    
    
    
    
    
    (364
    )
    
    
    
    
    
    
    (364
    )Net income
    
    $
    6,421
    
    
    $
    350
    
    
    $
    (2,208
    )
    
    $
    4,563
 18




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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 Nine Months Ended September 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    930,125
    
    
    $
    139,993
    
    
    $
    (23,681
    )
    
    $
    1,046,437Royalties and franchise fees
    
    
    17,555
    
    
    
    
    
    
    
    
    
    
    
    17,555Total revenues
    
    
    947,680
    
    
    
    139,993
    
    
    
    (23,681
    )
    
    
    1,063,992Expenses:Cost of sales
    
    
    608,752
    
    
    
    85,990
    
    
    
    (23,377
    )
    
    
    671,365Selling expenses
    
    
    24,800
    
    
    
    7,732
    
    
    
    
    
    
    
    32,532Retail operating expenses
    
    
    154,758
    
    
    
    30,377
    
    
    
    
    
    
    
    185,135Franchise expenses
    
    
    10,100
    
    
    
    
    
    
    
    
    
    
    
    10,100General and administrative expenses
    
    
    79,990
    
    
    
    12,823
    
    
    
    (990
    )
    
    
    91,823Art and development costs
    
    
    10,176
    
    
    
    
    
    
    
    
    
    
    
    10,176Total expenses
    
    
    888,576
    
    
    
    136,922
    
    
    
    (24,367
    )
    
    
    1,001,131Income from operations
    
    
    59,104
    
    
    
    3,071
    
    
    
    686
    
    
    
    62,861Interest expense, net
    
    
    36,336
    
    
    
    2,245
    
    
    
    
    
    
    
    38,581Other income, net
    
    
    (6,723
    )
    
    
    (50
    )
    
    
    5,661
    
    
    
    (1,112
    )Income before income taxes and minority interests
    
    
    29,491
    
    
    
    876
    
    
    
    (4,975
    )
    
    
    25,392Income tax expense
    
    
    8,212
    
    
    
    1,495
    
    
    
    (112
    )
    
    
    9,595Minority interests
    
    
    
    
    
    
    (898
    )
    
    
    
    
    
    
    (898
    )Net income
    
    $
    21,279
    
    
    $
    279
    
    
    $
    (4,863
    )
    
    $
    16,695
 19




---



##### 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 September 30, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    262,315
    
    
    $
    22,794
    
    
    $
    (7,545
    )
    
    $
    277,564Royalties and franchise fees
    
    
    5,783
    
    
    
    
    
    
    
    
    
    
    
    5,783Total revenues
    
    
    268,098
    
    
    
    22,794
    
    
    
    (7,545
    )
    
    
    283,347Expenses:Cost of sales
    
    
    173,323
    
    
    
    14,869
    
    
    
    (7,411
    )
    
    
    180,781Selling expenses
    
    
    7,995
    
    
    
    2,478
    
    
    
    
    
    
    
    10,473Retail operating expenses
    
    
    44,931
    
    
    
    
    
    
    
    
    
    
    
    44,931Franchise expenses
    
    
    3,234
    
    
    
    
    
    
    
    
    
    
    
    3,234General and administrative expenses
    
    
    24,606
    
    
    
    2,224
    
    
    
    (330
    )
    
    
    26,500Art and development costs
    
    
    2,928
    
    
    
    
    
    
    
    
    
    
    
    2,928Total expenses
    
    
    257,017
    
    
    
    19,571
    
    
    
    (7,741
    )
    
    
    268,847Income from operations
    
    
    11,081
    
    
    
    3,223
    
    
    
    196
    
    
    
    14,500Interest expense, net
    
    
    12,902
    
    
    
    34
    
    
    
    
    
    
    
    12,936Other (income) expense, net
    
    
    (2,254
    )
    
    
    89
    
    
    
    2,374
    
    
    
    209Income before income taxes and
minority interests
    
    
    433
    
    
    
    3,100
    
    
    
    (2,178
    )
    
    
    1,355Income tax (benefit) expense
    
    
    (75
    )
    
    
    1,052
    
    
    
    (50
    )
    
    
    927Minority interests
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net income
    
    $
    508
    
    
    $
    2,044
    
    
    $
    (2,128
    )
    
    $
    424
 20




---



##### 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 Nine Months Ended September 30, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    752,492
    
    
    $
    60,016
    
    
    $
    (17,991
    )
    
    $
    794,517Royalties and franchise fees
    
    
    16,425
    
    
    
    
    
    
    
    
    
    
    
    16,425Total revenues
    
    
    768,917
    
    
    
    60,016
    
    
    
    (17,991
    )
    
    
    810,942Expenses:Cost of sales
    
    
    498,961
    
    
    
    40,543
    
    
    
    (17,875
    )
    
    
    521,629Selling expenses
    
    
    24,222
    
    
    
    7,217
    
    
    
    
    
    
    
    31,439Retail operating expenses
    
    
    116,373
    
    
    
    
    
    
    
    
    
    
    
    116,373Franchise expenses
    
    
    9,640
    
    
    
    
    
    
    
    
    
    
    
    9,640General and administrative expenses
    
    
    70,176
    
    
    
    6,569
    
    
    
    (990
    )
    
    
    75,755Art and development costs
    
    
    8,882
    
    
    
    
    
    
    
    
    
    
    
    8,882Total expenses
    
    
    728,254
    
    
    
    54,329
    
    
    
    (18,865
    )
    
    
    763,718Income from operations
    
    
    40,663
    
    
    
    5,687
    
    
    
    874
    
    
    
    47,224Interest expense, net
    
    
    40,821
    
    
    
    97
    
    
    
    
    
    
    
    40,918Other expense, net
    
    
    11,264
    
    
    
    2
    
    
    
    4,650
    
    
    
    15,916(Loss) income before income taxes
and minority interests
    
    
    (11,422
    )
    
    
    5,588
    
    
    
    (3,776
    )
    
    
    (9,610
    )Income tax (benefit) expense
    
    
    (5,057
    )
    
    
    1,862
    
    
    
    (43
    )
    
    
    (3,238
    )Minority interests
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Net (loss) income
    
    $
    (6,365
    )
    
    $
    3,658
    
    
    $
    (3,733
    )
    
    $
    (6,440
    )
 21




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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 CASH FLOWS
For the Nine months Ended September 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities:Net income
    
    $
    21,279
    
    
    $
    279
    
    
    $
    (4,863
    )
    
    $
    16,695Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Depreciation and amortization expense
    
    
    29,048
    
    
    
    3,434
    
    
    
    
    
    
    
    32,482Amortization of deferred financing costs
    
    
    1,465
    
    
    
    199
    
    
    
    
    
    
    
    1,664Provision for doubtful accounts
    
    
    1,075
    
    
    
    197
    
    
    
    
    
    
    
    1,272Deferred income tax benefit
    
    
    (5,107
    )
    
    
    
    
    
    
    
    
    
    
    (5,107
    )Deferred rent
    
    
    1,089
    
    
    
    
    
    
    
    
    
    
    
    1,089Undistributed gain in unconsolidated joint venture
    
    
    (561
    )
    
    
    
    
    
    
    
    
    
    
    (561
    )Gain on disposal of equipment
    
    
    (1,678
    )
    
    
    
    
    
    
    
    
    
    
    (1,678
    )Equity based compensation
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    4,092Tax benefit on exercised options
    
    
    (1,823
    )
    
    
    
    
    
    
    
    
    
    
    (1,823
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (10,045
    )
    
    
    (1,996
    )
    
    
    
    
    
    
    (12,041
    )Increase in inventories
    
    
    (107,716
    )
    
    
    (15,167
    )
    
    
    304
    
    
    
    (122,579
    )Decrease in prepaid expenses and other current assets
    
    
    16,918
    
    
    
    2,953
    
    
    
    
    
    
    
    19,871Increase in accounts payable, accrued expenses and
income taxes payable
    
    
    68,176
    
    
    
    3,263
    
    
    
    4,559
    
    
    
    75,998Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) operating activities
    
    
    16,212
    
    
    
    (6,838
    )
    
    
    
    
    
    
    9,374Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    (100
    )
    
    
    (473
    )
    
    
    
    
    
    
    (573
    )Capital expenditures
    
    
    (33,104
    )
    
    
    (6,239
    )
    
    
    
    
    
    
    (39,343
    )Proceeds from disposal of property and equipment
    
    
    2,867
    
    
    
    50
    
    
    
    
    
    
    
    2,917Net cash used in investing activities
    
    
    (30,337
    )
    
    
    (6,662
    )
    
    
    
    
    
    
    (36,999
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (5,200
    )
    
    
    (1,574
    )
    
    
    
    
    
    
    (6,774
    )Proceeds from loans, notes payable and long-term obligations
    
    
    32,118
    
    
    
    12,671
    
    
    
    
    
    
    
    44,789Tax benefit on exercised options
    
    
    1,823
    
    
    
    
    
    
    
    
    
    
    
    1,823Sale of additional interest to minority shareholder
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Net cash provided by financing activities
    
    
    31,241
    
    
    
    11,097
    
    
    
    
    
    
    
    42,338Effect of exchange rate changes on cash and cash equivalents
    
    
    (77
    )
    
    
    (2,186
    )
    
    
    
    
    
    
    (2,263
    )Net increase
(decrease) in cash and cash equivalents
    
    
    17,039
    
    
    
    (4,589
    )
    
    
    
    
    
    
    12,450Cash and cash equivalents at beginning of period
    
    
    8,391
    
    
    
    8,883
    
    
    
    
    
    
    
    17,274Cash and cash equivalents at end of period
    
    $
    25,430
    
    
    $
    4,294
    
    
    $
    
    
    
    $
    29,724
 22




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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 CASH FLOWS
For the Nine Months Ended September 30, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (6,365
    )
    
    $
    3,658
    
    
    $
    (3,733
    )
    
    $
    (6,440
    )Adjustments to reconcile net (loss) income to net cash used in
operating activities:Depreciation and amortization expense
    
    
    27,252
    
    
    
    694
    
    
    
    
    
    
    
    27,946Amortization of deferred financing costs
    
    
    1,586
    
    
    
    
    
    
    
    
    
    
    
    1,586Provision for doubtful accounts
    
    
    780
    
    
    
    186
    
    
    
    
    
    
    
    966Deferred income tax expense
    
    
    1,007
    
    
    
    
    
    
    
    
    
    
    
    1,007Deferred rent
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    526Undistributed gain in unconsolidated joint venture
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    (184
    )Loss on disposal of equipment
    
    
    1,192
    
    
    
    
    
    
    
    
    
    
    
    1,192Equity based compensation
    
    
    1,350
    
    
    
    
    
    
    
    
    
    
    
    1,350Debt retirement costs
    
    
    3,781
    
    
    
    
    
    
    
    
    
    
    
    3,781Write-off of deferred financing costs
    
    
    6,333
    
    
    
    
    
    
    
    
    
    
    
    6,333Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (106
    )
    
    
    (9,328
    )
    
    
    
    
    
    
    (9,434
    )(Increase)
decrease in inventories
    
    
    (51,855
    )
    
    
    229
    
    
    
    116
    
    
    
    (51,510
    )Increase in prepaid expenses and other current assets
    
    
    (25,722
    )
    
    
    (508
    )
    
    
    2
    
    
    
    (26,228
    )Increase in accounts payable, accrued expenses and
income taxes payable
    
    
    31,256
    
    
    
    4,536
    
    
    
    3,614
    
    
    
    39,406Other, net
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Net cash used in operating activities
    
    
    (9,158
    )
    
    
    (533
    )
    
    
    (1
    )
    
    
    (9,692
    )Cash flows used in investing activities:Cash paid in connection with store acquisitions
    
    
    (8,685
    )
    
    
    
    
    
    
    
    
    
    
    (8,685
    )Capital expenditures
    
    
    (17,250
    )
    
    
    (503
    )
    
    
    
    
    
    
    (17,753
    )Proceeds from disposal of property and equipment
    
    
    1,738
    
    
    
    
    
    
    
    
    
    
    
    1,738Net cash used in investing activities
    
    
    (24,197
    )
    
    
    (503
    )
    
    
    
    
    
    
    (24,700
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (384,949
    )
    
    
    (118
    )
    
    
    
    
    
    
    (385,067
    )Proceeds from loans, notes payable and long-term obligations
    
    
    418,507
    
    
    
    
    
    
    
    
    
    
    
    418,507Proceeds from capital contributions and exercise of options
    
    
    4,700
    
    
    
    
    
    
    
    
    
    
    
    4,700Net cash provided by financing activities
    
    
    38,258
    
    
    
    (118
    )
    
    
    
    
    
    
    38,140Effect of exchange rate changes on cash and cash equivalents
    
    
    (15
    )
    
    
    1,547
    
    
    
    
    
    
    
    1,532Net increase in cash and cash equivalents
    
    
    4,888
    
    
    
    393
    
    
    
    (1
    )
    
    
    5,280Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    9,283
    
    
    $
    964
    
    
    $
    (1
    )
    
    $
    10,246
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007
  Three Months Ended September 30,2008
    
    
    2007Revenues:Net sales
    
    
    98.4
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    1.6
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.8
    
    
    
    63.8Selling expenses
    
    
    3.1
    
    
    
    3.7Retail operating expenses
    
    
    17.9
    
    
    
    15.9Franchise expenses
    
    
    0.8
    
    
    
    1.1General and administrative expenses
    
    
    8.3
    
    
    
    9.4Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    94.9
    
    
    
    94.9Income from operations
    
    
    5.1
    
    
    
    5.1Interest expense, net
    
    
    3.4
    
    
    
    4.6Other (income) expense, net
    
    
    (0.1
    )
    
    
    0.1Income before income taxes and minority interests
    
    
    1.8
    
    
    
    0.4Income tax expense
    
    
    0.7
    
    
    
    0.3Minority interests
    
    
    (0.1
    )
    
    
    0.0Net income
    
    
    1.2
    %
    
    
    0.1
    %
 Three Months Ended September 30,2008
    
    2007Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    186,750
    
    
    
    51.6
    %
    
    $
    169,566
    
    
    
    59.8
    %Eliminations
    
    
    (60,601
    )
    
    
    (16.7
    )
    
    
    (45,952
    )
    
    
    (16.2
    )Net wholesale
    
    
    126,149
    
    
    
    34.9
    
    
    
    123,614
    
    
    
    43.6Retail
    
    
    230,082
    
    
    
    63.5
    
    
    
    153,950
    
    
    
    54.3Total net sales
    
    
    356,231
    
    
    
    98.4
    
    
    
    277,564
    
    
    
    97.9Franchise related
    
    
    5,863
    
    
    
    1.6
    
    
    
    5,783
    
    
    
    2.1Total revenues
    
    $
    362,094
    
    
    
    100.0
    %
    
    $
    283,347
    
    
    
    100.0
    %
 24




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##### Table of Contents



Wholesale Sales
   Retail Sales
   Gross Profit
  Three Months Ended September 30,2008
    
    2007Dollars in
    
    Percentage of associated
    
    Dollars in
    
    Percentage of associatedThousands
    
    sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    42,878
    
    
    
    34.0
    %
    
    $
    39,749
    
    
    
    32.2
    %Net Retail
    
    
    82,433
    
    
    
    35.8
    %
    
    
    57,034
    
    
    
    37.0
    %Total Gross Profit
    
    $
    125,311
    
    
    
    35.2
    %
    
    $
    96,783
    
    
    
    34.9
    %
   Operating expenses
    25




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##### Table of Contents



Interest expense, net
  Other (income) expense, net
  Income tax expense
  NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007
  Nine Months Ended September 30,2008
    
    
    2007Revenues:Net sales
    
    
    98.4
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    1.6
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    63.1
    
    
    
    64.3Selling expenses
    
    
    3.1
    
    
    
    3.9Retail operating expenses
    
    
    17.4
    
    
    
    14.4Franchise expenses
    
    
    0.9
    
    
    
    1.2General and administrative expenses
    
    
    8.6
    
    
    
    9.3Art and development costs
    
    
    1.0
    
    
    
    1.1Total expenses
    
    
    94.1
    
    
    
    94.2Income from operations
    
    
    5.9
    
    
    
    5.8Interest expense, net
    
    
    3.6
    
    
    
    5.0Other (income) expense, net
    
    
    (0.1
    )
    
    
    2.0Income (loss) before income taxes and minority interests
    
    
    2.4
    
    
    
    (1.2
    )Income tax expense (benefit)
    
    
    0.9
    
    
    
    (0.4
    )Minority interests
    
    
    (0.1
    )
    
    
    0.0Net income (loss )
    
    
    1.6
    %
    
    
    (0.8
    )%
 Nine Months Ended September 30,2008
    
    2007Dollars in
    
    Percentage of
    
    Dollars in
    
    Percentage ofThousands
    
    Total Revenue
    
    Thousands
    
    Total RevenueRevenuesSalesWholesale
    
    $
    505,476
    
    
    
    47.5
    %
    
    $
    458,329
    
    
    
    56.6
    %Eliminations
    
    
    (161,684
    )
    
    
    (15.2
    )
    
    
    (118,080
    )
    
    
    (14.6
    )Net wholesale
    
    
    343,792
    
    
    
    32.3
    
    
    
    340,249
    
    
    
    42.0Retail
    
    
    702,645
    
    
    
    66.0
    
    
    
    454,268
    
    
    
    56.0Total net sales
    
    
    1,046,437
    
    
    
    98.3
    
    
    
    794,517
    
    
    
    98.0Franchise related
    
    
    17,555
    
    
    
    1.7
    
    
    
    16,425
    
    
    
    2.0Total revenues
    
    $
    1,063,992
    
    
    
    100.0
    %
    
    $
    810,942
    
    
    
    100.0
    %
 26




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##### Table of Contents



Wholesale Sales
   Retail Sales
   Gross Profit
  Nine Months Ended September 30,2008
    
    2007Dollars in
    
    Percentage of associated
    
Dollars in
    
    Percentage of associatedThousands
    
    sales
    
    Thousands
    
    salesNet Wholesale
    
    $
    112,788
    
    
    
    32.8
    %
    
    $
    102,662
    
    
    
    30.2
    %Net Retail
    
    
    262,284
    
    
    
    37.3
    %
    
    
    170,226
    
    
    
    37.5
    %Total Gross Profit
    
    $
    375,072
    
    
    
    35.8
    %
    
    $
    272,888
    
    
    
    34.3
    %
   Operating expenses
    Interest expense, net
  27




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##### Table of Contents



Other (income) expense, net
  Income tax expense (benefit)
  Liquidity and Capital Resources
       Legal Proceedings
  Seasonality
 Wholesale Operations
  28




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##### Table of Contents



Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
   29




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##### Table of Contents



PART II
 
 Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.32
    
    Certification of Chief Executive
and Financial Officers pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 30




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##### Table of Contents



AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeDate: December 4, 2008
    
    Chief Financial Officer

(on behalf of the registrant and as principal
financial and accounting officer)  31