##### 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, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-21827
 Amscan Holdings, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3911462(I.R.S. Employer Identification No.)80 Grasslands Road Elmsford, NY(Address of Principal Executive Offices)
    
    10523(Zip Code)
 Registrants telephone number, including area code:(914) 345-2020
 þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



AMSCAN HOLDINGS, INC.
FORM 10-Q
 June 30, 2008
 TABLE OF CONTENTS
 PagePART IItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2008 and 2007
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2008
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32 Section 906 Certification of CEO and CFOEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATIONS
   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)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,566
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    99,485
    
    
    
    98,425Inventories, net of allowances
    
    
    339,893
    
    
    
    319,621Prepaid expenses and other current assets
    
    
    53,828
    
    
    
    62,046Total current assets
    
    
    502,772
    
    
    
    497,366Property, plant and equipment, net
    
    
    177,036
    
    
    
    174,198Goodwill
    
    
    547,920
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    186,187Other intangible assets, net
    
    
    66,823
    
    
    
    42,526Other assets, net
    
    
    30,759
    
    
    
    39,625Total assets
    
    $
    1,498,193
    
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    172,904
    
    
    $
    153,170Accounts payable
    
    
    94,321
    
    
    
    120,293Accrued expenses
    
    
    92,881
    
    
    
    94,328Income taxes payable
    
    
    12,852
    
    
    
    12,581Current portion of long-term obligations
    
    
    8,751
    
    
    
    8,620Total current liabilities
    
    
    381,709
    
    
    
    388,992Long-term obligations, excluding current portion
    
    
    580,128
    
    
    
    584,336Deferred income tax liabilities
    
    
    99,133
    
    
    
    94,360Deferred rent and other long-term liabilities
    
    
    11,887
    
    
    
    21,789Total liabilities
    
    
    1,072,857
    
    
    
    1,089,477Redeemable common securities
    
    
    37,859
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,436.96
shares issued and outstanding at both June 30, 2008 and
December 31, 2007)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    326,358
    
    
    
    326,741Retained earnings
    
    
    58,627
    
    
    
    46,494Accumulated other comprehensive income
    
    
    2,492
    
    
    
    2,351Total stockholders equity
    
    
    387,477
    
    
    
    375,586Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,498,193
    
    
    $
    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 June 30,2008
    
    
    2007Revenues:Net sales
    
    $
    365,174
    
    
    $
    273,424Royalties and franchise fees
    
    
    6,350
    
    
    
    5,747Total revenues
    
    
    371,524
    
    
    
    279,171Expenses:Cost of sales
    
    
    225,760
    
    
    
    175,025Selling expenses
    
    
    10,719
    
    
    
    10,486Retail operating expenses
    
    
    62,565
    
    
    
    36,559Franchise expenses
    
    
    3,392
    
    
    
    3,056General and administrative expenses
    
    
    29,987
    
    
    
    25,123Art and development costs
    
    
    3,590
    
    
    
    3,035Total expenses
    
    
    336,013
    
    
    
    253,284Income from operations
    
    
    35,511
    
    
    
    25,887Interest expense, net
    
    
    12,029
    
    
    
    13,907Other (income) expense, net
    
    
    (237
    )
    
    
    15,841Income (loss) before income taxes and minority interests
    
    
    23,719
    
    
    
    (3,861
    )Income tax expense (benefit)
    
    
    8,990
    
    
    
    (1,459
    )Minority interests
    
    
    60
    
    
    
    56Net income (loss)
    
    $
    14,669
    
    
    $
    (2,458
    )
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Revenues:Net sales
    
    $
    690,206
    
    
    $
    516,953Royalties and franchise fees
    
    
    11,692
    
    
    
    10,642Total revenues
    
    
    701,898
    
    
    
    527,595Expenses:Cost of sales
    
    
    440,444
    
    
    
    340,848Selling expenses
    
    
    21,468
    
    
    
    20,966Retail operating expenses
    
    
    120,491
    
    
    
    71,442Franchise expenses
    
    
    7,023
    
    
    
    6,406General and administrative expenses
    
    
    61,490
    
    
    
    49,255Art and development costs
    
    
    6,692
    
    
    
    5,954Total expenses
    
    
    657,608
    
    
    
    494,871Income from operations
    
    
    44,290
    
    
    
    32,724Interest expense, net
    
    
    26,336
    
    
    
    27,982Other (income) expense, net
    
    
    (722
    )
    
    
    15,705Income (loss) before income taxes and minority interests
    
    
    18,676
    
    
    
    (10,963
    )Income tax expense (benefit)
    
    
    7,078
    
    
    
    (4,165
    )Minority interests
    
    
    (535
    )
    
    
    64Net income (loss)
    
    $
    12,133
    
    
    $
    (6,862
    )
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six Months Ended June 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
    
    
    30,436.96
    
    
    $
    
    
    
    $
    326,741
    
    
    $
    46,494
    
    
    $
    2,351
    
    
    $
    375,586Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,133
    
    
    
    
    
    
    
    12,133Net change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100Change in fair value of interest
rate swap contracts, net of
income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    (68
    )Change in fair value of foreign
exchange contracts, net of
income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    109Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,274Revaluation of redeemable common
securities
    
    
    
    
    
    
    
    
    
    
    (1,578
    )
    
    
    
    
    
    
    
    
    
    
    (1,578
    )Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,195
    
    
    
    
    
    
    
    
    
    
    
    1,195Balance at June 30, 2008
    
    
    30,436.96
    
    
    $
    
    
    
    $
    326,358
    
    
    $
    58,627
    
    
    $
    2,492
    
    
    $
    387,477
  6




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##### Table of Contents



AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income (loss)
    
    $
    12,133
    
    
    $
    (6,862
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization expense
    
    
    21,890
    
    
    
    19,111Amortization of deferred financing costs
    
    
    977
    
    
    
    1,141Provision for doubtful accounts
    
    
    875
    
    
    
    429Deferred income tax benefit
    
    
    (2,512
    )
    
    
    (1,034
    )Deferred rent
    
    
    876
    
    
    
    2,218Undistributed income in unconsolidated joint venture
    
    
    (605
    )
    
    
    (49
    )Loss on disposal of equipment
    
    
    65
    
    
    
    95Equity based compensation
    
    
    1,195
    
    
    
    853Debt retirement costs
    
    
    
    
    
    
    3,783Write-off of deferred financing costs
    
    
    
    
    
    
    6,364Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,421
    )
    
    
    (4,044
    )Increase in inventories
    
    
    (20,272
    )
    
    
    (3,826
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    10,519
    
    
    
    (10,756
    )Decrease in accounts payable, accrued expenses and income taxes
payable
    
    
    (23,614
    )
    
    
    (40,006
    )Other, net
    
    
    
    
    
    
    9Net cash provided by (used in) operating activities
    
    
    106
    
    
    
    (32,574
    )Cash flows used in investing activities:Cash paid in connection with acquisitions
    
    
    
    
    
    
    (8,085
    )Capital expenditures
    
    
    (24,488
    )
    
    
    (10,432
    )Proceeds from disposal of property and equipment
    
    
    50
    
    
    
    1,737Net cash used in investing activities
    
    
    (24,438
    )
    
    
    (16,780
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (4,695
    )
    
    
    (394,946
    )Proceeds from loans, notes payable and long-term obligations, net
of debt issuance costs
    
    
    18,652
    
    
    
    449,136Debt retirement costs
    
    
    
    
    
    
    (6,218
    )Proceeds from sale of additional minority interest in PCFG
    
    
    2,500
    
    
    
    Capital contributions and proceeds from issuance of common stock and
exercise of options, net of retirements
    
    
    
    
    
    
    2,067Net cash provided by financing activities
    
    
    16,457
    
    
    
    50,039Effect of exchange rate changes on cash and cash equivalents
    
    
    167
    
    
    
    705Net (decrease) increase in cash and cash equivalents
    
    
    (7,708
    )
    
    
    1,390Cash and cash equivalents at beginning of period
    
    
    17,274
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    9,566
    
    
    $
    6,356
  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
  Note 4  Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Finished goods
    
    $
    319,633
    
    
    $
    299,436Raw materials
    
    
    13,326
    
    
    
    13,690Work in process
    
    
    6,934
    
    
    
    6,495$
    339,893
    
    
    $
    319,621
 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 5  Income Taxes
  Note 6  Restructuring
    Note 7  Comprehensive Income (Loss)
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    14,669
    
    
    $
    (2,458
    )
    
    $
    12,133
    
    
    $
    (6,862
    )Cumulative change from adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )Net change in cumulative translation adjustment
    
    
    (14
    )
    
    
    636
    
    
    
    100
    
    
    
    815Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $199, $120, $(40), and $35
    
    
    339
    
    
    
    203
    
    
    
    (68
    )
    
    
    59Change in fair value of foreign exchange
contracts, net of income tax expense
(benefit) of $117, $(23), $64, and $(104)
    
    
    199
    
    
    
    (39
    )
    
    
    109
    
    
    
    (178
    )Comprehensive income (loss)
    
    $
    15,193
    
    
    $
    (1,658
    )
    
    $
    12,274
    
    
    $
    (6,197
    )
 9




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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 8  Capital Stock
      10




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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 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
    
    $
    8,183
    
    
    $
    27,328
    
    
    $
    35,511Interest expense, net
    
    
    
    
    
    
    
    
    
    
    12,029Other income, net
    
    
    
    
    
    
    
    
    
    
    (237
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    23,719Long-lived assets
    
    $
    412,138
    
    
    $
    583,283
    
    
    $
    995,421
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended June 30, 2007Revenues:Net sales
    
    $
    148,770
    
    
    $
    164,909
    
    
    $
    313,679Royalties and franchise fees
    
    
    
    
    
    
    5,747
    
    
    
    5,747Total revenues
    
    
    148,770
    
    
    
    170,656
    
    
    
    319,426Eliminations
    
    
    (40,255
    )
    
    
    
    
    
    
    (40,255
    )Net Revenues
    
    $
    108,515
    
    
    $
    170,656
    
    
    $
    279,171Income from operations
    
    $
    6,082
    
    
    $
    19,805
    
    
    $
    25,887Interest expense, net
    
    
    
    
    
    
    
    
    
    
    13,907Other expense, net
    
    
    
    
    
    
    
    
    
    
    15,841Loss before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    (3,861
    )Long-lived assets
    
    $
    450,432
    
    
    $
    399,569
    
    
    $
    850,001
 11




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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)
  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
    
    $
    18,918
    
    
    $
    25,372
    
    
    $
    44,290Interest expense, net
    
    
    
    
    
    
    
    
    
    
    26,336Other (income) , net
    
    
    
    
    
    
    
    
    
    
    (722
    )Income before income taxes and minority interests
    
    
    
    
    
    
    
    
    
    $
    18,676Long-lived assets
    
    $
    412,138
    
    
    $
    583,283
    
    
    $
    995,421
 Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2007Revenues:Net sales
    
    $
    288,763
    
    
    $
    300,318
    
    
    $
    589,081Royalties and franchise fees
    
    
    
    
    
    
    10,642
    
    
    
    10,642Total revenues
    
    
    288,763
    
    
    
    310,960
    
    
    
    599,723Eliminations
    
    
    (72,128
    )
    
    
    
    
    
    
    (72,128
    )Net Revenues
    
    $
    216,635
    
    
    $
    310,960
    
    
    $
    527,595Income from operations
    
    $
    14,765
    
    
    $
    17,959
    
    
    $
    32,724Interest expense, net
    
    
    
    
    
    
    
    
    
    
    27,982Other expense, net
    
    
    
    
    
    
    
    
    
    
    15,705Loss before income tax benefit and minority interests
    
    
    
    
    
    
    
    
    
    $
    (10,963
    )Long-lived assets
    
    $
    450,432
    
    
    $
    399,569
    
    
    $
    850,001
 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
    PCFG 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)
 Note 13  Recently Issued Accounting Standards
    14




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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 14  Condensed Consolidating Financial Information
  
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Gags & Games, Inc.
    
    JCS Packaging Inc.
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    Factory Card & Party Outlet Corp.
    
    SSY Realty Corp.
    
    Trisar, Inc.
  
    
    Amscan (Asia-Pacific) Pty. Ltd.
    
    Amscan de Mexico, S.A. de C.V.
    
    Amscan Distributors (Canada) Ltd.
    
    Anagram Espana, S.A.
    
    Anagram France S.C.S.
    
    Amscan Holdings Limited
    
    Anagram International (Japan) Co., Ltd.
    
    Amscan Partyartikel GmbH
    
    JCS Hong Kong Ltd.
    
    Party City Franchise Group Holdings, LLC
  15




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2008
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,479
    
    
    $
    5,086
    
    
    $
    
    
    
    $
    9,566Accounts receivable, net of allowances
    
    
    72,358
    
    
    
    27,127
    
    
    
    
    
    
    
    99,485Inventories, net of allowances
    
    
    302,594
    
    
    
    38,235
    
    
    
    (935
    )
    
    
    339,893Prepaid expenses and other current assets
    
    
    50,114
    
    
    
    3,714
    
    
    
    
    
    
    
    53,828Total current assets
    
    
    429,545
    
    
    
    74,162
    
    
    
    (935
    )
    
    
    502,772Property, plant and equipment, net
    
    
    167,997
    
    
    
    9,039
    
    
    
    
    
    
    
    177,036Goodwill
    
    
    505,683
    
    
    
    42,237
    
    
    
    
    
    
    
    547,920Trade names
    
    
    172,883
    
    
    
    
    
    
    
    
    
    
    
    172,883Other intangible assets, net
    
    
    39,706
    
    
    
    27,117
    
    
    
    
    
    
    
    66,823Other assets, net
    
    
    105,837
    
    
    
    (22,829
    )
    
    
    (52,249
    )
    
    
    30,759Total assets
    
    $
    1,421,651
    
    
    $
    129,726
    
    
    $
    (53,184
    )
    
    $
    1,498,193LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    166,079
    
    
    $
    6,825
    
    
    $
    
    
    
    $
    172,904Accounts payable
    
    
    78,711
    
    
    
    15,610
    
    
    
    
    
    
    
    94,321Accrued expenses
    
    
    83,456
    
    
    
    9,425
    
    
    
    
    
    
    
    92,881Income taxes payable
    
    
    13,212
    
    
    
    (215
    )
    
    
    (145
    )
    
    
    12,852Current portion of long-term obligations
    
    
    6,709
    
    
    
    2,042
    
    
    
    
    
    
    
    8,751Total current liabilities
    
    
    348,167
    
    
    
    33,687
    
    
    
    (145
    )
    
    
    381,709Long-term obligations, excluding current portion
    
    
    553,625
    
    
    
    26,503
    
    
    
    
    
    
    
    580,128Deferred income tax liabilities
    
    
    87,473
    
    
    
    11,660
    
    
    
    
    
    
    
    99,133Other
    
    
    19,980
    
    
    
    42,572
    
    
    
    (50,665
    )
    
    
    11,887Total liabilities
    
    
    1,009,245
    
    
    
    114,422
    
    
    
    (50,810
    )
    
    
    1,072,857Redeemable common securities
    
    
    21,915
    
    
    
    15,944
    
    
    
    
    
    
    
    37,859Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    326,312
    
    
    
    46
    
    
    
    
    
    
    
    326,358Retained earnings
    
    
    61,688
    
    
    
    (1,075
    )
    
    
    (1,986
    )
    
    
    58,627Accumulated other comprehensive income (loss)
    
    
    2,492
    
    
    
    50
    
    
    
    (50
    )
    
    
    2,492Total stockholders equity
    
    
    390,492
    
    
    
    (640
    )
    
    
    (2,375
    )
    
    
    387,477Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,421,652
    
    
    $
    129,726
    
    
    $
    (53,185
    )
    
    $
    1,498,193
 16




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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 BALANCE SHEET
December 31, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,391
    
    
    $
    8,883
    
    
    $
    
    
    
    $
    17,274Accounts receivable, net of allowances
    
    
    81,057
    
    
    
    17,368
    
    
    
    
    
    
    
    98,425Inventories, net of allowances
    
    
    282,954
    
    
    
    37,368
    
    
    
    (701
    )
    
    
    319,621Prepaid expenses and other current assets
    
    
    54,810
    
    
    
    7,236
    
    
    
    
    
    
    
    62,046Total current assets
    
    
    427,212
    
    
    
    70,856
    
    
    
    (701
    )
    
    
    497,366Property, plant and equipment, net
    
    
    168,033
    
    
    
    6,165
    
    
    
    
    
    
    
    174,198Goodwill
    
    
    509,114
    
    
    
    49,829
    
    
    
    
    
    
    
    558,943Trade names
    
    
    172,883
    
    
    
    13,304
    
    
    
    
    
    
    
    186,187Other intangible assets, net
    
    
    42,526
    
    
    
    
    
    
    
    
    
    
    
    42,526Other assets, net
    
    
    111,428
    
    
    
    (20,137
    )
    
    
    (51,666
    )
    
    
    39,625Total assets
    
    $
    1,431,195
    
    
    $
    120,017
    
    
    $
    (52,367
    )
    
    $
    1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    152,670
    
    
    $
    500
    
    
    $
    
    
    
    $
    153,170Accounts payable
    
    
    100,467
    
    
    
    19,826
    
    
    
    
    
    
    
    120,293Accrued expenses
    
    
    81,600
    
    
    
    12,728
    
    
    
    
    
    
    
    94,328Income taxes payable
    
    
    12,958
    
    
    
    (319
    )
    
    
    (58
    )
    
    
    12,581Current portion of long-term obligations
    
    
    6,524
    
    
    
    2,096
    
    
    
    
    
    
    
    8,620Total current liabilities
    
    
    354,219
    
    
    
    34,831
    
    
    
    (58
    )
    
    
    388,992Long-term obligations, excluding current portion
    
    
    556,817
    
    
    
    27,519
    
    
    
    
    
    
    
    584,336Deferred income tax liabilities
    
    
    93,523
    
    
    
    837
    
    
    
    
    
    
    
    94,360Other
    
    
    30,327
    
    
    
    43,258
    
    
    
    (51,796
    )
    
    
    21,789Total liabilities
    
    
    1,034,886
    
    
    
    106,445
    
    
    
    (51,854
    )
    
    
    1,089,477Redeemable common securities
    
    
    20,338
    
    
    
    13,444
    
    
    
    
    
    
    
    33,782Commitments and contingenciesStockholders equity:Common Stock
    
    
    
    
    
    
    339
    
    
    
    (339
    )
    
    
    Additional paid-in capital
    
    
    326,695
    
    
    
    46
    
    
    
    
    
    
    
    326,741Retained earnings
    
    
    46,925
    
    
    
    (178
    )
    
    
    (254
    )
    
    
    46,494Accumulated other comprehensive income (loss)
    
    
    2,351
    
    
    
    (80
    )
    
    
    80
    
    
    
    2,351Total stockholders equity
    
    
    375,971
    
    
    
    128
    
    
    
    (514
    )
    
    
    375,586Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,431,195
    
    
    $
    120,017
    
    
    $
    (52,367
    )
    
    $
    1,498,845
 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 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 and
minority interests
    
    
    23,815
    
    
    
    1,561
    
    
    
    (1,657
    )
    
    
    23,719Income tax expense
    
    
    8,479
    
    
    
    529
    
    
    
    (18
    )
    
    
    8,990Minority interests
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60Net income
    
    $
    15,336
    
    
    $
    972
    
    
    $
    (1,639
    )
    
    $
    14,669
 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 Six Months Ended June 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-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 and minority interests
    
    
    21,221
    
    
    
    255
    
    
    
    (2,800
    )
    
    
    18,676Income tax expense
    
    
    6,363
    
    
    
    860
    
    
    
    (145
    )
    
    
    7,078Minority interests
    
    
    
    
    
    
    (535
    )
    
    
    
    
    
    
    (535
    )Net income (loss)
    
    $
    14,858
    
    
    $
    (70
    )
    
    $
    (2,655
    )
    
    $
    12,133
 19




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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, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    259,951
    
    
    $
    19,495
    
    
    $
    (6,022
    )
    
    $
    273,424Royalties and franchise fees
    
    
    5,747
    
    
    
    
    
    
    
    
    
    
    
    5,747Total revenues
    
    
    265,698
    
    
    
    19,495
    
    
    
    (6,022
    )
    
    
    279,171Expenses:Cost of sales
    
    
    167,634
    
    
    
    13,302
    
    
    
    (5,911
    )
    
    
    175,025Selling expenses
    
    
    8,116
    
    
    
    2,370
    
    
    
    
    
    
    
    10,486Retail operating expenses
    
    
    36,559
    
    
    
    
    
    
    
    
    
    
    
    36,559Franchise expenses
    
    
    3,056
    
    
    
    
    
    
    
    
    
    
    
    3,056General and administrative expenses
    
    
    23,228
    
    
    
    2,225
    
    
    
    (330
    )
    
    
    25,123Art and development costs
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    3,035Total expenses
    
    
    241,628
    
    
    
    17,897
    
    
    
    (6,241
    )
    
    
    253,284Income from operations
    
    
    24,070
    
    
    
    1,598
    
    
    
    219
    
    
    
    25,887Interest expense, net
    
    
    13,873
    
    
    
    34
    
    
    
    
    
    
    
    13,907Other expense (income) , net
    
    
    14,482
    
    
    
    (170
    )
    
    
    1,529
    
    
    
    15,841(Loss) income before income taxes and minority interests
    
    
    (4,285
    )
    
    
    1,734
    
    
    
    (1,310
    )
    
    
    (3,861
    )Income tax (benefit) expense
    
    
    (1,897
    )
    
    
    479
    
    
    
    (41
    )
    
    
    (1,459
    )Minority interests
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Net (loss) income
    
    $
    (2,388
    )
    
    $
    1,199
    
    
    $
    (1,269
    )
    
    $
    (2,458
    )
 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 Six Months Ended June 30, 2007
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    490,177
    
    
    $
    37,222
    
    
    $
    (10,446
    )
    
    $
    516,953Royalties and franchise fees
    
    
    10,642
    
    
    
    
    
    
    
    
    
    
    
    10,642Total revenues
    
    
    500,819
    
    
    
    37,222
    
    
    
    (10,446
    )
    
    
    527,595Expenses:Cost of sales
    
    
    325,638
    
    
    
    25,674
    
    
    
    (10,464
    )
    
    
    340,848Selling expenses
    
    
    16,227
    
    
    
    4,739
    
    
    
    
    
    
    
    20,966Retail operating expenses
    
    
    71,442
    
    
    
    
    
    
    
    
    
    
    
    71,442Franchise expenses
    
    
    6,406
    
    
    
    
    
    
    
    
    
    
    
    6,406General and administrative expenses
    
    
    45,570
    
    
    
    4,345
    
    
    
    (660
    )
    
    
    49,255Art and development costs
    
    
    5,954
    
    
    
    
    
    
    
    
    
    
    
    5,954Total expenses
    
    
    471,237
    
    
    
    34,758
    
    
    
    (11,124
    )
    
    
    494,871Income from operations
    
    
    29,582
    
    
    
    2,464
    
    
    
    678
    
    
    
    32,724Interest expense, net
    
    
    27,919
    
    
    
    63
    
    
    
    
    
    
    
    27,982Other expense (income), net
    
    
    13,517
    
    
    
    (87
    )
    
    
    2,275
    
    
    
    15,705(Loss) income before income taxes and minority interests
    
    
    (11,854
    )
    
    
    2,488
    
    
    
    (1,597
    )
    
    
    (10,963
    )Income tax (benefit) expense
    
    
    (4,982
    )
    
    
    810
    
    
    
    7
    
    
    
    (4,165
    )Minority interests
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    64Net (loss) income
    
    $
    (6,872
    )
    
    $
    1,614
    
    
    $
    (1,604
    )
    
    $
    (6,862
    )
 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 Six months Ended June 30, 2008
 AHI andCombined
    
    
    CombinedGuarantors
    
    
    Non-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) 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
    )Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    18,652Proceeds from sale of additional minority interest in PCFG
    
    
    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
 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 Six Months Ended June 30, 2007
 AHI and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net (loss) income
    
    $
    (6,872
    )
    
    $
    1,614
    
    
    $
    (1,604
    )
    
    $
    (6,862
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization expense
    
    
    18,648
    
    
    
    463
    
    
    
    
    
    
    
    19,111Amortization of deferred financing costs
    
    
    1,141
    
    
    
    
    
    
    
    
    
    
    
    1,141Provision for doubtful accounts
    
    
    308
    
    
    
    121
    
    
    
    
    
    
    
    429Deferred income tax benefit
    
    
    (1,034
    )
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Deferred rent
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    2,218Undistributed (gain) in unconsolidated joint venture
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (49
    )Loss on disposal of equipment
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    95Equity based compensation
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    853Debt retirement costs
    
    
    3,783
    
    
    
    
    
    
    
    
    
    
    
    3,783Write-off of deferred financing costs
    
    
    6,364
    
    
    
    
    
    
    
    
    
    
    
    6,364Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    1,068
    
    
    
    (5,112
    )
    
    
    
    
    
    
    (4,044
    )(Increase)
decrease in inventories
    
    
    (5,383
    )
    
    
    1,575
    
    
    
    (18
    )
    
    
    (3,826
    )(Increase) in prepaid expenses and other current assets
    
    
    (10,134
    )
    
    
    (622
    )
    
    
    
    
    
    
    (10,756
    )(Decrease) increase in accounts payable, accrued expenses
and income taxes payable
    
    
    (43,471
    )
    
    
    1,844
    
    
    
    1,622
    
    
    
    (40,006
    )Other, net
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Net cash used in operating activities
    
    
    (32,456
    )
    
    
    (117
    )
    
    
    
    
    
    
    (32,574
    )Cash flows used in investing activities:Cash paid in connection with store acquisitions
    
    
    (8,085
    )
    
    
    
    
    
    
    
    
    
    
    (8,085
    )Capital expenditures
    
    
    (10,217
    )
    
    
    (215
    )
    
    
    
    
    
    
    (10,432
    )Proceeds from disposal of property and equipment
    
    
    1,737
    
    
    
    
    
    
    
    
    
    
    
    1,737Net cash used in investing activities
    
    
    (16,565
    )
    
    
    (215
    )
    
    
    
    
    
    
    (16,780
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (394,846
    )
    
    
    (100
    )
    
    
    
    
    
    
    (394,946
    )Proceeds from loans, notes payable and long-term obligations
    
    
    449,136
    
    
    
    
    
    
    
    
    
    
    
    449,136Debt retirement costs
    
    
    (6,218
    )
    
    
    
    
    
    
    
    
    
    
    (6,218
    )Proceeds from capital contributions and exercise of options
    
    
    2,067
    
    
    
    
    
    
    
    
    
    
    
    2,067Net cash provided by (used in) financing activities
    
    
    50,139
    
    
    
    (100
    )
    
    
    
    
    
    
    50,039Effect of exchange rate changes on cash and cash equivalents
    
    
    5
    
    
    
    700
    
    
    
    
    
    
    
    705Net increase in cash and cash equivalents
    
    
    1,123
    
    
    
    269
    
    
    
    
    
    
    
    1,390Cash and cash equivalents at beginning of period
    
    
    4,395
    
    
    
    571
    
    
    
    
    
    
    
    4,966Cash and cash equivalents at end of period
    
    $
    5,518
    
    
    $
    840
    
    
    $
    
    
    
    $
    6,356
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   THREE MONTHS ENDED JUNE 30, 2008 COMPARED TO THREE MONTHS ENDED JUNE 30, 2007
  Three Months Ended June 30,2008
    
    
    2007Revenues:Net sales
    
    
    98.3
    %
    
    
    97.9
    %Royalties and franchise fees
    
    
    1.7
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    60.8
    
    
    
    62.7Selling expenses
    
    
    2.9
    
    
    
    3.8Retail operating expenses
    
    
    16.8
    
    
    
    13.1Franchise expenses
    
    
    0.9
    
    
    
    1.1General and administrative expenses
    
    
    8.0
    
    
    
    9.0Art and development costs
    
    
    1.0
    
    
    
    1.0Total expenses
    
    
    90.4
    
    
    
    90.7Income from operations
    
    
    9.6
    
    
    
    9.3Interest expense, net
    
    
    3.2
    
    
    
    5.0Other (income) expense, net
    
    
    (0.0
    )
    
    
    5.7Income (loss) before income taxes
and minority interests
    
    
    6.4
    
    
    
    (1.4
    )Income tax expense (benefit)
    
    
    2.5
    
    
    
    (0.5
    )Minority interests
    
    
    0.0
    
    
    
    0.0Net income (loss)
    
    
    3.9
    %
    
    
    (0.9
    )%
 Three Months Ended June 30,2008
    
    2007$ in
    
    % of Total
    
    $ in
    
    % of TotalThousands
    
    Revenue
    
    Thousands
    
    RevenueRevenuesSalesWholesale
    
    $
    154,407
    
    
    
    41.6
    %
    
    $
    148,770
    
    
    
    53.3
    %Eliminations
    
    
    (47,640
    )
    
    
    (12.8
    )
    
    
    (40,255
    )
    
    
    (14.4
    )Net wholesale
    
    
    106,767
    
    
    
    28.7
    
    
    
    108,515
    
    
    
    38.9Retail
    
    
    258,407
    
    
    
    69.6
    
    
    
    164,909
    
    
    
    59.1Total net sales
    
    
    365,174
    
    
    
    98.3
    
    
    
    273,424
    
    
    
    97.9Franchise related
    
    
    6,350
    
    
    
    1.7
    
    
    
    5,747
    
    
    
    2.1Total revenues
    
    $
    371,524
    
    
    
    100.0
    %
    
    $
    279,171
    
    
    
    100.0
    %
 24




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##### Table of Contents



Wholesale Sales
   Retail Sales
   Gross Profit
  Three Months Ended June 30,2008
    
    2007$ in
    
    % of Associated
    
    $ in
    
    % of AssociatedThousands
    
    Sales
    
    Thousands
    
    SalesNet Wholesale
    
    $
    34,671
    
    
    
    32.5
    %
    
    $
    31,185
    
    
    
    28.7
    %Net Retail
    
    
    104,743
    
    
    
    40.5
    %
    
    
    67,215
    
    
    
    40.8
    %Total Gross Profit
    
    $
    139,414
    
    
    
    38.2
    %
    
    $
    98,399
    
    
    
    36.0
    %
   Operating expenses
    Interest expense, net
  Other (income) expense, net
  25




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##### Table of Contents



Income tax expense (benefit)
  SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
  Six Months Ended June 30,2008
    
    
    2007Revenues:Net sales
    
    
    98.3
    %
    
    
    98.0
    %Royalties and franchise fees
    
    
    1.7
    
    
    
    2.0Total revenues
    
    
    100.0
    
    
    
    100.0Expenses:Cost of sales
    
    
    62.7
    
    
    
    64.7Selling expenses
    
    
    3.0
    
    
    
    4.0Retail operating expenses
    
    
    17.2
    
    
    
    13.5Franchise expenses
    
    
    1.0
    
    
    
    1.2General and administrative expenses
    
    
    8.8
    
    
    
    9.3Art and development costs
    
    
    1.0
    
    
    
    1.1Total expenses
    
    
    93.7
    
    
    
    93.8Income from operations
    
    
    6.3
    
    
    
    6.2Interest expense, net
    
    
    3.7
    
    
    
    5.3Other (income) expense, net
    
    
    (0.1
    )
    
    
    3.0Income (loss) before income taxes
and minority interests
    
    
    2.7
    
    
    
    (2.1
    )Income tax expense (benefit)
    
    
    1.0
    
    
    
    (0.8
    )Minority interests
    
    
    0.0
    
    
    
    0.0Net income (loss)
    
    
    1.7
    %
    
    
    (1.3
    )%
 Six Months Ended June 30,2008
    
    2007$ in
    
    % of Total
    
    $ in
    
    % of TotalThousands
    
    Revenue
    
    Thousands
    
    RevenueRevenuesSalesWholesale
    
    $
    318,726
    
    
    
    45.4
    %
    
    $
    288,763
    
    
    
    54.7
    %Eliminations
    
    
    (101,083
    )
    
    
    (14.4
    )
    
    
    (72,128
    )
    
    
    (13.7
    )Net wholesale
    
    
    217,643
    
    
    
    31.0
    
    
    
    216,635
    
    
    
    41.1Retail
    
    
    472,563
    
    
    
    67.3
    
    
    
    300,318
    
    
    
    56.9Total net sales
    
    
    690,206
    
    
    
    98.3
    
    
    
    516,953
    
    
    
    98.0Franchise related
    
    
    11,692
    
    
    
    1.7
    
    
    
    10,642
    
    
    
    2.0Total revenues
    
    $
    701,898
    
    
    
    100.0
    %
    
    $
    527,595
    
    
    
    100.0
    %
 26




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##### Table of Contents



Wholesale Sales
   Retail Sales
   Gross Profit
  Six Months Ended June 30,2008
    
    2007% of Associated
    
    
    
    
    
    % of Associated$ in Thousands
    
    Sales
    
    $ in Thousands
    
    SalesNet Wholesale
    
    $
    70,911
    
    
    
    32.6
    %
    
    $
    63,913
    
    
    
    29.5
    %Net Retail
    
    
    178,851
    
    
    
    37.8
    %
    
    
    112,192
    
    
    
    37.4
    %Total Gross Profit
    
    $
    249,762
    
    
    
    36.2
    %
    
    $
    176,105
    
    
    
    34.1
    %
   Operating expenses
    Interest expense, net
  Other (income) expense, net
  27




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##### Table of Contents



Income tax expense (benefit)
  Liquidity and Capital Resources
         Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  Cautionary Note Regarding Forward-Looking Statements
  28




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##### Table of Contents



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 Officer 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: August 14, 2008
    
    Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer) 31