##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 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
 o þ
 þ o
  Large accelerated filero
    
    Accelerated filero
    
    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, 2011
 TABLE OF CONTENTS
 PagePART IItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010
    
    
    3Condensed Consolidated Income Statements for the Three Months Ended June 30, 2011 and 2010
    
    
    4Condensed Consolidated Income Statements for the Six Months Ended June 30, 2011 and 2010
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2011
    
    
    6Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    39PART IIItem 6. Exhibits
    
    
    40Signature
    
    
    40EX-31.1EX-31.2EX-32
   http://www.sec.gov
 2




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS



(Amounts in thousands, except share and per share amounts)
 June 30,
    
    
    December 31,2011
    
    
    2010(unaudited)
    
    
    (Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,579
    
    
    $
    20,454Accounts receivable, net of allowances
    
    
    117,484
    
    
    
    107,331Inventories, net of allowances
    
    
    452,653
    
    
    
    424,317Prepaid expenses and other current assets
    
    
    66,080
    
    
    
    65,672Total current assets
    
    
    651,796
    
    
    
    617,774Property, plant and equipment, net
    
    
    204,621
    
    
    
    190,729Goodwill
    
    
    661,163
    
    
    
    630,492Trade names
    
    
    133,134
    
    
    
    129,954Other intangible assets, net
    
    
    50,267
    
    
    
    55,362Other assets, net
    
    
    28,600
    
    
    
    28,840Total assets
    
    $
    1,729,581
    
    
    $
    1,653,151LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    $
    182,285
    
    
    $
    150,098Accounts payable
    
    
    133,265
    
    
    
    108,172Accrued expenses
    
    
    111,453
    
    
    
    111,054Income taxes payable
    
    
    36,678
    
    
    
    34,325Redeemable warrants
    
    
    
    
    
    
    15,086Current portion of long-term obligations
    
    
    9,116
    
    
    
    9,046Total current liabilities
    
    
    472,797
    
    
    
    427,781Long-term obligations, excluding current portion
    
    
    836,852
    
    
    
    841,112Deferred income tax liabilities
    
    
    94,618
    
    
    
    94,981Deferred rent and other long-term liabilities
    
    
    17,865
    
    
    
    14,766Total liabilities
    
    
    1,422,132
    
    
    
    1,378,640Redeemable common securities (including 1,152.27 and 597.52 Class A common shares issued and
outstanding at June 30, 2011 and December 31, 2010, respectively)
    
    
    35,765
    
    
    
    18,089Commitments and contingenciesStockholders equity:Class A common stock, $0.01 par value, 40,000 shares authorized, 19,051.31 and
18,307.79 shares issued and outstanding at June 30, 2011 and December 31, 2010,
respectively
    
    
    
    
    
    
    Class B common stock, $0.01 par value, convertible into Class A common stock, 15,200
shares authorized, 11,918.71 shares issued and outstanding at June 30, 2011 and
December 31, 2010
    
    
    
    
    
    
    Additional paid-in capital
    
    
    285,950
    
    
    
    287,583Retained deficit
    
    
    (15,589
    )
    
    
    (27,558
    )Accumulated other comprehensive loss
    
    
    (1,171
    )
    
    
    (5,915
    )Amscan Holdings Inc. stockholders equity
    
    
    269,190
    
    
    
    254,110Noncontrolling interests
    
    
    2,494
    
    
    
    2,312Total stockholders equity
    
    
    271,684
    
    
    
    256,422Total liabilities, redeemable common securities and stockholders equity
    
    $
    1,729,581
    
    
    $
    1,653,151
  3




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED INCOME STATEMENTS

(Unaudited)
(Amounts in thousands)
 Three Months Ended June 30,2011
    
    
    2010Revenues:Net sales
    
    $
    411,502
    
    
    $
    352,705Royalties and franchise fees
    
    
    4,550
    
    
    
    4,453Total revenues
    
    
    416,052
    
    
    
    357,158Expenses:Cost of sales
    
    
    247,787
    
    
    
    210,865Wholesale selling expenses
    
    
    14,467
    
    
    
    10,845Retail operating expenses
    
    
    72,368
    
    
    
    64,416Franchise expenses
    
    
    3,370
    
    
    
    3,149General and administrative expenses
    
    
    30,956
    
    
    
    28,882Art and development costs
    
    
    4,082
    
    
    
    3,634Total expenses
    
    
    373,030
    
    
    
    321,791Income from operations
    
    
    43,022
    
    
    
    35,367Interest expense, net
    
    
    20,312
    
    
    
    9,126Other expense, net
    
    
    185
    
    
    
    122Income before income taxes
    
    
    22,525
    
    
    
    26,119Income tax expense
    
    
    7,947
    
    
    
    9,588Net income
    
    
    14,578
    
    
    
    16,531Less: net income attributable to noncontrolling interest
    
    
    46
    
    
    
    71Net income attributable to Amscan Holdings, Inc.
    
    $
    14,532
    
    
    $
    16,460
  4




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,2011
    
    
    2010Revenues:Net sales
    
    $
    764,003
    
    
    $
    657,084Royalties and franchise fees
    
    
    8,231
    
    
    
    8,297Total revenues
    
    
    772,234
    
    
    
    665,381Expenses:Cost of sales
    
    
    472,801
    
    
    
    410,765Wholesale selling expenses
    
    
    28,319
    
    
    
    21,235Retail operating expenses
    
    
    134,216
    
    
    
    117,376Franchise expenses
    
    
    6,736
    
    
    
    6,273General and administrative expenses
    
    
    62,500
    
    
    
    58,807Art and development costs
    
    
    8,032
    
    
    
    7,269Total expenses
    
    
    712,604
    
    
    
    621,725Income from operations
    
    
    59,630
    
    
    
    43,656Interest expense, net
    
    
    40,680
    
    
    
    18,427Other expense, net
    
    
    247
    
    
    
    53Income before income taxes
    
    
    18,703
    
    
    
    25,176Income tax expense
    
    
    6,617
    
    
    
    9,013Net income
    
    
    12,086
    
    
    
    16,163Less: net income attributable to noncontrolling interest
    
    
    117
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    $
    11,969
    
    
    $
    16,049
  5




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2011
(Unaudited)
(Amounts in thousands)
 Accumulated
    
    
    AmscanClass A and Class B
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Holdings, Inc.Common
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Stockholders
    
    
    NoncontrollingShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    Interests
    
    
    Total EquityBalance at December 31, 2010
    
    
    30,226.50
    
    
    
    
    
    
    
    287,583
    
    
    
    (27,558
    )
    
    
    (5,915
    )
    
    
    254,110
    
    
    
    2,312
    
    
    
    256,422Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,969
    
    
    
    
    
    
    
    11,969
    
    
    
    117
    
    
    
    12,086Net change in cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,550
    
    
    
    3,550
    
    
    
    65
    
    
    
    3,615Change in fair value of interest
rate swap contracts, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,414
    
    
    
    1,414
    
    
    
    
    
    
    
    1,414Change in fair value of foreign
exchange contracts, net of income
tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (220
    )
    
    
    (220
    )
    
    
    
    
    
    
    (220
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,713
    
    
    
    182
    
    
    
    16,895Exercise of redeemable warrants
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Exercise of redeemable common stock
options
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    (157
    )Exercise of non-redeemable warrants
    
    
    740.74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of non-redeemable common
stock options
    
    
    2.78
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    693
    
    
    
    
    
    
    
    
    
    
    
    693
    
    
    
    
    
    
    
    693Revaluation of redeemable shares
    
    
    
    
    
    
    
    
    
    
    (2,193
    )
    
    
    
    
    
    
    
    
    
    
    (2,193
    )
    
    
    
    
    
    
    (2,193
    )Balance at June 30, 2011
    
    
    30,970.02
    
    
    
    
    
    
    
    285,950
    
    
    
    (15,589
    )
    
    
    (1,171
    )
    
    
    269,190
    
    
    
    2,494
    
    
    
    271,684
  6




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AMSCAN HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,2011
    
    
    2010Cash flows provided by operating activities:Net income
    
    $
    12,086
    
    
    $
    16,163Less: net income attributable to noncontrolling interest
    
    
    117
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    
    11,969
    
    
    
    16,049Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    27,239
    
    
    
    23,706Amortization of deferred financing costs
    
    
    2,394
    
    
    
    1,060Provision for doubtful accounts
    
    
    704
    
    
    
    845Deferred income tax benefit
    
    
    (255
    )
    
    
    595Deferred rent
    
    
    4,550
    
    
    
    811Undistributed income in unconsolidated joint venture
    
    
    (596
    )
    
    
    (364
    )Loss on disposal of equipment
    
    
    81
    
    
    
    237Equity based compensation
    
    
    809
    
    
    
    276Changes in operating assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (2,415
    )
    
    
    (5,203
    )Increase in inventories
    
    
    (12,654
    )
    
    
    (9,570
    )Increase in prepaid expenses and other current assets
    
    
    (1,879
    )
    
    
    (5,941
    )Increase (decrease) in accounts payable, accrued expenses and income taxes payable
    
    
    19,550
    
    
    
    (15,839
    )Net cash provided by operating activities
    
    
    49,497
    
    
    
    6,662Cash flows used in investing activities:Cash paid in connection with acquisitions, net of cash acquired
    
    
    (60,500
    )
    
    
    (5,261
    )Capital expenditures
    
    
    (24,072
    )
    
    
    (23,170
    )Proceeds from disposal of property and equipment
    
    
    22
    
    
    
    134Net cash used in investing activities
    
    
    (84,550
    )
    
    
    (28,297
    )Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations
    
    
    (5,033
    )
    
    
    (29,242
    )Borrowings under revolving credit facilities
    
    
    32,187
    
    
    
    53,284Proceeds from exercise of stock options
    
    
    148
    
    
    
    Net cash provided by financing activities
    
    
    27,302
    
    
    
    24,042Effect of exchange rate changes on cash and cash equivalents
    
    
    2,876
    
    
    
    (1,781
    )Net (decrease) increase in cash and cash equivalents
    
    
    (4,875
    )
    
    
    626Cash and cash equivalents at beginning of period
    
    
    20,454
    
    
    
    15,420Cash and cash equivalents at end of period
    
    $
    15,579
    
    
    $
    16,046Supplemental disclosure of cash flow information:Cash paid during the periodInterest
    
    $
    33,529
    
    
    $
    17,263Income taxes
    
    $
    5,578
    
    
    $
    32,877
  7




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##### Table of Contents



AMSCAN HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)  (Amounts in thousands, except share amounts)
 Note 1   Description of Business
  Note 2   Acquisitions
     8




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      Note 3   Basis of Presentation
  9




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Note 4   Inventories
  June 30,
    
    
    December 31,2011
    
    
    2010Finished goods
    
    $
    441,687
    
    
    $
    416,831Raw materials
    
    
    14,712
    
    
    
    11,879Work in process
    
    
    5,714
    
    
    
    6,112462,113
    
    
    
    434,822Reserve for slow-moving and obsolete inventory
    
    
    (9,460
    )
    
    
    (10,505
    )$
    452,653
    
    
    $
    424,317
  Note 5   Income Taxes
   10




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 6   Restructuring
  Note 7   Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Net income
    
    $
    14,532
    
    
    $
    16,460
    
    
    $
    11,969
    
    
    $
    16,049Net change in cumulative translation adjustment
    
    
    (244
    )
    
    
    (1,075
    )
    
    
    3,550
    
    
    
    (2,107
    )Change in fair value of interest rate swap
contracts, net of income tax expense
(benefit) of $415, $(54), $830, and $235
    
    
    706
    
    
    
    (92
    )
    
    
    1,414
    
    
    
    402Change in fair value of foreign exchange contracts,
net of income tax (benefit) expense of $(12), $29,
$(129), and $342
    
    
    (20
    )
    
    
    49
    
    
    
    (220
    )
    
    
    581Comprehensive income
    
    $
    14,974
    
    
    $
    15,342
    
    
    $
    16,713
    
    
    $
    14,925
 Note 8   Capital Stock
    11




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Common Shares
    
    
    Rollover options
    
    
    TotalBalance December 31, 2010
    
    $
    16,547
    
    
    $
    1,542
    
    
    $
    18,089Employee warrant exercise
    
    
    15,090
    
    
    
    
    
    
    
    15,090Employee option exercise
    
    
    277
    
    
    
    
    
    
    
    277Common stock revaluation
    
    
    2,193
    
    
    
    116
    
    
    
    2,309Balance June 30, 2011
    
    $
    34,107
    
    
    $
    1,658
    
    
    $
    35,765
 Note 9   Segment Information
 Industry Segments
  12




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended June 30, 2011Revenues:Net sales
    
    $
    213,971
    
    
    $
    269,638
    
    
    $
    483,609Royalties and franchise fees
    
    
    
    
    
    
    4,550
    
    
    
    4,550Total revenues
    
    
    213,971
    
    
    
    274,188
    
    
    
    488,159Eliminations
    
    
    (72,107
    )
    
    
    
    
    
    
    (72,107
    )Net revenues
    
    $
    141,864
    
    
    $
    274,188
    
    
    $
    416,052Income from operations
    
    $
    25,300
    
    
    $
    17,722
    
    
    $
    43,022Interest expense, net
    
    
    
    
    
    
    
    
    
    
    20,312Other expense, net
    
    
    
    
    
    
    
    
    
    
    185Income before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    22,525Depreciation and amortization
    
    $
    5,283
    
    
    $
    8,707
    
    
    $
    13,990Total assets
    
    $
    1,039,170
    
    
    $
    690,411
    
    
    $
    1,729,581
 Wholesale
    
    
    Retail
    
    
    ConsolidatedThree Months Ended June 30, 2010Revenues:Net sales
    
    $
    183,465
    
    
    $
    239,938
    
    
    $
    423,403Royalties and franchise fees
    
    
    
    
    
    
    4,453
    
    
    
    4,453Total revenues
    
    
    183,465
    
    
    
    244,391
    
    
    
    427,856Eliminations
    
    
    (70,698
    )
    
    
    
    
    
    
    (70,698
    )Net revenues
    
    $
    112,767
    
    
    $
    244,391
    
    
    $
    357,158Income from operations
    
    $
    21,177
    
    
    $
    14,190
    
    
    $
    35,367Interest expense, net
    
    
    
    
    
    
    
    
    
    
    9,126Other expense, net
    
    
    
    
    
    
    
    
    
    
    122Income before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    26,119Depreciation and amortization
    
    $
    5,125
    
    
    $
    7,007
    
    
    $
    12,132Total assets
    
    $
    810,928
    
    
    $
    713,674
    
    
    $
    1,524,602
 13




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2011Revenues:Net sales
    
    $
    413,547
    
    
    $
    489,744
    
    
    $
    903,291Royalties and franchise fees
    
    
    
    
    
    
    8,231
    
    
    
    8,231Total revenues
    
    
    413,547
    
    
    
    497,975
    
    
    
    911,522Eliminations
    
    
    (139,288
    )
    
    
    
    
    
    
    (139,288
    )Net revenues
    
    $
    274,259
    
    
    $
    497,975
    
    
    $
    772,234Income from operations
    
    $
    42,586
    
    
    $
    17,044
    
    
    $
    59,630Interest expense, net
    
    
    
    
    
    
    
    
    
    
    40,680Other expense, net
    
    
    
    
    
    
    
    
    
    
    247Income before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    18,703Depreciation and amortization
    
    $
    10,417
    
    
    $
    16,822
    
    
    $
    27,239Total assets
    
    $
    1,039,170
    
    
    $
    690,411
    
    
    $
    1,729,581
 Wholesale
    
    
    Retail
    
    
    ConsolidatedSix Months Ended June 30, 2010Revenues:Net sales
    
    $
    344,424
    
    
    $
    438,394
    
    
    $
    782,818Royalties and franchise fees
    
    
    
    
    
    
    8,297
    
    
    
    8,297Total revenues
    
    
    344,424
    
    
    
    446,691
    
    
    
    791,115Eliminations
    
    
    (125,734
    )
    
    
    
    
    
    
    (125,734
    )Net revenues
    
    $
    218,690
    
    
    $
    446,691
    
    
    $
    665,381Income from operations
    
    $
    38,589
    
    
    $
    5,068
    
    
    $
    43,655Interest expense, net
    
    
    
    
    
    
    
    
    
    
    18,427Other expense, net
    
    
    
    
    
    
    
    
    
    
    53Income before income tax benefit
    
    
    
    
    
    
    
    
    
    $
    25,175Depreciation and amortization
    
    $
    9,516
    
    
    $
    14,190
    
    
    $
    23,706Total assets
    
    $
    810,928
    
    
    $
    713,674
    
    
    $
    1,524,602
 Geographic Segments
  
 14




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 10   Legal Proceedings
  Note 11   Stock Option Plan
     Note 12   Hedging Transactions, Derivative Financial Instruments and Fair Value
  Interest Rate Risk Management
   15




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Foreign Exchange Risk Management
   Fair Value Measurement
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Observable inputs other than quoted prices included in Level 1,
such as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets that
are not active; or other inputs that are observable or can be corroborated by
observable market data.
    
    Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
  Quoted Prices in
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    UnobservableIdentical Assets or
    
    
    Observable
    
    
    Inputs
    
    
    Total as ofLiabilities (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)
    
    
    June 30, 2011Derivative assets
    
    
    
    
    
    $
    19
    
    
    
    
    
    
    $
    19Derivative liabilities
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    (171
    )
 
 16




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 SignificantQuoted Prices in
    
    
    OtherActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets or
    
    
    Inputs
    
    
    Inputs
    
    
    Total as ofLiabilities (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2010Derivative assets
    
    
    
    
    
    $
    241
    
    
    
    
    
    
    $
    241Derivative liabilities
    
    
    
    
    
    
    (2,288
    )
    
    
    
    
    
    
    (2,288
    )
    June 30, 2011
    
    
    December 31, 2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueTerm Loans
    
    $
    663,770
    
    
    $
    670,408
    
    
    $
    666,644
    
    
    $
    674,060Senior Subordinated Notes
    
    
    175,000
    
    
    
    176,750
    
    
    
    175,000
    
    
    
    176,750
   Derivative Assets
    
    
    
    
    
    
    
    
    
    
    Derivative LiabilitiesJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Notional Amounts
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceJune 30,
    
    
    December 31,
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    FairDerivative Instrument
    
    2011
    
    
    2010
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    Value
    
    
    Line
    
    
    ValueInterest Rate Hedge
    
    $
    
    
    
    $
    135,374
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    (b)       AE
    
    $
    (2,244
    )Foreign Exchange Contracts
    
    
    9,882
    
    
    
    13,468
    
    
    (a)      PP
    
    
    19
    
    
    (a)       PP
    
    
    241
    
    
    (b)       AE
    
    
    (171
    )
    
    (b)       AE
    
    
    (44
    )Total Hedges
    
    $
    9,882
    
    
    $
    148,842
    
    
    
    
    
    
    $
    19
    
    
    
    
    
    
    $
    241
    
    
    
    
    
    
    $
    (171
    )
    
    
    
    
    
    $
    (2,288
    )
 
 (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses 17




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 13   Subsequent Events
  Note 14   Recently Issued Accounting Pronouncements
 Comprehensive Income (Topic 220), Presentation of Comprehensive Income
 Fair
Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial Reporting
Standards, or IFRS Fair Value Measurement
 Receivables (Topic 310), A Creditors Determination of Whether a Restructuring is a
Troubled Debt Restructuring
  Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings
 18




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 15   Condensed Consolidating Financial Information
  
    
    Amscan Inc.
    
    Am-Source, LLC
    
    Anagram Eden Prairie Property Holdings LLC
    
    Anagram International, Inc.
    
    Anagram International Holdings, Inc.
    
    Anagram International, LLC
    
    Factory Card & Party Outlet Corp.
    
    Gags & Games, Inc.
    
    JCS Packaging Inc.
    
    M&D Industries, Inc.
    
    Party City Corporation
    
    PA Acquisition Corporation
    
    Party City Franchise Group Holdings, LLC
    
    SSY Realty Corp.
    
    Trisar, Inc.
  
    
    Amscan (Asia-Pacific) Pty. Ltd.
    
    Amscan de Mexico, S.A. de C.V.
    
    Amscan Distributors (Canada) Ltd.
    
    Amscan Holdings Limited
    
    Anagram International (Japan) Co., Ltd.
    
    Amscan Partyartikel GmbH
    
    Christy Asia, Ltd.
    
    Christys By Design, Ltd.
    
    Christy Dress Up, Ltd.
    
    Christy Garments & Accessories Ltd.
    
    JCS Hong Kong Ltd.
    
    Riethmüller GmbH
  19




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2011
 AmscanHoldings,Inc. and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,868
    
    
    $
    4,711
    
    
    $
    
    
    
    $
    15,579Accounts receivable , net of allowances
    
    
    72,250
    
    
    
    45,234
    
    
    
    
    
    
    
    117,484Inventories, net of allowances
    
    
    411,738
    
    
    
    42,141
    
    
    
    (1,226
    )
    
    
    452,653Prepaid expenses and other current assets
    
    
    58,632
    
    
    
    7,448
    
    
    
    
    
    
    
    66,080Total current assets
    
    
    553,488
    
    
    
    99,534
    
    
    
    (1,226
    )
    
    
    651,796Property, plant and equipment, net
    
    
    190,535
    
    
    
    14,086
    
    
    
    
    
    
    
    204,621Goodwill
    
    
    608,411
    
    
    
    52,752
    
    
    
    
    
    
    
    661,163Trade names
    
    
    129,954
    
    
    
    3,180
    
    
    
    
    
    
    
    133,134Other intangible assets, net
    
    
    50,267
    
    
    
    
    
    
    
    
    
    
    
    50,267Investment in and advances to
unconsolidated subsidiaries
    
    
    120,552
    
    
    
    
    
    
    
    (120,552
    )
    
    
    Due from affiliates
    
    
    72,444
    
    
    
    70,502
    
    
    
    (142,946
    )
    
    
    Other assets, net
    
    
    27,700
    
    
    
    900
    
    
    
    
    
    
    
    28,600Total assets
    
    $
    1,753,351
    
    
    $
    240,954
    
    
    $
    (264,724
    )
    
    $
    1,729,581LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    182,285
    
    
    
    
    
    
    
    
    
    
    
    182,285Accounts payable
    
    
    112,763
    
    
    
    20,502
    
    
    
    
    
    
    
    133,265Accrued expenses
    
    
    94,251
    
    
    
    17,202
    
    
    
    
    
    
    
    111,453Income taxes payable
    
    
    37,439
    
    
    
    (658
    )
    
    
    (103
    )
    
    
    36,678Due to affiliates
    
    
    63,009
    
    
    
    79,937
    
    
    
    (142,946
    )
    
    
    Current portion of long-term obligations
    
    
    9,073
    
    
    
    43
    
    
    
    
    
    
    
    9,116Total current liabilities
    
    
    498,820
    
    
    
    117,026
    
    
    
    (143,049
    )
    
    
    472,797Long-term obligations, excluding current portion
    
    
    836, 781
    
    
    
    71
    
    
    
    
    
    
    
    836,852Deferred income tax liabilities
    
    
    93,854
    
    
    
    764
    
    
    
    
    
    
    
    94,618Other
    
    
    17,818
    
    
    
    47
    
    
    
    
    
    
    
    17,865Total liabilities
    
    
    1,447,273
    
    
    
    117,908
    
    
    
    (143,049
    )
    
    
    1,422,132Redeemable common securities
    
    
    35,765
    
    
    
    
    
    
    
    
    
    
    
    35,765Commitments and contingenciesStockholders equity:Class A and Class B Common Stock
    
    
    
    
    
    
    336
    
    
    
    (336
    )
    
    
    Additional paid-in capital
    
    
    285,950
    
    
    
    82,069
    
    
    
    (82,069
    )
    
    
    285,950Retained (deficit) earnings
    
    
    (14,466
    )
    
    
    39,798
    
    
    
    (40,921
    )
    
    
    (15,589
    )Accumulated other comprehensive loss
    
    
    (1,171
    )
    
    
    (1,651
    )
    
    
    1,651
    
    
    
    (1,171
    )Amscan Holdings, Inc. stockholders equity
    
    
    270,313
    
    
    
    120,552
    
    
    
    (121,675
    )
    
    
    269,190Noncontrolling interests
    
    
    
    
    
    
    2,494
    
    
    
    
    
    
    
    2,494Total stockholders equity
    
    
    270,313
    
    
    
    123,046
    
    
    
    (121,675
    )
    
    
    271,684Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,753,351
    
    
    $
    240,954
    
    
    $
    (264,724
    )
    
    $
    1,729,581
 20




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2010
 AmscanHoldings,Inc. andCombined
    
    
    CombinedGuarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Amounts in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,198
    
    
    $
    6,256
    
    
    $
    
    
    
    $
    20,454Accounts receivable , net
    
    
    76,699
    
    
    
    30,632
    
    
    
    
    
    
    
    107,331Inventories, net
    
    
    405,452
    
    
    
    19,883
    
    
    
    (1,018
    )
    
    
    424,317Prepaid expenses and other current assets
    
    
    61,211
    
    
    
    4,461
    
    
    
    
    
    
    
    65,672Total current assets
    
    
    557,560
    
    
    
    61,232
    
    
    
    (1,018
    )
    
    
    617,774Property, plant and equipment, net
    
    
    187,574
    
    
    
    3,155
    
    
    
    
    
    
    
    190,729Goodwill
    
    
    600,014
    
    
    
    30,478
    
    
    
    
    
    
    
    630,492Trade names
    
    
    129,954
    
    
    
    
    
    
    
    
    
    
    
    129,954Other intangible assets, net
    
    
    55,362
    
    
    
    
    
    
    
    
    
    
    
    55,362Investment in and advances to unconsolidated
subsidiaries
    
    
    64,485
    
    
    
    
    
    
    
    (64,485
    )
    
    
    Due from affiliates
    
    
    22,148
    
    
    
    12,998
    
    
    
    (35,146
    )
    
    
    Other assets, net
    
    
    28,057
    
    
    
    783
    
    
    
    
    
    
    
    28,840Total assets
    
    $
    1,645,154
    
    
    $
    108,646
    
    
    $
    (100,649
    )
    
    $
    1,653,151LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable
    
    
    150,098
    
    
    
    
    
    
    
    
    
    
    
    150,098Accounts payable
    
    
    97,510
    
    
    
    10,662
    
    
    
    
    
    
    
    108,172Accrued expenses
    
    
    102,749
    
    
    
    8,305
    
    
    
    
    
    
    
    111,054Income taxes payable
    
    
    35,706
    
    
    
    (1,355
    )
    
    
    (26
    )
    
    
    34,325Due to affiliates
    
    
    11,593
    
    
    
    23,553
    
    
    
    (35,146
    )
    
    
    Redeemable warrants
    
    
    15,086
    
    
    
    
    
    
    
    
    
    
    
    15,086Current portion of long-term obligations
    
    
    9,005
    
    
    
    41
    
    
    
    
    
    
    
    9,046Total current liabilities
    
    
    421,747
    
    
    
    41,206
    
    
    
    (35,172
    )
    
    
    427,781Long-term obligations, excluding current portion
    
    
    841,023
    
    
    
    89
    
    
    
    
    
    
    
    841,112Deferred income tax liabilities
    
    
    94,427
    
    
    
    554
    
    
    
    
    
    
    
    94,981Other
    
    
    14,766
    
    
    
    
    
    
    
    
    
    
    
    14,766Total liabilities
    
    
    1,371,963
    
    
    
    41,849
    
    
    
    (35,172
    )
    
    
    1,378,640Redeemable common securities
    
    
    18,089
    
    
    
    
    
    
    
    
    
    
    
    18,089Commitments and contingenciesStockholders equity:Class A and Class B Common Stock
    
    
    
    
    
    
    336
    
    
    
    (336
    )
    
    
    Additional paid-in capital
    
    
    287,583
    
    
    
    31,025
    
    
    
    (31,025
    )
    
    
    287,583Retained (deficit)earnings
    
    
    (26,566
    )
    
    
    37,535
    
    
    
    (38,527
    )
    
    
    (27,558
    )Accumulated other comprehensive (loss) income
    
    
    (5,915
    )
    
    
    (4,411
    )
    
    
    4,411
    
    
    
    (5,915
    )Amscan Holdings, Inc. stockholders equity
    
    
    255,102
    
    
    
    64,485
    
    
    
    (65,477
    )
    
    
    254,110Noncontrolling interests
    
    
    
    
    
    
    2,312
    
    
    
    
    
    
    
    2,312Total stockholders equity
    
    
    255,102
    
    
    
    66,797
    
    
    
    (65,477
    )
    
    
    256,422Total liabilities, redeemable common
securities and stockholders equity
    
    $
    1,645,154
    
    
    $
    108,646
    
    
    $
    (100,649
    )
    
    $
    1,653,151
 21




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING INCOME STATEMENT
Three Months Ended June 30, 2011
(Amounts in thousands)
 AmscanHoldings, Inc.and Combined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    366,993
    
    
    $
    57,051
    
    
    $
    (12,542
    )
    
    $
    411,502Royalties and franchise fees
    
    
    4,550
    
    
    
    
    
    
    
    
    
    
    
    4,550Total revenues
    
    
    371,543
    
    
    
    57,051
    
    
    
    (12,542
    )
    
    
    416,052Expenses:Cost of sales
    
    
    217,691
    
    
    
    42,491
    
    
    
    (12,395
    )
    
    
    247,787Selling expenses
    
    
    8,177
    
    
    
    6,290
    
    
    
    
    
    
    
    14,467Retail operating expenses
    
    
    72,368
    
    
    
    
    
    
    
    
    
    
    
    72,368Franchise expenses
    
    
    3,370
    
    
    
    
    
    
    
    
    
    
    
    3,370General and administrative expenses
    
    
    26,787
    
    
    
    4,259
    
    
    
    (90
    )
    
    
    30,956Art and development costs
    
    
    4,001
    
    
    
    81
    
    
    
    
    
    
    
    4,082Total expenses
    
    
    332,394
    
    
    
    53,121
    
    
    
    (12,485
    )
    
    
    373,030Income from operations
    
    
    39,149
    
    
    
    3,930
    
    
    
    (57
    )
    
    
    43,022Interest expense, net
    
    
    20,100
    
    
    
    212
    
    
    
    
    
    
    
    20,312Other (income) expense , net
    
    
    (3,280
    )
    
    
    (358
    )
    
    
    3,823
    
    
    
    185Income before income taxes
    
    
    22,329
    
    
    
    4,076
    
    
    
    (3,880
    )
    
    
    22,525Income tax expense
    
    
    7,704
    
    
    
    297
    
    
    
    (54
    )
    
    
    7,947Net income
    
    
    14,625
    
    
    
    3,779
    
    
    
    (3,826
    )
    
    
    14,578Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Net income attributable to Amscan Holdings, Inc.
    
    $
    14,625
    
    
    $
    3,733
    
    
    $
    (3,826
    )
    
    $
    14,532
 22




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING INCOME STATEMENT
Six Months Ended June 30, 2011
(Amounts in thousands)
 AmscanHoldings, Inc.and Combined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    683,736
    
    
    $
    98,359
    
    
    $
    (18,092
    )
    
    $
    764,003Royalties and franchise fees
    
    
    8,231
    
    
    
    
    
    
    
    
    
    
    
    8,231Total revenues
    
    
    691,967
    
    
    
    98,359
    
    
    
    (18,092
    )
    
    
    772,234Expenses:Cost of sales
    
    
    415,832
    
    
    
    74,853
    
    
    
    (17,884
    )
    
    
    472,801Selling expenses
    
    
    16,490
    
    
    
    11,829
    
    
    
    
    
    
    
    28,319Retail operating expenses
    
    
    134,216
    
    
    
    
    
    
    
    
    
    
    
    134,216Franchise expenses
    
    
    6,736
    
    
    
    
    
    
    
    
    
    
    
    6,736General and administrative expenses
    
    
    53,832
    
    
    
    9,088
    
    
    
    (420
    )
    
    
    62,500Art and development costs
    
    
    7,890
    
    
    
    142
    
    
    
    
    
    
    
    8,032Total expenses
    
    
    634,996
    
    
    
    95,912
    
    
    
    (18,304
    )
    
    
    712,604Income from operations
    
    
    56,971
    
    
    
    2,447
    
    
    
    212
    
    
    
    59,630Interest expense, net
    
    
    40,229
    
    
    
    451
    
    
    
    
    
    
    
    40,680Other (income) expense, net
    
    
    (1,440
    )
    
    
    (996
    )
    
    
    2,683
    
    
    
    247Income before income taxes
    
    
    18,182
    
    
    
    2,992
    
    
    
    (2,471
    )
    
    
    18,703Income tax expense
    
    
    6,082
    
    
    
    612
    
    
    
    (77
    )
    
    
    6,617Net income
    
    
    12,100
    
    
    
    2,380
    
    
    
    (2,394
    )
    
    
    12,086Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    117Net income attributable to Amscan Holdings, Inc.
    
    $
    12,100
    
    
    $
    2,263
    
    
    $
    (2,394
    )
    
    $
    11,969
 23




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2010
(Amounts in thousands)
 Amscan Holdings,Inc. and Combined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    313,882
    
    
    $
    54,042
    
    
    $
    (15,219
    )
    
    $
    352,705Royalties and franchise fees
    
    
    5,716
    
    
    
    
    
    
    
    (1,263
    )
    
    
    4,453Total revenues
    
    
    319,598
    
    
    
    54,042
    
    
    
    (16,482
    )
    
    
    357,158Expenses:Cost of sales
    
    
    188,513
    
    
    
    37,395
    
    
    
    (15,043
    )
    
    
    210,865Wholesale selling expenses
    
    
    8,415
    
    
    
    2,430
    
    
    
    
    
    
    
    10,845Retail operating expenses
    
    
    56,763
    
    
    
    8,916
    
    
    
    (1,263
    )
    
    
    64,416Franchise expenses
    
    
    3,149
    
    
    
    
    
    
    
    
    
    
    
    3,149General and administrative expenses
    
    
    26,066
    
    
    
    3,146
    
    
    
    (330
    )
    
    
    28,882Art and development costs
    
    
    3,656
    
    
    
    (22
    )
    
    
    
    
    
    
    3,634Total expenses
    
    
    286,562
    
    
    
    51,865
    
    
    
    (16,636
    )
    
    
    321,791Income from operations
    
    
    33,036
    
    
    
    2,177
    
    
    
    154
    
    
    
    35,367Interest expense, net
    
    
    8,528
    
    
    
    598
    
    
    
    
    
    
    
    9,126Other (income) expense, net
    
    
    (1,786
    )
    
    
    214
    
    
    
    1,694
    
    
    
    122Income before income taxes
    
    
    26,294
    
    
    
    1,365
    
    
    
    (1,540
    )
    
    
    26,119Income tax expense
    
    
    10,150
    
    
    
    266
    
    
    
    (828
    )
    
    
    9,588Net income
    
    
    16,144
    
    
    
    1,099
    
    
    
    (712
    )
    
    
    16,531Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Net income attributable to Amscan Holdings, Inc.
    
    $
    16,144
    
    
    $
    1,028
    
    
    $
    (712
    )
    
    $
    16,460
 24




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2010
(Amounts in thousands)
 AmscanHoldings, Inc.and Combined
    
    
    Combined Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net sales
    
    $
    578,401
    
    
    $
    107,650
    
    
    $
    (28,967
    )
    
    $
    657,084Royalties and franchise fees
    
    
    10,785
    
    
    
    
    
    
    
    (2,488
    )
    
    
    8,297Total revenues
    
    
    589,186
    
    
    
    107,650
    
    
    
    (31,455
    )
    
    
    665,381Expenses:Cost of sales
    
    
    363,425
    
    
    
    75,437
    
    
    
    (28,097
    )
    
    
    410,765Wholesale selling expenses
    
    
    16,172
    
    
    
    5,063
    
    
    
    
    
    
    
    21,235Retail operating expenses
    
    
    102,647
    
    
    
    17,217
    
    
    
    (2,488
    )
    
    
    117,376Franchise expenses
    
    
    6,273
    
    
    
    
    
    
    
    
    
    
    
    6,273General and administrative expenses
    
    
    53,176
    
    
    
    6,291
    
    
    
    (660
    )
    
    
    58,807Art and development costs
    
    
    7,315
    
    
    
    (46
    )
    
    
    
    
    
    
    7,269Total expenses
    
    
    549,008
    
    
    
    103,962
    
    
    
    (31,245
    )
    
    
    621,725Income from operations
    
    
    40,178
    
    
    
    3,688
    
    
    
    (210
    )
    
    
    43,656Interest expense, net
    
    
    17,181
    
    
    
    1,246
    
    
    
    
    
    
    
    18,427Other (income) expense, net
    
    
    (3,049
    )
    
    
    536
    
    
    
    2,566
    
    
    
    53Income before income taxes
    
    
    26,046
    
    
    
    1,906
    
    
    
    (2,776
    )
    
    
    25,176Income tax expense
    
    
    9,335
    
    
    
    355
    
    
    
    (677
    )
    
    
    9,013Net income
    
    $
    16,711
    
    
    $
    1,551
    
    
    $
    (2,099
    )
    
    $
    16,163Less net income attributable to noncontrolling interests
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    $
    16,711
    
    
    $
    1,437
    
    
    $
    (2,099
    )
    
    $
    16,049
 25




---



##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2011
(Amounts in thousands)
 AmscanHoldings, Inc.and
    
    
    CombinedCombined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows used in operating activities:Net income
    
    
    12,100
    
    
    
    2,380
    
    
    
    (2,394
    )
    
    
    12,086Net income attributable to noncontrolling interest
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    117Net income attributable to Amscan Holdings, Inc.
    
    $
    12,100
    
    
    $
    2,263
    
    
    $
    (2,394
    )
    
    $
    11,969Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization expense
    
    
    26,040
    
    
    
    1,199
    
    
    
    
    
    
    
    27,239Amortization of deferred financing costs
    
    
    2,394
    
    
    
    
    
    
    
    
    
    
    
    2,394Provision for doubtful accounts
    
    
    508
    
    
    
    196
    
    
    
    
    
    
    
    704Deferred income tax expense (benefit)
    
    
    (255
    )
    
    
    
    
    
    
    
    
    
    
    (255
    )Deferred rent
    
    
    4,550
    
    
    
    
    
    
    
    
    
    
    
    4,550Undistributed loss (gain) in unconsolidated joint venture
    
    
    (596
    )
    
    
    
    
    
    
    
    
    
    
    (596
    )(Gain) Loss on disposal of equipment
    
    
    79
    
    
    
    2
    
    
    
    
    
    
    
    81Equity based compensation
    
    
    809
    
    
    
    
    
    
    
    
    
    
    
    809Changes in operating assets and liabilities, net of effects of acquisitions:Decrease (increase) in accounts receivable
    
    
    3,805
    
    
    
    (6,220
    )
    
    
    
    
    
    
    (2,415
    )(Increase) in inventories
    
    
    (5,432
    )
    
    
    (7,430
    )
    
    
    208
    
    
    
    (12,654
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    455
    
    
    
    (2,334
    )
    
    
    
    
    
    
    (1,879
    )Increase in accounts payable, accrued expenses and income taxes payable
    
    
    8,223
    
    
    
    9,141
    
    
    
    2,186
    
    
    
    19,550Net cash provided by (used) in operating activities
    
    
    52,680
    
    
    
    (3,183
    )
    
    
    
    
    
    
    49,497Cash flows used in investing activities:Cash paid in connection with acquisitions, net of cash acquired
    
    
    (60,500
    )
    
    
    
    
    
    
    
    
    
    
    (60,500
    )Capital expenditures
    
    
    (23,406
    )
    
    
    (666
    )
    
    
    
    
    
    
    (24,072
    )Proceeds from disposal of property and equipment
    
    
    6
    
    
    
    16
    
    
    
    
    
    
    
    22Net cash used in investing activities
    
    
    (83,900
    )
    
    
    (650
    )
    
    
    
    
    
    
    (84,550
    )Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (5,012
    )
    
    
    (21
    )
    
    
    
    
    
    
    (5,033
    )Proceeds from loans, notes payable and long-term obligations
    
    
    32,187
    
    
    
    
    
    
    
    
    
    
    
    32,187Capital contributions and proceeds from issuance of common stock and
exercise of options, net of retirements
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    148Net cash provided by (used in) financing activities
    
    
    27,323
    
    
    
    (21
    )
    
    
    
    
    
    
    27,302Effect of exchange rate changes on cash and cash equivalents
    
    
    567
    
    
    
    2,309
    
    
    
    
    
    
    
    2,876Net decrease in cash and cash equivalents
    
    
    (3,330
    )
    
    
    (1,545
    )
    
    
    
    
    
    
    (4,875
    )Cash and cash equivalents at beginning of period
    
    
    14,198
    
    
    
    6,256
    
    
    
    
    
    
    
    20,454Cash and cash equivalents at end of period
    
    $
    10,868
    
    
    $
    4,711
    
    
    $
    
    
    
    $
    15,579
 
 26




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##### Table of Contents



AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2010
(Amounts in thousands)
 Amscan Holding, Inc.
    
    
    Combinedand Combined
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by operating activities:Net income
    
    
    16,711
    
    
    
    1,551
    
    
    
    (2,099
    )
    
    
    16,163Net income attributable to noncontrolling interest
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    114Net income attributable to Amscan Holdings, Inc.
    
    $
    16,711
    
    
    $
    1,437
    
    
    $
    (2,099
    )
    
    $
    16,049Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    21,680
    
    
    
    2,026
    
    
    
    
    
    
    
    23,706Amortization of deferred financing costs
    
    
    928
    
    
    
    132
    
    
    
    
    
    
    
    1,060Provision for doubtful accounts
    
    
    729
    
    
    
    116
    
    
    
    
    
    
    
    845Deferred income tax expense
    
    
    595
    
    
    
    
    
    
    
    
    
    
    
    595Deferred rent
    
    
    641
    
    
    
    170
    
    
    
    
    
    
    
    811Undistributed income in unconsolidated joint venture
    
    
    (364
    )
    
    
    
    
    
    
    
    
    
    
    (364
    )Loss on disposal of equipment
    
    
    100
    
    
    
    137
    
    
    
    
    
    
    
    237Equity based compensation
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    276Changes in operating assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (5,189
    )
    
    
    (14
    )
    
    
    
    
    
    
    (5,203
    )Increase in inventories
    
    
    (10,386
    )
    
    
    (122
    )
    
    
    938
    
    
    
    (9,570
    )Increase in prepaid expenses and other current assets
    
    
    (3,629
    )
    
    
    (2,027
    )
    
    
    (285
    )
    
    
    (5,941
    )Decrease increase in accounts payable, accrued expenses and income taxes
payable
    
    
    (18,966
    )
    
    
    1,681
    
    
    
    1,446
    
    
    
    (15,839
    )Net cash provided by operating activities
    
    
    3,126
    
    
    
    3,536
    
    
    
    
    
    
    
    6,662Cash flows used in investing activities:Cash paid in connection with acquisitions, net of cash acquired
    
    
    (5,263
    )
    
    
    2
    
    
    
    
    
    
    
    (5,261
    )Capital expenditures
    
    
    (22,447
    )
    
    
    (723
    )
    
    
    
    
    
    
    (23,170
    )Proceeds from disposal of property and equipment
    
    
    104
    
    
    
    30
    
    
    
    
    
    
    
    134Net cash used in investing activities
    
    
    (27,606
    )
    
    
    (691
    )
    
    
    
    
    
    
    (28,297
    )Cash flows provided by (used in) financing activities:Repayments of loans, notes payable and long-term obligations
    
    
    (25,345
    )
    
    
    (3,897
    )
    
    
    
    
    
    
    (29,242
    )Proceeds from loans, notes payable and long-term obligations
    
    
    53,245
    
    
    
    39
    
    
    
    
    
    
    
    53,284Net cash provided by (used in) financing activities
    
    
    27,900
    
    
    
    (3,858
    )
    
    
    
    
    
    
    24,042Effect of exchange rate changes on cash and cash equivalents
    
    
    (5
    )
    
    
    (1,776
    )
    
    
    
    
    
    
    (1,781
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,415
    
    
    
    (2,789
    )
    
    
    
    
    
    
    626Cash and cash equivalents at beginning of period
    
    
    8,239
    
    
    
    7,181
    
    
    
    
    
    
    
    15,420Cash and cash equivalents at end of period
    
    $
    11,654
    
    
    $
    4,392
    
    
    $
    
    
    
    $
    16,046
 27




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##### Table of Contents



2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Business Overview
 Our Company
  How We Assess the Performance of Our Company
  Segments
    28




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##### Table of Contents



Financial Measures
 Revenues.
 Comparable Retail Same-Store Sales.
 Cost of Sales.
  Selling Expenses.
 Retail Operating Expenses.
 Franchise Expenses.
 General and Administrative Expenses.
 29




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##### Table of Contents



Art and Development Costs.
 Results of Operations
 Three Months Ended June 30, 2011 Compared To Three Months Ended June 30, 2010
  Three Months Ended June 30,2011
    
    
    2010(dollars in thousands)Revenues:Net sales
    
    $
    411,502
    
    
    
    98.9
    %
    
    $
    352,705
    
    
    
    98.8
    %Royalties and franchise fees
    
    
    4,550
    
    
    
    1.1
    
    
    
    4,453
    
    
    
    1.2Total revenues
    
    
    416,052
    
    
    
    100.0
    
    
    
    357,158
    
    
    
    100.0Expenses:Cost of sales
    
    
    247,787
    
    
    
    59.6
    
    
    
    210,865
    
    
    
    59.0Wholesale selling expenses
    
    
    14,467
    
    
    
    3.5
    
    
    
    10,845
    
    
    
    3.0Retail operating expenses
    
    
    72,368
    
    
    
    17.4
    
    
    
    64,416
    
    
    
    18.0Franchise expenses
    
    
    3,370
    
    
    
    0.8
    
    
    
    3,149
    
    
    
    0.9General and administrative expenses
    
    
    30,956
    
    
    
    7.4
    
    
    
    28,882
    
    
    
    8.1Art and development costs
    
    
    4,082
    
    
    
    1.0
    
    
    
    3,634
    
    
    
    1.0Total expenses
    
    
    373,030
    
    
    
    89.7
    
    
    
    321,791
    
    
    
    90.0Income from operations
    
    
    43,022
    
    
    
    10.3
    
    
    
    35,367
    
    
    
    10.0Interest expense, net
    
    
    20,312
    
    
    
    4.9
    
    
    
    9,126
    
    
    
    2.6Other expense, net
    
    
    185
    
    
    
    0.0
    
    
    
    122
    
    
    
    0.0Income before income taxes
    
    
    22,525
    
    
    
    5.4
    
    
    
    26,119
    
    
    
    7.4Income tax expense
    
    
    7,947
    
    
    
    1.9
    
    
    
    9,588
    
    
    
    2.7Net income
    
    
    14,578
    
    
    
    3.5
    
    
    
    16,531
    
    
    
    4.7Less net income attributable to noncontrolling interests
    
    
    46
    
    
    
    0.0
    
    
    
    71
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    $
    14,532
    
    
    
    3.5
    %
    
    $
    16,460
    
    
    
    4.7
    %
 30




---



##### Table of Contents



Revenues
  Three Months Ended June 30,2011
    
    
    2010Percentage of
    
    
    
    
    
    
    Percentage ofDollars in
    
    
    Total
    
    
    Dollars in
    
    
    TotalThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueRevenuesSalesWholesale
    
    $
    213,971
    
    
    
    51.4
    %
    
    $
    183,465
    
    
    
    51.4
    %Eliminations
    
    
    (72,107
    )
    
    
    (17.3)
    %
    
    
    (70,698
    )
    
    
    (19.8)
    %Net wholesale
    
    
    141,864
    
    
    
    34.1
    %
    
    
    112,767
    
    
    
    31.6
    %Retail
    
    
    269,638
    
    
    
    64.8
    %
    
    
    239,938
    
    
    
    67.2
    %Total net sales
    
    
    411,502
    
    
    
    98.9
    %
    
    
    352,705
    
    
    
    98.8
    %Franchise related
    
    
    4,550
    
    
    
    1.1
    %
    
    
    4,453
    
    
    
    1.2
    %Total revenues
    
    $
    416,052
    
    
    
    100.0
    %
    
    $
    357,158
    
    
    
    100.0
    %
 Wholesale
   Retail
  31




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##### Table of Contents



Royalties and franchise fees
  Gross Profit
  Three Months Ended June 30,2011
    
    
    2010Dollars in
    
    
    Percentage of
    
    
    Dollars in
    
    
    Percentage ofThousands
    
    
    Sales
    
    
    Thousands
    
    
    SalesWholesale
    
    $
    51,880
    
    
    
    36.6
    %
    
    $
    42,203
    
    
    
    37.4
    %Retail
    
    
    111,835
    
    
    
    41.5
    %
    
    
    99,637
    
    
    
    41.5
    %Total
    
    $
    163,715
    
    
    
    39.8
    %
    
    $
    141,840
    
    
    
    40.2
    %
   Operating expenses
   32




---



##### Table of Contents



Interest expense, net
  Other expense, net
  Income tax expense
   33




---



##### Table of Contents



Six Months Ended June 30, 2011 Compared To Six Months Ended June 30, 2010
  Six Months Ended June 30,2011
    
    
    2010(dollars in thousands)Revenues:Net sales
    
    $
    764,003
    
    
    
    98.9
    %
    
    $
    657,084
    
    
    
    98.8
    %Royalties and franchise fees
    
    
    8,231
    
    
    
    1.1
    
    
    
    8,297
    
    
    
    1.2Total revenues
    
    
    772,234
    
    
    
    100.0
    
    
    
    665,381
    
    
    
    100.0Expenses:Cost of sales
    
    
    472,801
    
    
    
    61.2
    
    
    
    410,765
    
    
    
    61.7Wholesale selling expenses
    
    
    28,319
    
    
    
    3.7
    
    
    
    21,235
    
    
    
    3.2Retail operating expenses
    
    
    134,216
    
    
    
    17.4
    
    
    
    117,376
    
    
    
    17.6Franchise expenses
    
    
    6,736
    
    
    
    0.9
    
    
    
    6,273
    
    
    
    0.9General and administrative expenses
    
    
    62,500
    
    
    
    8.1
    
    
    
    58,807
    
    
    
    8.8Art and development costs
    
    
    8,032
    
    
    
    1.0
    
    
    
    7,269
    
    
    
    1.1Total expenses
    
    
    712,604
    
    
    
    92.3
    
    
    
    621,725
    
    
    
    93.3Income from operations
    
    
    59,630
    
    
    
    7.7
    
    
    
    43,656
    
    
    
    6.7Interest expense, net
    
    
    40,680
    
    
    
    5.3
    
    
    
    18,427
    
    
    
    2.8Other expense, net
    
    
    247
    
    
    
    0.0
    
    
    
    53
    
    
    
    0.0Income before income taxes
    
    
    18,703
    
    
    
    2.4
    
    
    
    25,176
    
    
    
    3.9Income tax expense
    
    
    6,617
    
    
    
    0.9
    
    
    
    9,013
    
    
    
    1.4Net income
    
    
    12,086
    
    
    
    1.5
    
    
    
    16,163
    
    
    
    2.5Less net income attributable to noncontrolling interests
    
    
    117
    
    
    
    0.0
    
    
    
    114
    
    
    
    0.0Net income attributable to Amscan Holdings, Inc.
    
    $
    11,969
    
    
    
    1.5
    %
    
    $
    16,049
    
    
    
    2.5
    %
 Revenues
  Six Months Ended June 30,2011
    
    
    2010Percentage of
    
    
    
    
    
    
    Percentage ofDollars in
    
    
    Total
    
    
    Dollars in
    
    
    TotalThousands
    
    
    Revenue
    
    
    Thousands
    
    
    RevenueRevenuesSalesWholesale
    
    $
    413,547
    
    
    
    53.6
    %
    
    $
    344,424
    
    
    
    51.8
    %Eliminations
    
    
    (139,288
    )
    
    
    (18.0)
    %
    
    
    (125,734
    )
    
    
    (18.9)
    %Net wholesale
    
    
    274,259
    
    
    
    35.5
    %
    
    
    218,690
    
    
    
    32.9
    %Retail
    
    
    489,744
    
    
    
    63.4
    %
    
    
    438,394
    
    
    
    65.9
    %Total net sales
    
    
    764,003
    
    
    
    98.9
    %
    
    
    657,084
    
    
    
    98.8
    %Franchise related
    
    
    8,231
    
    
    
    1.1
    %
    
    
    8,297
    
    
    
    1.2
    %Total revenues
    
    $
    772,234
    
    
    
    100.0
    %
    
    $
    665,382
    
    
    
    100.0
    %
 34




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##### Table of Contents



Wholesale
   35




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##### Table of Contents



Retail
  Royalties and franchise fees
  Gross Profit
  Six Months Ended June 30,2011
    
    
    2010Dollars in
    
    
    Percentage of
    
    
    Dollars in
    
    
    Percentage ofThousands
    
    
    Sales
    
    
    Thousands
    
    
    SalesWholesale
    
    $
    96,052
    
    
    
    35.0
    %
    
    $
    80,078
    
    
    
    36.6
    %Retail
    
    
    195,150
    
    
    
    39.8
    %
    
    
    166,242
    
    
    
    37.9
    %Total
    
    $
    291,202
    
    
    
    38.1
    %
    
    $
    246,320
    
    
    
    37.5
    %
   36




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##### Table of Contents



Operating expenses
     Interest expense, net
  Other expense, net
  Income tax expense
   37




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##### Table of Contents



Liquidity
  Cash Flow Data  Six Months Ended June 30, 2011 Compared To Six Months Ended
June 30, 2010
     Legal Proceedings
  Seasonality
 Wholesale Operations
  Retail Operations
  38




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##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   39




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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.
 
   AMSCAN HOLDINGS, INC.By:
    /s/ Michael A. CorrealeMichael A. CorrealeChief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer)  40