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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 000-21827
AMSCAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3911462
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
80 Grasslands Road
Elmsford, New York 10523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 345-2020
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
As of August 12, 2004, 1,000.00 shares of Registrant's common stock, par value
$0.10, were outstanding.
AMSCAN HOLDINGS, INC.
FORM 10-Q
JUNE 30, 2004
TABLE OF CONTENTS
PART I PAGE
----
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets at June 30, 2004 and December 31, 2003.......................... 3
Consolidated Statements of Operations for the One Month
Ended April 30, 2004 (Predecessor), Two Months Ended
June 30, 2004 (Successor), Three Months Ended June
30, 2003(Predecessor), Four Months Ended April 30,
2004 (Predecessor) and Six Months Ended June 30, 2003 (Predecessor)..................... 4
Consolidated Statements of Stockholders' (Deficit) Equity for the Four Months
Ended April 30, 2004 (Predecessor) and Two Months Ended June 30,
2004 (Successor) ......................................................................... 6
Consolidated Statements of Cash Flows for the Four Months Ended April
30, 2004 (Predecessor), Two Months Ended June 30, 2004 (Successor) and
Six Months Ended June 30, 2003 (Predecessor)............................................. 7
Notes to Consolidated Financial Statements.................................................. 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................ 29
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................................. 35
ITEM 4 CONTROLS AND PROCEDURES..................................................................... 36
PART II
ITEM 2 CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES............................................................................... 37
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 37
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................................ 37
SIGNATURE ............................................................................................... 40
2
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
(Successor) (Predecessor)
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 1,306 $ 31,462
Accounts receivable, net of allowances ....................................... 81,633 75,682
Inventories, net of allowances ............................................... 82,333 85,137
Prepaid expenses and other current assets .................................... 17,103 9,730
--------- ---------
Total current assets .................................................... 182,375 202,011
Property, plant and equipment, net ............................................... 100,352 96,494
Goodwill, net .................................................................... 313,097 71,986
Other assets, net ................................................................ 19,167 11,611
--------- ---------
Total assets ............................................................ $ 614,991 $ 382,102
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON SECURITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Loans and notes payable ...................................................... $ 11,590 $ --
Accounts payable ............................................................. 26,274 34,916
Accrued expenses ............................................................. 21,697 20,121
Income taxes payable ......................................................... 339 3,178
Current portion of long-term obligations ..................................... 2,909 23,237
--------- ---------
Total current liabilities ............................................... 62,809 81,452
Long-term obligations, excluding current portion ................................. 386,283 272,272
Deferred income tax liabilities .................................................. 21,782 18,040
Other ............................................................................ 2,423 2,414
--------- ---------
Total liabilities ....................................................... 473,297 374,178
Redeemable convertible preferred stock ($0.10 par value; 100.00
shares authorized; 44.94 shares issued and
outstanding at December 31, 2003) ............................................ 7,045
Redeemable common securities ..................................................... 3,660 9,498
Commitments and Contingencies
Stockholders' equity (deficit):
Preferred Stock ($0.01 par value; 10,000.00 shares authorized; none issued and
outstanding at June 30, 2004) .............................................. --
Common Stock ($0.01 par value; 40,000.00 shares authorized; 13,957.88 shares
issued and outstanding at June 30, 2004) ................................... --
Common Stock ($0.10 par value; 3,000.00 shares authorized; 1,217.92
shares issued and outstanding at December 31, 2003) ...................... --
Additional paid-in capital ................................................... 136,819 26,682
Unamortized restricted Common Stock award .................................... (155)
Notes receivable from stockholders ........................................... (680)
Retained earnings (deficit) .................................................. 702 (34,020)
Accumulated other comprehensive income (loss) ................................ 513 (446)
--------- ---------
Total stockholders' equity (deficit) .................................... 138,034 (8,619)
--------- ---------
Total liabilities, redeemable convertible preferred stock and common
securities and stockholders' equity (deficit) ........................ $ 614,991 $ 382,102
========= =========
Note: The balance sheet at December 31, 2003 has been derived from the audited
consolidated financial statements of the Predecessor at that date (See Note 2).
See accompanying notes to consolidated financial statements.
3
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ONE MONTH TWO MONTHS THREE MONTHS
ENDED ENDED ENDED
APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003
--------- --------- ---------
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
Net sales .................................. $ 33,135 $ 63,181 $ 100,996
Cost of sales .............................. 22,166 43,424 68,950
--------- --------- ---------
Gross profit ......................... 10,969 19,757 32,046
Operating expenses:
Selling expenses ........................ 3,128 5,948 8,974
General and administrative expenses ..... 2,557 5,452 7,927
Art and development costs ............... 899 1,769 2,286
Provision for doubtful accounts ......... 188 326 1,385
Non-recurring expenses related to the
Transactions (see Note 2) ............ 11,757
Restructuring charges ................... 458
--------- --------- ---------
Total operating expenses ............. 18,529 13,495 21,030
--------- --------- ---------
(Loss) income from operations ........ (7,560) 6,262 11,016
Interest expense, net ...................... 2,023 4,760 6,552
Undistributed loss in unconsolidated joint
venture ................................ 56 312
Other income, net .......................... (10) (11) (39)
--------- --------- ---------
(Loss) income before income taxes and
minority interests ................. (9,629) 1,201 4,503
Income tax (benefit) expense ............... (3,803) 474 1,778
Minority interests ......................... 3 25 19
--------- --------- ---------
Net (loss) income .................... (5,829) 702 2,706
Dividend on redeemable convertible
preferred stock .................. 34 101
--------- --------- ---------
Net (loss) income applicable to
common stock ...................... $ (5,863) $ 702 $ 2,605
========= ========= =========
See accompanying notes to consolidated financial statements.
4
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOUR MONTHS ENDED TWO MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003
--------- --------- ---------
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
Net sales ........................................ $ 133,660 $ 63,181 $ 200,840
Cost of sales .................................... 88,247 43,424 135,919
--------- --------- ---------
Gross profit ............................... 45,413 19,757 64,921
Operating expenses:
Selling expenses .............................. 12,430 5,948 18,116
General and administrative expenses ........... 10,145 5,452 15,829
Art and development costs ..................... 3,332 1,769 4,823
Provision for doubtful accounts ............... 729 326 1,989
Non-recurring expenses related to the
Transactions (see Note 2) .................... 11,757
Restructuring charges ......................... 774
--------- --------- ---------
Total operating expenses ................... 38,393 13,495 41,531
--------- --------- ---------
(Loss) income from operations .............. 7,020 6,262 23,390
Interest expense, net ............................ 8,384 4,760 13,196
Undistributed loss in unconsolidated joint venture 89 312
Other income, net ................................ (58) (11) (57)
--------- --------- ---------
(Loss) income before income taxes and
minority interests ....................... (1,395) 1,201 10,251
Income tax (benefit) expense ..................... (551) 474 4,049
Minority interests ............................... 46 25 34
--------- --------- ---------
Net (loss) income .......................... (890) 702 6,168
Dividend on redeemable convertible
preferred stock ........................ 136 197
--------- --------- ---------
Net (loss) income applicable to common
stock .................................... $ (1,026) $ 702 $ 5,971
========= ========= =========
See accompanying notes to consolidated financial statements.
5
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
EQUITY FOUR MONTHS ENDED APRIL 30, 2004 AND TWO MONTHS
ENDED JUNE 30, 2004
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
OTHER
UNAMORTIZED NOTES COMPRE-
ADDITIONAL RESTRICTED RECEIVABLE RETAINED HENSIVE
COMMON COMMON PAID-IN COMMON STOCK FROM EARNINGS (LOSS)
SHARES STOCK CAPITAL AWARD STOCKHOLDERS (DEFICIT) INCOME TOTAL
-------- --------- --------- --------- --------- --------- --------- ---------
PREDECESSOR
Balance at December 31, 2003 ......... 1,217.92 $ - $ 26,682 $ (155) $ (680) $ (34,020) $ (446) $ (8,619)
Net loss ........................... (890) (890)
Net change in cumulative
translation adjustment ............ (673) (673)
Change in fair value of
available-for-sale securities,
net of income taxes ............... (22) (22)
Reclassification adjustment for
available-for-sale securities sold
during the period, net of income
taxes .............................. (28) (28)
Reclassification adjustment for
interest rate swap contract
terminated in connection with the
Transactions, net of income taxes .. 408 408
Change in fair value of interest rate
swap and foreign exchange
contracts, net of income taxes ..... 306 306
---------
Comprehensive loss ......... (899)
Amortization of restricted Common
Stock award ........................ 52 52
Redeemable convertible preferred
stock dividend ..................... (136) (136)
Repayment of note receivable from
stockholder ........................ 25 25
Accretion of interest income ......... (14) (14)
-------- --------- --------- --------- --------- --------- --------- ---------
Balance at April 30, 2004 ............. 1,217.92 $ - $ 26,546 $ (103) $ (669) $ (34,910) $ (455) $ (9,591)
======== ========= ========= ========= ========= ========= ========= =========
SUCCESSOR
Net income .......................... $ 702 $ 702
Net change in cumulative
translation adjustment ............. $ 521 521
Change in fair value of interest rate
swap and foreign exchange
contracts, net of income taxes ..... (8) (8)
---------
Comprehensive income ....... 1,215
Issuance of shares of Common Stock
in connection with the
Transactions ....................... 13,957.88 $ 140,479 140,479
Reclassification of common securities
to Redeemable common securities .... (3,660) (3,660)
-------- --------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 2004 .............. 13,957.88 $ - $ 136,819 $ - $ - $ 702 $ 513 $ 138,034
======== ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
6
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOUR MONTHS ENDED TWO MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003
--------- --------- ---------
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
Cash flows provided by operating activities:
Net (loss) income .......................................... $ (890) $ 702 $ 6,168
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization expense ................... 5,296 2,767 8,156
Amortization of deferred financing costs ................ 709 262 1,011
Amortization of restricted Common Stock awards .......... 52 90
Provision for doubtful accounts ......................... 729 326 1,989
Deferred income tax (benefit) expense ................... (58) (484) 1,757
Gain on sale of available-for-sale securities ........ (47)
(Gain) loss on disposal of equipment .................. (35) 109
Write-off of deferred financing costs in connection with
the Transactions ........................................ 5,548
Debt retirement costs incurred in connection with the
Transactions .......................................... 6,209
Non-cash restructuring charges .......................... 104
Undistributed loss in unconsolidated joint venture ...... 89 312
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............ (15,247) 8,746 (6,456)
Decrease (increase) in inventories .................... 6,229 (768) 4,530
Increase in prepaid expenses and other current assets . (3,593) (437) (704)
Increase (decrease) in accounts payable, accrued
expenses and income taxes payable .................... 3,991 (6,397) (7,597)
Other, net ............................................... 430 (13) (374)
--------- --------- ---------
Net cash provided by operating activities ............ 9,412 5,016 8,783
Cash flows used in investing activities:
Cash paid to consummate the Transactions ................... (529,982)
Capital expenditures ....................................... (3,726) (1,056) (7,560)
Proceeds from sale of available-for-sale securities ....... 65
Proceeds from disposal of property and equipment ........... 53 1 86
--------- --------- ---------
Net cash used in investing activities ................... (3,608) (531,037) (7,474)
Cash flows (used in) provided by financing activities:
Proceeds from loans, notes payable and long-term
obligations, net of debt issuance costs of $12,668 ...... 378,922
Repayment of loans, notes payable and long-term obligations (21,251) (224) (1,862)
Capital contributions in connection with the Transactions . 138,979
Debt retirement costs paid in connection with the
Transactions ............................................ (6,209)
Proceeds from exercise of stock options .................... 831
Purchase of Common Stock from officer ...................... (2,115)
Repayment of note receivable from stockholder and officer .. 25 1,588
--------- --------- ---------
Net cash (used in) provided by financing activities ..... (27,435) 517,677 (1,558)
Effect of exchange rate changes on cash and cash equivalents .. (594) 413 956
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents .... (22,225) (7,931) 707
Cash and cash equivalents at beginning of period .............. 31,462 9,237 2,400
--------- --------- ---------
Cash and cash equivalents at end of period .................... $ 9,237 $ 1,306 $ 3,107
========= ========= =========
Supplemental Disclosures:
Interest paid ........................................... $ 6,531 $ 4,695 $ 11,145
Income taxes paid ..................................... $ 1,002 $ 635 $ 3,364
See accompanying notes to consolidated financial statements.
7
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Supplemental information on noncash activities:
In connection with the Transactions (see Note 2), certain officers of the
Company exchanged 8.2417 of their shares of common stock of the Predecessor
Company for 150 shares of common stock of the Successor Company with an
equivalent value of $1,500. In addition, the aforementioned officers exchanged
their vested options to purchase 8.411 shares of Predecessor (as defined
hereafter) Company common stock, which had an intrinsic value of $900, for
vested options under the Successor (as defined hereafter) Company equity
incentive plan with an intrinsic value of $737 and a fair value of $880.
8
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "Amscan," "AHI" or the "Company") designs, manufactures, contracts
for manufacture and distributes party goods, including metallic balloons, gifts
and stationery, principally in North America, South America, Europe, Asia and
Australia.
NOTE 2 - THE TRANSACTIONS
On March 26, 2004, Amscan signed an agreement providing for a merger of
Amscan with AAH Acquisition Corporation, or AAH Acquisition, a wholly-owned
subsidiary of AAH Holdings Corporation, or AAH Holdings, an entity jointly
controlled by funds affiliated with Berkshire Partners LLC and Weston Presidio
(together the "Principal Investors"). On April 30, 2004, the merger with AAH
Acquisition was consummated, with Amscan continuing as the surviving entity and
as a wholly owned subsidiary of AAH Holdings. Under the terms of the agreement,
the equity interests in Amscan of GS Capital Partners II, L.P. and certain other
private investment funds managed by Goldman, Sachs & Co., which are collectively
referred to as GSCP, and all other stockholders, other than certain management
investors, were cancelled in exchange for the right to receive cash. Cash paid
to consummate the acquisition totaled $529,982,000 and was financed with initial
borrowings (before deducting deferred financing costs of $12,668,000) consisting
of a $205,000,000 term loan under a new senior secured credit facility which
includes a $50,000,000 revolving loan facility, the proceeds from the issuance
of $175,000,000 of 8.75% senior subordinated notes due 2014, the equity
contribution, including the Principal Investors and employee stockholders, of
$140,479,000, borrowings under the revolver of $23,551,000 and available cash on
hand. Certain existing management shareholders participated in the Transactions
(as defined hereafter) by purchasing approximately 292.41 shares of common
stock. The capital structure disclosed in the Successor financial statements is
the equity structure of AAH Holdings in order to reflect the ultimate beneficial
ownership of the Successor. The Chief Executive Officer and the President of the
Company exchanged 5.4945 and 2.7472 of their shares of common stock of the
Predecessor Company for 100 and 50 shares of common stock of the Successor
Company with an equivalent value of $1,000,000 and $500,000, respectively. In
addition, the Chief Executive Officer and President of the Company exchanged
vested options to purchase 5.607 and 2.804 shares of Predecessor Company common
stock, which had intrinsic values of $600,000 and $300,000, respectively, for
vested options under the Successor Company's equity incentive plan with
intrinsic values of $492,000 and $245,000 and fair values of $590,000 and
$290,000, respectively. The acquisition has been accounted for under the
purchase method of accounting, and required that the Company adjust its assets
and liabilities to their relative fair values.
The purchase price has been allocated based upon preliminary estimates of
the fair value of net assets acquired at the date of acquisition. The final
allocations will be based on studies and valuations that have not yet been
completed and will be subject to change in future periods. The excess of the
purchase price over tangible net assets acquired has been allocated to
intangible assets consisting of licensing agreements in the amount of
$3,000,000, which are being amortized using the straight-line method over the
lives of the contracts (two to three years with an average life of 2.5 years),
and goodwill in the amount of $313,097,000, which is not being amortized. The
acquisition was structured as a purchase of common stock and, accordingly, the
amortization of intangible assets is not deductible for income tax purposes.
Concurrent with the acquisition, the following financing transactions were
also consummated: the repayment of $147,724,000 under our then existing senior
secured credit facility and the termination of all commitments under that
facility; the consummation of our tender offer and consent solicitation for
$87,200,000 of the $110,000,000 aggregate principal amount outstanding of our
9.875% senior subordinated notes due 2007 for $93,500,000 or 103.542% of the
principal amount of such notes plus accrued and unpaid interest and the
redemption of the remaining senior subordinated notes for $23,551,000 or
103.292% of the principal amount of such notes plus accrued and unpaid interest;
and repayment of an $8,500,000 mortgage obligation with a financial institution
(the acquisition together with the foregoing financing transactions are referred
to herein collectively as the "Transactions").
9
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
On May 31, 2004, the remaining outstanding 9.875% senior subordinated
notes due 2007 were redeemed pursuant to the redemption notice. The Company
financed the redemption with borrowings under its new revolving credit facility.
The Company's new term loan provides for amortization (in quarterly
installments) of 1.0% per annum through June 30, 2010, and will then amortize in
equal quarterly payments through June 30, 2012. The new term loan bears
interest, at the option of the Company, at the index rate plus 1.75% per annum
or at LIBOR plus 2.75% per annum. At June 30, 2004, the new term loan was
$205,000,000 and the floating interest rate on the new term loan was 3.96%. The
Company entered into an interest rate swap transaction on June 25, 2004 with a
financial institution initially covering $10,500,000 of its outstanding
borrowings under the new term loan. The notional amount, ranging from
$10,500,000 to $37,000,000, will vary over time and is covered by an interest
rate swap contract.
Revolving loans under the new senior credit facility expire on April 30,
2010 and bear interest, at the option of the Company, at the index rate plus,
based on performance, a margin ranging from 0.75% to 1.50% per annum, or at
LIBOR plus, based on performance, a margin ranging from 1.75% to 2.50% per
annum. At June 30, 2004, the Company had borrowings under the Revolver totaling
$11,590,000 and the floating interest rate on the Revolver was 4.51% at June 30,
2004.
Our new senior secured credit facility contains financial covenants and
maintenance tests, including a minimum interest coverage test and a maximum
total leverage test, and restrictive covenants, including restrictions on our
ability to make capital expenditures or pay dividends. Our new senior secured
credit facility is secured by substantially all of our assets and the assets of
some of our subsidiaries, and by a pledge of all of our domestic subsidiaries'
capital stock and a portion of our wholly owned foreign subsidiaries' capital
stock.
In connection with the Transactions, the Company has recorded
non-recurring expenses of $11,757,000 comprised of $6,209,000 of debt retirement
costs and the write-off of $5,548,000 of deferred financing costs associated
with the repayment of debt in connection with the Transactions.
The following unaudited pro forma information assumes the Transactions had
occurred on January 1, 2004 and 2003, respectively. The pro forma information,
as presented below, is not necessarily indicative of the results that would have
been obtained had the Transactions occurred on January 1, 2004 and 2003, nor is
it necessarily indicative of the Company's future results (dollars in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $ 96,316 $100,996 $196,841 $200,840
Net income 2,534 2,240 7,070 5,238
The pro forma net income amounts reflect the following items: (i)
adjustments for interest expense from new borrowings related to the Transactions
and the elimination of historical interest on debt repaid in the Transactions,
(ii) management fees to be paid to our Principal Investors, (iii) the
elimination of non-recurring expenses related to the Transactions, (iv) the
elimination of the increase in cost of sales in 2004 as a result of the
increased valuation of inventories as a result of a purchase price allocation,
(v) additional depreciation expense as a result of the write-up of property,
plant and equipment and amortization of other intangible assets, as a result of
a preliminary purchase price allocation , and (vi) the related income tax
effects of the above items based upon a pro forma effective income tax rate of
39.5%.
10
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the
periods prior to May 1, 2004 (the "Predecessor") and for the period subsequent
to April 30, 2004 (the "Successor") include the accounts of Amscan Holdings and
its majority-owned and controlled entities. All material intercompany balances
and transactions have been eliminated in consolidation. The unaudited
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the two months ended June 30, 2004 and four
months ended April 30, 2004 are not necessarily indicative of the results to be
expected for the twelve months ending December 31, 2004. The results of
operations may be affected by seasonal factors such as the timing of holidays or
industry factors that may be specific to a particular period, such as movement
in and the general level of raw material costs. For further information, see the
consolidated financial statements and notes thereto included in Amscan Holdings'
Annual Report on Form 10-K for the year ended December 31, 2003 as filed with
the Securities and Exchange Commission.
NOTE 4 - INVENTORIES
Inventories consisted of the following (dollars in thousands):
JUNE 30, DECEMBER 31,
2004 2003
-------- --------
(Successor) (Predecessor)
Finished goods ..................................... $ 66,791 $ 74,258
Raw materials ...................................... 9,717 8,842
Work-in-process .................................... 5,971 4,762
-------- --------
82,479 87,862
Less: reserve for slow moving and obsolete inventory (146) (2,725)
-------- --------
$ 82,333 $ 85,137
======== ========
Inventories are valued at the lower of cost, determined on a first-in,
first-out basis, or market.
NOTE 5 - INCOME TAXES
The consolidated income tax expense for the one and four months ended
April 30, 2004, the two months ended June 30, 2004, and three and six months
ended June 30, 2003 was determined based upon estimates of the Company's
consolidated effective income tax rates for the four months ended April 30,
2004, the eight months ending December 31, 2004 and the year ended December 31,
2003, respectively. The differences between the consolidated effective income
tax rates and the U.S. federal statutory rate are primarily attributable to
state income taxes and the effects of foreign operations.
11
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 6 - COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income consisted of the following (dollars in
thousands):
ONE MONTH TWO MONTHS THREE MONTHS FOUR MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
APRIL 30 2004 JUNE 30, 2004 JUNE 30, 2003 APRIL 30, 2004 JUNE 30, 2003
------------- ------------- ------------- -------------- -------------
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Net (loss) income ........................ $(5,829) $ 702 $ 2,706 $ (890) $ 6,168
Net change in cumulative translation
adjustment ............................ (1,029) 521 1,399 (673) 1,276
Change in fair value of available-for-sale
securities, net of income taxes of $1,
$91, $(14) and $38, respectively ...... 1 139 (22) 58
Reclassification adjustment for
available-for-sale securities sold
during the period, net of income taxes
of $19 ................................ (28) (28)
Change in fair value of the interest rate
swap contract, net of income taxes of
$109, $(20), $(60), $54 and $(54),
respectively .......................... 167 (30) (92) 82 (83)
Reclassification adjustment for the
interest rate swap contract terminated
in connection with the Transactions,
net of income taxes of $266 ........... 408 408
Change in fair value of the foreign
exchange contracts, net of income taxes
of $151, $14, $(137), $146 and $(133),
respectively .......................... 231 22 (210) 224 (203)
------- ------- ------- ------- -------
$(6,079) $ 1,215 $ 3,942 $ (899) $ 7,216
======= ======= ======= ======= =======
Accumulated other comprehensive income (loss) consisted of the following
(dollars in thousands):
JUNE 30, DECEMBER 31,
2004 2003
----- -----
(Successor) (Predecessor)
Cumulative translation adjustment ............................................. $ 521 $ 686
Unrealized gain on available-for-sale securities, net of income taxes of $33 .. 50
Interest rate swap contract, net of income taxes of $20 and $320, respectively (30) (490)
Foreign exchange contracts, net of income taxes of $14 and $(305), respectively 22 (692)
----- -----
$ 513 $(446)
===== =====
NOTE 7 - CAPITAL STOCK
At June 30, 2004, the Successor Company's authorized capital stock
consisted of 10,000.00 shares of preferred stock, $0.01 par value, of which no
shares were issued or outstanding and 40,000.00 shares of common stock, $0.01
par value, of which 13,957.88 shares were issued and outstanding at June 30,
2004.
In connection with the Transactions (see Note 2), certain existing
management stockholders purchased 292.41 shares of Successor Common Stock based
on the same price and terms per share as paid by the other equity investors.
Under the terms of both our amended and restated stockholders' agreement, dated
February 20, 2002 and effective through April 30, 2004, and the new AAH Holdings
Corporation stockholders' agreement dated April 30, 2004, the Company has an
option to purchase all of the shares of common stock held by a former employee
and, under certain circumstances, a former employee stockholder can require the
Company to purchase all of the shares held by the
12
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
former employee. The purchase price as prescribed in the stockholders'
agreements is to be determined through a market valuation of the minority-held
shares or, under certain circumstances, based on cost, as defined therein. The
aggregate amount that may be payable by us to all employee stockholders based on
fully paid and vested shares is classified as redeemable common securities on
the consolidated balance sheet at the estimated fair market value of the stock,
with a corresponding adjustment to stockholders' equity. At June 30, 2004, the
aggregate amount that may be payable by the Company to employee stockholders,
based on the estimated market value, was approximately $2,924,000. As there is
no active market for the Company's Common Stock, the Company estimated the fair
value of its Common Stock based on the valuation of Company Common Stock issued
in connection with the Transactions.
The Company's Chief Executive Officer and President exchanged 5.4945 and
2.7472 of their shares of Predecessor Common Stock for 100 and 50 shares of
Successor Common Stock with an equivalent value of $1,000,000 and $500,000,
respectively. In addition, the Chief Executive Officer and President exchanged
their 5.607 and 2.804 vested options to purchase shares of Predecessor Common
Stock, which had intrinsic values of $600,000 and $300,000, respectively, for
vested options to purchase 65.455 and 32.727 shares of Successor Common Stock
under the new equity incentive plan with intrinsic values of $492,000 and
$245,000 and estimated fair values of $590,000 and $290,000, respectively. The
fair value of the Successor options was included in the equity contribution
related to the Transactions, however as the Successor options are options to
purchase redeemable common stock their estimated redemption value is classified
as redeemable common securities on the consolidated balance sheet.
At December 31, 2003, an officer of the Company held 3.00 shares of Common
Stock (the "Restricted Stock"), which were to vest in December 2004 under the
terms of his employment agreement. In connection with the Transactions, the 3.00
shares of Restricted Stock vested immediately on April 30, 2004 (see Note 2).
During the one and four months ended April 30, 2004, and the three and six
months ended June 30, 2003, the Company recorded the amortization of Restricted
Stock of $13,000, $52,000 and $45,000 and $90,000, respectively, as compensation
expense, which is included in general and administrative expenses in the
company's consolidated statements of operations.
At December 31, 2003, the Company held a note receivable from a former
officer for $655,000, which bore interest at 6.65% and was to mature in March
2009. In connection with the Transactions, the note receivable from the former
officer was repaid on April 30, 2004. In addition, at December 31, 2003, the
Company held a note receivable from a former employee for $25,000, which bore
interest at Libor plus 2% and matured and was repaid in January 2004. These
notes arose in connection with the issuance of shares of Predecessor Common
Stock and were reported on the consolidated balance sheet at December 31, 2003,
as an increase in stockholders' deficit.
On March 30, 2001, the Company issued 40 shares of Series A Redeemable
Convertible Preferred Stock to GS Capital Partners II, L.P. and certain other
private investment funds managed by Goldman, Sachs & Co. (collectively, "GSCP")
for proceeds of $6,000,000. On March 30, 2004, the annual dividend was
distributed in additional shares of Series A Redeemable Convertible Preferred
Stock. In connection with the Transactions on April 30, 2004, the Company
redeemed all outstanding shares of Series A Redeemable Convertible Preferred
Stock at a redemption price per share equal to $182,000 in cash, together with
accrued and unpaid dividends.
NOTE 8 - SEGMENT INFORMATION
Industry Segment
The Company manages its operations as one industry segment which involves
the design, manufacture, contract for manufacture and distribution of party
goods, including decorative party goods, metallic balloons, stationery, and gift
items.
Geographic Segments
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in
13
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
foreign markets. No single foreign operation is significant to the Company's
consolidated operations. Sales between geographic areas are made at cost plus a
share of operating profit.
The Company's geographic area data are as follows (dollars in thousands):
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
ONE MONTH ENDED APRIL 30, 2004
Sales to unaffiliated customers .................. $ 28,657 $ 4,478 $ 33,135
Sales between geographic areas ................... 1,623 $ (1,623) --
--------- --------- --------- ---------
Net sales ........................................ $ 30,280 $ 4,478 $ (1,623) $ 33,135
========= ========= ========= =========
(Loss) income from operations .................... $ (7,963) $ 327 $ 76 $ (7,560)
========= ========= =========
Interest expense, net ............................ 2,023
Undistributed loss in unconsolidated joint venture 56
Other income, net ................................ (10)
---------
Loss before income taxes and minority interests .. $ (9,629)
=========
Long-lived assets, net at April 30, 2004 ......... $ 187,796 $ 8,473 $ (25,224) $ 171,045
========= ========= ========= =========
SUCCESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
TWO MONTHS ENDED JUNE 30, 2004
Sales to unaffiliated customers .................. $ 54,058 $ 9,123 $ 63,181
Sales between geographic areas ................... 3,793 $ (3,793) --
--------- --------- --------- ---------
Net sales ........................................ $ 57,851 $ 9,123 $ (3,793) $ 63,181
========= ========= ========= =========
Income from operations ........................... $ 5,528 $ 540 $ 194 $ 6,262
========= ========= =========
Interest expense, net ............................ 4,760
Undistributed loss in unconsolidated joint venture 312
Other income, net ................................ (11)
---------
Income before income taxes and minority interests $ 1,201
=========
Long-lived assets, net at June 30, 2004 .......... $ 449,702 $ 8,867 $ (25,953) $ 432,616
========= ========= ========= =========
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
THREE MONTHS ENDED JUNE 30, 2003
Sales to unaffiliated customers ................. $ 87,570 $ 13,426 $ 100,996
Sales between geographic areas .................. 5,090 $ (5,090) --
--------- --------- --------- ---------
Net sales ....................................... $ 92,660 $ 13,426 $ (5,090) $ 100,996
========= ========= ========= =========
Income from operations .......................... $ 9,976 $ 656 $ 384 $ 11,016
========= ========= =========
Interest expense, net ........................... 6,552
Other income, net ............................... (39)
---------
Income before income taxes and minority interests $ 4,503
=========
Long-lived assets, net at June 30, 2003 ......... $ 202,096 $ 9,083 $ (28,080) $ 183,099
========= ========= ========= =========
14
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
FOUR MONTHS ENDED APRIL 30, 2004
Sales to unaffiliated customers .................. $ 115,939 $ 17,721 $ 133,660
Sales between geographic areas ................... 5,487 $ (5,487) --
--------- --------- --------- ---------
Net sales ........................................ $ 121,426 $ 17,721 $ (5,487) $ 133,660
========= ========= ========= =========
Income from operations ........................... $ 5,517 $ 1,156 $ 347 $ 7,020
========= ========= =========
Interest expense, net ............................ 8,384
Undistributed loss in unconsolidated joint venture 89
Other income, net ................................ (58)
---------
Loss before income taxes and minority interests .. $ (1,395)
=========
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
SIX MONTHS ENDED JUNE 30, 2003
Sales to unaffiliated customers ................. $ 174,600 $ 26,240 $ 200,840
Sales between geographic areas .................. 9,613 $ (9,613) --
--------- --------- --------- ---------
Net sales ....................................... $ 184,213 $ 26,240 $ (9,613) $ 200,840
========= ========= ========= =========
Income from operations .......................... $ 21,959 $ 780 $ 651 $ 23,390
========= ========= =========
Interest expense, net ........................... 13,196
Other income, net ............................... (57)
---------
Income before income taxes and minority interests $ 10,251
=========
NOTE 9 - LEGAL PROCEEDINGS
The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe these proceedings will result,
individually or in the aggregate, in a material adverse effect on its financial
condition or future results of operations.
NOTE 10 - RELATED PARTY TRANSACTIONS
GSCP received fees totaling $8,123,000 for services provided in connection
with the Transactions.
In connection with the Transactions, the Company executed a management
agreement with Berkshire Partners LLC and Weston Presidio. Pursuant to the
management agreement, Berkshire Partners LLC and Weston Presidio will be paid
annual management fees of $833,333 and $416,667, respectively. At June 30, 2004,
accrued management fees payable to Berkshire Partners LLC and Weston Presidio
totaled $138,889 and $69,445, respectively. Although the indenture governing the
8.75% senior subordinated notes will permit the payments under the management
agreement, such payments will be restricted during an event of default under the
notes and will be subordinated in right of payment to all obligations due with
respect to the notes in the event of a bankruptcy or similar proceeding of
Amscan.
During the one and four months ended April 30, 2004, and three and six
months ended June 30, 2003, the Company sold $235,000, $836,000, $1,634,000, and
$2,249,000 respectively, of metallic balloons and other party goods to American
Greetings Corporation, a minority stockholder from February 2002 through the
date of the Transactions. Trade accounts receivable from American Greetings at
December 31, 2003 was $1,937,000.
In June 2003, the Company purchased 16 shares of Predecessor Common Stock
from its Chief Executive
15
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
Officer at a price of $150,000 per share, or for an aggregate cash purchase
price of $2,400,000, of which $2,115,000 was paid in June 2003 and $285,000 was
paid in July 2003. The Chief Executive Officer used a portion of the proceeds to
repay an outstanding loan balance of $1,588,000. The Company retired the 16
shares of Predecessor Common Stock.
In July 2003, the Company purchased 6 shares of Predecessor Common Stock
from its President at a price of $150,000 per share, or for an aggregate cash
purchase price of $900,000. The President used a portion of the proceeds to
repay an outstanding loan balance of $402,000. The Company retired the 6 shares
of Predecessor Common Stock.
NOTE 11 - RESTRUCTURING CHARGES
During the three and six months ended June 30, 2003, the Company incurred
charges of $458,000 and $774,000, respectively, resulting from the consolidation
of certain domestic and foreign distribution operations, and the integration of
M&D Industries, Inc. into its balloon operations.
NOTE 12 - STOCK OPTION PLAN
Effective May 1, 2004, the Successor Company has elected to apply the fair
value method of SFAS No. 123 as amended by Financial Accounting Standards No.
148 ("SFAS 148"), Accounting for Stock-Based Compensation -- Transition and
Disclosure which amends Statement of Financial Accounting Standards No. 123
("SFAS No. 123"). SFAS No. 123 permits entities to recognize as expense, over
the vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to apply the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," which requires the recognition of compensation expense at the
date of grant only if the current market price of the underlying stock exceeds
the exercise price, and to provide pro forma net income disclosures for employee
stock option grants as if the fair value based method defined in SFAS No. 123
had been applied. SFAS No. 148 provides alternative methods of transition to FAS
123's fair value method of accounting for stock-based employee compensation and
amends the disclosure provisions of FAS 123. Effective with the consummation of
the Transactions (see Note 2), effective May 1, 2004, the Successor Company
adopted SFAS No. 123 and will expense stock options issued after such date using
the fair value method as provided for in SFAS No. 148. No additional options
have been granted by the Successor Company.
Prior to the Transactions, the Predecessor Company elected to apply the
intrinsic value method of APB No. 25 for awards granted under its stock-based
compensation plans and to provide the pro forma disclosures required by SFAS No.
123. Accordingly, no compensation cost has been recognized in connection with
the issuance of options under the Amscan Holdings, Inc. 1997 Stock Incentive
Plan, the Predecessor's prior plan, through April 30, 2004 as all options were
granted with exercise prices equal to the estimated fair market value of the
Common Stock on the date of grant.
Had the Company determined stock-based compensation based on the fair
value of the options granted at the grant date, consistent with the method
prescribed under SFAS No. 123, the Company's net income would have been
16
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
reduced to amounts indicated below (dollars in thousands):
ONE MONTH ENDED THREE MONTHS ENDED FOUR MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2004 JUNE 30, 2003 APRIL 30, 2004 JUNE 30, 2003
-------------- ------------- -------------- -------------
(Predecessor) (Predecessor) (Predecessor) (Predecessor)
Net (loss) income:
As reported ....................... $(5,829) $ 2,706 $ (890) $ 6,168
Less: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of income taxes
of $31, $40, $125 and $70,
respectively ...................... 47 62 192 107
------- ------- ------- -------
SFAS No. 123 pro forma net (loss)
income ............................ $(5,876) $ 2,644 $(1,082) $ 6,061
======= ======= ======= =======
In connection with the Transactions, all options granted vested
immediately on April 30, 2004 and, except for those held by the Chief Executive
Officer and the President (see Note 7), all were exercised. The Chief Executive
Officer and President exchanged 5.607 and 2.804 vested options to purchase
shares of Predecessor Common Stock, which had intrinsic values of $600,000 and
$300,000, respectively, for vested options to purchase 65.455 and 32.727 shares
of Successor Common Stock under the new equity incentive plan with intrinsic
values of $492,000 and $245,000 and estimated fair values of $590,000 and
$290,000, respectively. Such options were recorded as part of the purchase price
allocations and have been classified as redeemable common securities on the
Company's consolidated balance sheet. No additional options have been granted by
the Predecessor Company.
NOTE 13 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On April 30, 2004, in connection with the consummation of the
Transactions, all borrowings under the then existing credit agreement were
repaid and the facility was terminated. In addition, $87,200,000 in aggregate
principal amount of the 9.875% senior subordinated notes due 2007 were accepted
in a tender offer and a redemption notice was issued for the remaining senior
subordinated notes (see Note 2). The aggregate cost to purchase the 9.875%
senior subordinated notes due 2007 tendered pursuant to the tender offer was
approximately $93,500,000, or 103.542% of the principal amount of such 9.875%
senior subordinated notes plus accrued and unpaid interest. On May 31, 2004, the
remaining $22,800,000 in aggregate principal amount of the outstanding 9.875%
senior subordinated notes were redeemed pursuant to the redemption notice at a
price of 103.292% of the principal amount of such notes plus accrued and unpaid
interest.
The acquisition was financed with initial borrowings consisting of a
$205,000,000 term loan under a new senior secured credit facility, which
includes a $50,000,000 revolving loan facility, the proceeds from the issuance
of $175,000,000 of 8.75% senior subordinated notes due 2014, the equity
contribution by our Principal Investors and employee stockholders of
$140,479,000, borrowings under the revolver of $23,551,000 and approximately
$2,900,000 of cash on hand.
Borrowings under the new senior secured credit facility, the revolving
loan facility and the $175,000,000 of 8.75% senior subordinated notes due 2014
are guaranteed jointly and severally, fully and unconditionally, by the
following wholly-owned domestic subsidiaries of the Company (the "Guarantors"):
17
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
- Amscan Inc.
- Am-Source, LLC
- Anagram International, Inc.
- Anagram International Holdings, Inc.
- Anagram International, LLC
- M&D Industries, Inc.
- SSY Realty Corp.
- JCS Realty Corp.
- Anagram Eden Prairie Property Holdings LLC
- Trisar, Inc.
Non-guarantor subsidiaries ("Non-guarantors") include the following:
- Amscan Distributors (Canada) Ltd.
- Amscan Holdings Limited
- Amscan (Asia-Pacific) Pty. Ltd.
- Amscan Partyartikel GmbH
- Amscan de Mexico, S.A. de C.V.
- Anagram International (Japan) Co., Ltd.
- Anagram Espana, S.A.
- Anagram France S.C.S.
- JCS Hong Kong Ltd.
The following information presents consolidating balance sheets as
of June 30, 2004 and December 31, 2003, and the related consolidating statements
of income for the one month ended April 30, 2004, two months ended June 30,
2004, three months ended June 30, 2003, four months ended April 30, 2004 and six
months ended June 30, 2003 and consolidating statements of cash flows for the
four months ended April 30, 2004, two months ended June 30, 2004 and six months
ended June 30, 2003, for the combined Guarantors and the combined Non-guarantors
and elimination entries necessary to consolidate the entities comprising the
combined companies.
18
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING BALANCE SHEET
JUNE 30, 2004
(SUCCESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 777 $ 529 $ 1,306
Accounts receivable, net of allowances ............ 68,185 13,448 81,633
Inventories, net of allowances .................... 71,989 10,674 $ (330) 82,333
Prepaid expenses and other current assets ......... 15,436 1,857 (190) 17,103
--------- --------- --------- ---------
Total current assets ........................... 156,387 26,508 (520) 182,375
Property, plant and equipment, net ................... 98,348 2,004 100,352
Goodwill, net ........................................ 307,528 5,569 313,097
Other assets, net .................................... 43,826 1,294 (25,953) 19,167
--------- --------- --------- ---------
Total assets ................................... $ 606,089 $ 35,375 $ (26,473) $ 614,991
========= ========= ========= =========
LIABILITIES, REDEEMABLE COMMON SECURITIES
AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable ........................... $ 11,590 $ 11,590
Accounts payable .................................. 24,306 $ 1,968 26,274
Accrued expenses .................................. 15,537 6,160 21,697
Income taxes payable .............................. 576 $ (237) 339
Current portion of long-term obligations .......... 2,779 130 2,909
--------- --------- --------- ---------
Total current liabilities ...................... 54,788 8,258 (237) 62,809
Long-term obligations, excluding current portion ..... 386,106 177 386,283
Deferred income tax liabilities ...................... 21,782 21,782
Other ................................................ 1,436 14,206 (13,219) 2,423
--------- --------- --------- ---------
Total liabilities .............................. 464,112 22,641 (13,456) 473,297
Redeemable common securities ......................... 3,660 3,660
Commitments and Contingencies
Stockholders' equity:
Preferred Stock ................................... --
Common Stock ...................................... 339 (339) --
Additional paid-in capital ........................ 136,819 658 (658) 136,819
Retained earnings ................................. 985 11,823 (12,106) 702
Accumulated other comprehensive income (loss) ..... 513 (86) 86 513
--------- --------- --------- ---------
Total stockholders' equity ................ 138,317 12,734 (13,017) 138,034
--------- --------- --------- ---------
Total liabilities, redeemable common
securities and stockholders' equity $ 606,089 $ 35,375 $ (26,473) $ 614,991
========= ========= ========= =========
19
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 30,740 $ 722 $ 31,462
Accounts receivable, net of allowances ........... 63,553 12,129 75,682
Inventories, net of allowances ................... 75,991 9,357 $ (211) 85,137
Prepaid expenses and other current assets ........ 8,611 1,248 (129) 9,730
--------- --------- --------- ---------
Total current assets ............................. 178,895 23,456 (340) 202,011
Property, plant and equipment, net ..................... 94,789 1,705 96,494
Goodwill, net .......................................... 66,453 5,533 71,986
Other assets, net ...................................... 33,019 1,491 (22,899) 11,611
....................................................... --------- --------- --------- ---------
Total assets ..................................... $ 373,156 $ 32,185 $ (23,239) $ 382,102
========= ========= ========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND COMMON SECURITIES
AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable ................................. $ 33,221 $ 1,695 $ 34,916
Accrued expenses ................................. 14,156 5,965 20,121
Income taxes payable ............................. 3,307 $ (129) 3,178
Current portion of long-term obligations ......... 23,110 127 23,237
--------- --------- --------- ---------
Total current liabilities ........................ 73,794 7,787 (129) 81,452
Long-term obligations, excluding current portion ....... 272,104 168 272,272
Deferred income tax liabilities ........................ 18,040 18,040
Other .................................................. 1,083 13,133 (11,802) 2,414
--------- --------- --------- ---------
Total liabilities ................................ 365,021 21,088 (11,931) 374,178
Redeemable convertible preferred stock ................. 7,045 7,045
Redeemable common securities ........................... 9,498 9,498
Commitments and Contingencies
Stockholders' (deficit) equity:
Common Stock ..................................... 339 (339) --
Additional paid-in capital ....................... 26,682 658 (658) 26,682
Unamortized restricted Common Stock
award ......................................... (155) (155)
Notes receivable from stockholders ............... (680) (680)
(Deficit) retained earnings ...................... (33,809) 10,292 (10,503) (34,020)
Accumulated other comprehensive loss ............. (446) (192) 192 (446)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ........ (8,408) 11,097 (11,308) (8,619)
--------- --------- --------- ---------
Total liabilities, redeemable convertible
preferred Stock and common securities and
stockholders' (deficit) equity ............ $ 373,156 $ 32,185 $ (23,239) $ 382,102
========= ========= ========= =========
20
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED APRIL 30, 2004
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Net sales .............................................. $ 30,280 $ 4,478 $ (1,623) $ 33,135
Cost of sales .......................................... 20,761 2,994 (1,589) 22,166
-------- -------- -------- --------
Gross profit ................................ 9,519 1,484 (34) 10,969
Operating expenses:
Selling expenses ................................... 2,567 561 3,128
General and administrative expenses ................ 2,107 560 (110) 2,557
Art and development costs .......................... 899 899
Provision for doubtful accounts .................... 152 36 188
Non-recurring expenses related to the Transactions . 11,757 11,757
-------- -------- -------- --------
Total operating expenses .................... 17,482 1,157 (110) 18,529
-------- -------- -------- --------
(Loss) income from operations ............... (7,963) 327 76 (7,560)
Interest expense, net .................................. 2,007 16 2,023
Undistributed loss in unconsolidated joint venture ..... 56 56
Other (income) expense, net ............................ (320) 3 307 (10)
-------- -------- -------- --------
(Loss) income before income taxes and
minority interests ........................ (9,706) 308 (231) (9,629)
Income tax (benefit) expense ........................... (3,897) 108 (14) (3,803)
Minority interests ..................................... 3 3
-------- -------- -------- --------
Net (loss) income ........................... (5,809) 197 (217) (5,829)
Dividend on redeemable convertible
preferred stock .......................... 34 34
-------- -------- -------- --------
Net (loss) income applicable to common shares $ (5,843) $ 197 $ (217) $ (5,863)
======== ======== ======== ========
21
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWO MONTHS ENDED JUNE 30, 2004
(SUCCESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Net sales ........................................ $ 57,851 $ 9,123 $ (3,793) $ 63,181
Cost of sales .................................... 40,954 6,237 (3,767) 43,424
-------- -------- -------- --------
Gross profit .......................... 16,897 2,886 (26) 19,757
Operating expenses:
Selling expenses ............................. 4,829 1,119 5,948
General and administrative expenses .......... 4,530 1,142 (220) 5,452
Art and development costs .................... 1,769 1,769
Provision for doubtful accounts ............ 241 85 326
-------- -------- -------- --------
Total operating expenses .............. 11,369 2,346 (220) 13,495
-------- -------- -------- --------
Income from operations ................ 5,528 540 194 6,262
Interest expense, net ............................ 4,734 26 4,760
Undistributed loss in unconsolidated joint venture 312 312
Other income, net ................................ (574) 563 (11)
-------- -------- -------- --------
Income before income taxes and
minority interests .................. 1,056 514 (369) 1,201
Income tax expense ............................... 338 146 (10) 474
Minority interests ............................... 25 25
-------- -------- -------- --------
Net income ............................ $ 718 $ 343 $ (359) $ 702
======== ======== ======== ========
22
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Net sales ....................................... $ 92,660 $ 13,426 $ (5,090) $ 100,996
Cost of sales ................................... 64,757 9,367 (5,174) 68,950
--------- --------- --------- ---------
Gross profit ......................... 27,903 4,059 84 32,046
Operating expenses:
Selling expenses ............................ 7,481 1,493 8,974
General and administrative expenses ......... 6,498 1,729 (300) 7,927
Art and development costs ................... 2,286 2,286
Provision for doubtful accounts ............. 1,231 154 1,385
Restructuring charges ....................... 431 27 458
--------- --------- --------- ---------
Total operating expenses ............. 17,927 3,403 (300) 21,030
--------- --------- --------- ---------
Income from operations ............... 9,976 656 384 11,016
Interest expense, net ........................... 6,398 154 6,552
Other (income) expense, net ..................... (605) 23 543 (39)
--------- --------- --------- ---------
Income before income taxes and
minority interests ................. 4,183 479 (159) 4,503
Income tax expense .............................. 1,528 217 33 1,778
Minority interests .............................. 19 19
--------- --------- --------- ---------
Net income ........................... 2,655 243 (192) 2,706
Dividend on redeemable convertible
preferred stock ................... 101 101
--------- --------- --------- ---------
Net income applicable to common shares $ 2,554 $ 243 $ (192) $ 2,605
========= ========= ========= =========
23
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 2004
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Net sales .............................................. $ 121,426 $ 17,721 $ (5,487) $ 133,660
Cost of sales .......................................... 81,845 11,796 (5,394) 88,247
--------- --------- --------- ---------
Gross profit ................................ 39,581 5,925 (93) 45,413
Operating expenses:
Selling expenses ................................... 10,095 2,335 12,430
General and administrative expenses ................ 8,280 2,305 (440) 10,145
Art and development costs .......................... 3,332 3,332
Provision for doubtful accounts .................... 600 129 729
Non-recurring expenses related to the Transactions . 11,757 11,757
--------- --------- --------- ---------
Total operating expenses .................... 34,064 4,769 (440) 38,393
--------- --------- --------- ---------
Income from operations ...................... 5,517 1,156 347 7,020
Interest expense, net .................................. 8,320 64 8,384
Undistributed loss in unconsolidated joint venture ..... 89 89
Other income, net ...................................... (1,194) (39) 1,175 (58)
--------- --------- --------- ---------
(Loss) income before income taxes and
minority interests ........................ (1,698) 1,131 (828) (1,395)
Income tax (benefit) expense ........................... (864) 350 (37) (551)
Minority interests ..................................... 46 46
--------- --------- --------- ---------
Net (loss) income ........................... (834) 735 (791) (890)
Dividend on redeemable convertible
preferred stock .......................... 136 136
--------- --------- --------- ---------
Net (loss) income applicable to common shares $ (970) $ 735 $ (791) $ (1,026)
========= ========= ========= =========
24
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Net sales ................................... $ 184,213 $ 26,240 $ (9,613) $ 200,840
Cost of sales ............................... 126,944 18,639 (9,664) 135,919
--------- --------- --------- ---------
Gross profit ..................... 57,269 7,601 51 64,921
Operating expenses:
Selling expenses ........................ 15,071 3,045 18,116
General and administrative expenses ..... 12,981 3,448 (600) 15,829
Art and development costs ............... 4,823 4,823
Provision for doubtful accounts ......... 1,688 301 1,989
Restructuring charges ................... 747 27 774
--------- --------- --------- ---------
Total operating expenses ......... 35,310 6,821 (600) 41,531
--------- --------- --------- ---------
Income from operations ........... 21,959 780 651 23,390
Interest expense, net ....................... 12,881 315 13,196
Other (income) expense, net ................. (830) 27 746 (57)
--------- --------- --------- ---------
Income before income taxes
and minority interests ......... 9,908 438 (95) 10,251
Income tax expense .......................... 3,771 258 20 4,049
Minority interests .......................... 34 34
--------- --------- --------- ---------
Net income ....................... 6,137 146 (115) 6,168
Dividend on redeemable convertible
preferred stock ............... 197 197
--------- --------- --------- ---------
Net income applicable to common shares .. $ 5,940 $ 146 $ (115) $ 5,971
========= ========= ========= =========
25
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 2004
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED
AND COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Cash flows provided by operating activities:
Net (loss) income................................................. $ (834) $ 735 $(791) $ (890)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization expense.......................... 5,076 220 5,296
Amortization of deferred financing costs....................... 709 709
Amortization of restricted Common Stock award.................. 52 52
Provision for doubtful accounts................................ 600 129 729
Deferred income tax benefit.................................... (58) (58)
Gain on sale of available-for-sale securities.................. (47) (47)
Gain on disposal of equipment.................................. (35) (35)
Write-off of deferred financing costs in connection
with the Transactions.................................. 5,548 5,548
Debt retirement costs incurred in connection with
the Transactions.......................................... 6,209 6,209
Undistributed loss in unconsolidated joint venture............. 89 89
Changes in operating assets and liabilities:
Increase in accounts receivable......................... (13,843) (1,404) (15,247)
Decrease in inventories................................. 5,833 303 93 6,229
Increase in prepaid expenses and other
current assets....................................... (3,017) (576) (3,593)
Increase in accounts payable, accrued expenses
and income taxes payable............................. 3,663 365 (37) 3,991
Other, net.................................................... (1,545) 1,240 735 430
--------- ------- ----- --------
Net cash provided by operating activities............... 8,435 977 -- 9,412
Cash flows used in investing activities:
Capital expenditures.............................................. (3,205) (521) (3,726)
Proceeds from sale of available-for-sale securities............... 65 65
Proceeds from disposal of property and equipment.................. 53 53
--------- ------- ----- --------
Net cash used in investing activities................... (3,140) (468) -- (3,608)
Cash flows used in financing activities:
Repayment of loans, notes payable and long-term
obligations.................................................. (21,184) (67) (21,251)
Debt retirement costs paid in connection with the
Transactions.................................................. (6,209) (6,209)
Repayment of note receivable from stockholder..................... 25 25
--------- ------- ----- --------
Net cash used in financing activities................... (27,368) (67) -- (27,435)
Effect of exchange rate changes on cash and cash equivalents.......... (21) (573) (594)
--------- ------- ----- --------
Net decrease in cash and cash equivalents............... (22,094) (131) (22,225)
Cash and cash equivalents at beginning of period...................... 30,740 722 31,462
--------- ------- ----- --------
Cash and cash equivalents at end of period............................ $ 8,646 $ 591 $ -- $ 9,237
========= ======= ===== ========
26
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWO MONTHS ENDED JUNE 30, 2004
(SUCCESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED
AND COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Cash flows provided by (used in) operating activities:
Net income .................................................. $ 718 $ 343 $ (359) $ 702
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization expense .................... 2,654 113 2,767
Amortization of deferred financing costs ................. 262 262
Provision for doubtful accounts .......................... 241 85 326
Deferred income tax benefit .............................. (484) (484)
Undistributed loss in unconsolidated joint venture ....... 312 312
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ........ 8,875 (129) 8,746
Decrease (increase) in inventories ................ 826 (1,620) 26 (768)
Decrease in prepaid expenses and other current
assets ......................................... (465) 28 (437)
(Decrease) increase in accounts payable, accrued
expenses and income taxes payable .............. (6,675) 288 (10) (6,397)
Other, net .............................................. (860) 504 343 (13)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 5,404 (388) -- 5,016
Cash flows used in investing activities:
Cash paid to consummate the Transactions .................... (529,982) (529,982)
Capital expenditures ........................................ (1,006) (50) (1,056)
Proceeds from disposal of property and equipment ............ 1 1
--------- --------- --------- ---------
Net cash used in investing activities ............. (530,988) (49) -- (531,037)
Cash flows provided by (used in) financing activities:
Proceeds from loans, notes payable and long-term
obligations, net of debt issuance costs of $12,668 ....... 378,922 378,922
Repayment of loans, notes payable and long-term
obligations ............................................ (195) (29) (224)
Capital contributions in connection with the Transactions ....... 138,979 138,979
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 517,706 (29) -- 517,677
Effect of exchange rate changes on cash and cash equivalents .... 9 404 413
--------- --------- --------- ---------
Net decrease in cash and cash equivalents ......... (7,869) (62) (7,931)
Cash and cash equivalents at beginning of period ................ 8,646 591 9,237
--------- --------- --------- ---------
Cash and cash equivalents at end of period ...................... $ 777 $ 529 $ -- $ 1,306
========= ========= ========= =========
27
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(PREDECESSOR)
(DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED
AND COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income .................................................. $ 6,137 $ 146 $ (115) $ 6,168
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 7,885 271 8,156
Amortization of deferred financing costs ................. 1,011 1,011
Amortization of restricted Common Stock awards ........... 90 90
Provision for doubtful accounts .......................... 1,688 301 1,989
Deferred income tax expense .............................. 1,757 1,757
Loss on disposal of property and equipment ............... 80 29 109
Non-cash restructuring charges ........................... 104 104
Changes in operating assets and liabilities:
Increase in accounts receivable ................... (4,781) (1,675) (6,456)
Decrease (increase) in inventories ................ 5,839 (1,258) (51) 4,530
Increase in prepaid expenses and other current
assets ......................................... (238) (466) (704)
(Decrease) increase in accounts payable, accrued
expenses and income taxes payable .............. (8,85