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EX-32 - EX-32 - AMSCAN HOLDINGS INC | y84610exv32.htm |
EX-31.2 - EX-31.2 - AMSCAN HOLDINGS INC | y84610exv31w2.htm |
EX-31.1 - EX-31.1 - AMSCAN HOLDINGS INC | y84610exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-21827
Amscan Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 13-3911462 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
80 Grasslands Road Elmsford, NY | 10523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code:
(914) 345-2020
(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 þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of May 17, 2010, 1,000.00 shares of Registrants common stock were outstanding.
AMSCAN HOLDINGS, INC.
FORM 10-Q
FORM 10-Q
March 31, 2010
TABLE OF CONTENTS
References throughout this document to Amscan, AHI, and the Company include Amscan
Holdings, Inc. and its wholly owned subsidiaries. In this document the words we, our, ours
and us refer only to the Company and its majority owned subsidiaries and not to any other person.
You may read and copy any materials we file with the Securities and Exchange Commission
(SEC) at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may
obtain information on the operations of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC, including us, at
http://www.sec.gov.
2
Table of Contents
AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | (Note 3) | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 17,054 | $ | 15,420 | ||||
Accounts receivable, net of allowances |
88,699 | 82,781 | ||||||
Inventories, net of allowances |
333,199 | 335,950 | ||||||
Prepaid expenses and other current assets |
72,217 | 69,541 | ||||||
Total current assets |
511,169 | 503,692 | ||||||
Property, plant and equipment, net |
175,837 | 174,994 | ||||||
Goodwill |
576,200 | 548,439 | ||||||
Trade names |
157,283 | 157,283 | ||||||
Other intangible assets, net |
66,211 | 54,669 | ||||||
Other assets, net |
16,452 | 41,424 | ||||||
Total assets |
$ | 1,503,152 | $ | 1,480,501 | ||||
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Loans and notes payable |
$ | 110,812 | $ | 77,635 | ||||
Accounts payable |
61,631 | 76,901 | ||||||
Accrued expenses |
89,488 | 93,680 | ||||||
Income taxes payable |
25,389 | 32,061 | ||||||
Redeemable warrants |
15,444 | 15,444 | ||||||
Current portion of long-term obligations |
34,881 | 34,906 | ||||||
Total current liabilities |
337,645 | 330,627 | ||||||
Long-term obligations, excluding current portion |
536,172 | 538,892 | ||||||
Deferred income tax liabilities |
102,207 | 101,570 | ||||||
Deferred rent and other long-term liabilities |
8,841 | 11,901 | ||||||
Total liabilities |
984,865 | 982,990 | ||||||
Redeemable common securities (including 592.84 common shares issued and
outstanding at March 31, 2010 and December 31, 2009) |
18,389 | 18,389 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common Stock ($0.01 par value; 40,000.00 shares authorized; 30,226.50
shares issued and outstanding at March 31, 2010 and December 31, 2009 ) |
| | ||||||
Additional paid-in capital |
356,916 | 335,823 | ||||||
Retained earnings |
149,145 | 149,557 | ||||||
Accumulated other comprehensive loss |
(8,401 | ) | (8,395 | ) | ||||
Amscan Holdings, Inc. stockholders equity |
497,660 | 476,985 | ||||||
Noncontrolling interests |
2,238 | 2,137 | ||||||
Total stockholders equity |
499,898 | 479,122 | ||||||
Total liabilities, redeemable common securities and stockholders equity |
$ | 1,503,152 | $ | 1,480,501 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
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AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
(Amounts in thousands)
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
Net sales |
$ | 304,379 | $ | 309,046 | ||||
Royalties and franchise fees |
3,844 | 3,694 | ||||||
Total revenues |
308,223 | 312,740 | ||||||
Expenses: |
||||||||
Cost of sales |
199,900 | 205,417 | ||||||
Wholesale selling expenses |
10,390 | 10,171 | ||||||
Retail operating expenses |
52,960 | 51,501 | ||||||
Franchise expenses |
3,124 | 2,889 | ||||||
General and administrative expenses |
29,925 | 27,435 | ||||||
Art and development costs |
3,636 | 3,126 | ||||||
Total expenses |
299,935 | 300,539 | ||||||
Income from operations |
8,288 | 12,201 | ||||||
Interest expense, net |
9,301 | 10,665 | ||||||
Other (income) expense, net |
(69 | ) | 207 | |||||
(Loss) income before income taxes |
(944 | ) | 1,329 | |||||
Income tax benefit |
(575 | ) | (1,132 | ) | ||||
Net (loss) income |
(369 | ) | 2,461 | |||||
Less: net income attributable to noncontrolling interest |
43 | 58 | ||||||
Net (loss) income attributable to Amscan Holdings, Inc. |
$ | (412 | ) | $ | 2,403 | |||
See accompanying notes to unaudited condensed consolidated financial statements.
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AMSCAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Three Months Ended March 31, 2010
(Unaudited)
(Amounts in thousands, except share amounts)
(Unaudited)
(Amounts in thousands, except share amounts)
Amscan Holdings, | ||||||||||||||||||||||||||||||||
Additional Paid-in | Accumulated Other | Inc. Stockholders | Noncontrolling | |||||||||||||||||||||||||||||
Common Shares | Common Stock | Capital | Retained Earnings | Comprehensive Loss | Equity | Interests | Total Equity | |||||||||||||||||||||||||
Balance at December 31, 2009 |
30,226.50 | $ | | $ | 335,823 | $ | 149,557 | $ | (8,395 | ) | $ | 476,985 | $ | 2,137 | $ | 479,122 | ||||||||||||||||
Net (loss) income |
(412 | ) | (412 | ) | 43 | (369 | ) | |||||||||||||||||||||||||
Net change in cumulative translation
adjustment |
(1,032 | ) | (1,032 | ) | 58 | (974 | ) | |||||||||||||||||||||||||
Change in fair value of interest
rate swap contracts, net of income
taxes |
494 | 494 | 494 | |||||||||||||||||||||||||||||
Change in fair value of foreign
exchange contracts, net of income
taxes |
532 | 532 | 532 | |||||||||||||||||||||||||||||
Comprehensive (loss) income |
(418 | ) | 101 | (317 | ) | |||||||||||||||||||||||||||
Issuance of non-redeemable warrants |
21,000 | 21,000 | 21,000 | |||||||||||||||||||||||||||||
Equity based compensation expense |
93 | 93 | 93 | |||||||||||||||||||||||||||||
Balance at March 31, 2010 |
30,226.50 | $ | | $ | 356,916 | $ | 149,145 | $ | (8,401 | ) | $ | 497,660 | $ | 2,238 | $ | 499,898 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Table of Contents
(Amounts in thousands)
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows used in operating activities: |
||||||||
Net (loss) income |
$ | (369 | ) | $ | 2,461 | |||
Less: net income attributable to noncontrolling interest |
43 | 58 | ||||||
Net (loss) income attributable to Amscan Holdings, Inc. |
(412 | ) | 2,403 | |||||
Adjustments to reconcile net (loss) income to net cash
used in operating activities: |
||||||||
Depreciation and amortization expense |
11,574 | 10,646 | ||||||
Amortization of deferred financing costs |
221 | 544 | ||||||
Provision for doubtful accounts |
304 | 437 | ||||||
Deferred income tax provision (benefit) |
377 | (1,818 | ) | |||||
Deferred rent |
437 | 366 | ||||||
Undistributed (income) loss in unconsolidated joint venture |
(288 | ) | 130 | |||||
Loss on disposal of equipment |
303 | 175 | ||||||
Equity based compensation |
93 | 219 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in accounts receivable |
(4,469 | ) | 3,930 | |||||
Decrease in inventories |
2,752 | 22,962 | ||||||
Increase in prepaid expenses and other current assets |
(4,140 | ) | (7,915 | ) | ||||
Decrease in accounts payable, accrued expenses and income
taxes payable |
(24,293 | ) | (66,074 | ) | ||||
Net cash used in operating activities |
(17,541 | ) | (33,995 | ) | ||||
Cash flows used in investing activities: |
||||||||
Cash paid in connection with acquisitions |
(3,585 | ) | (2 | ) | ||||
Capital expenditures |
(6,924 | ) | (5,961 | ) | ||||
Proceeds from disposal of property and equipment |
54 | 24 | ||||||
Net cash used in investing activities |
(10,455 | ) | (5,939 | ) | ||||
Cash flows provided by financing activities: |
||||||||
Repayment of loans, notes payable and long-term obligations |
(3,383 | ) | (2,091 | ) | ||||
Borrowings under revolving credit facilities |
33,815 | 40,124 | ||||||
Net cash provided by financing activities |
30,432 | 38,033 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(802 | ) | 648 | |||||
Net increase (decrease) in cash and cash equivalents |
1,634 | (1,253 | ) | |||||
Cash and cash equivalents at beginning of period |
15,420 | 13,058 | ||||||
Cash and cash equivalents at end of period |
$ | 17,054 | $ | 11,805 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share amounts)
Note 1 Description of Business
Amscan Holdings, Inc. (Amscan, AHI or the Company) designs, manufactures, contracts for
manufacture and distributes party goods, including paper and plastic tableware, metallic balloons,
accessories, novelties, gifts and stationery throughout the world. In addition, the Company
operates specialty retail party goods stores in the United States, and franchises both individual
stores and franchise areas throughout the United States and Puerto Rico, under the names Party
City, Party America, The Paper Factory and Halloween USA. The Company also operates specialty
retail party and social expressions supply stores under the name Factory Card & Party Outlet
(FCPO). The Company is a wholly-owned subsidiary of AAH Holdings Corporation (AAH).
Note 2 Acquisitions
On December 21, 2009, the Company entered into an Asset Purchase Agreement with American
Greetings Corporation (American Greetings) under which it acquired certain assets, equipment
and processes used in the manufacture and distribution of party goods effective on March 1,
2010. In connection with the Asset Purchase Agreement, the companies also entered into a
Supply and Distribution Agreement and a Licensing Agreement (collectively, the Agreements).
Under the terms of the Agreements, on March 1, 2010, the Company has exclusive rights to
manufacture and distribute products into various channels including the party store channel.
American Greetings will continue to distribute party goods to various channels including to its
mass, drug, grocery, and specialty retail customers. American Greetings will purchase
substantially all of their party goods requirements from the Company and the Company will
license from American Greetings the Designware brand and other character licenses. The
results of this newly acquired business are included in the condensed consolidated financial
statements since the March 1, 2010 acquisition date and are reported in the Wholesale segment.
The acquisition-date fair value of the total consideration transferred was $45,881,
including cash of $24,881 which was held in escrow at December 31, 2009 and reported in
other assets in the consolidated balance sheet at that date, and a warrant to purchase
approximately 2% of the Common Stock of AAH. The fair value of the warrant was determined
based on the agreement between the parties.
The American Greetings acquisition has been accounted for as a purchase business
combination. The excess of the purchase price over the tangible assets and identified
intangible assets acquired was assigned to goodwill. The following summarizes the estimated fair
value of the assets acquired, based on preliminary valuation and subject to change: inventory
of $4,000, fixed assets of $3,445, and intangible license rights of $13,812, which are being
amortized over the remaining license periods averaging 2.5 years. The remaining $24,624
represents goodwill which is not being amortized. Goodwill arises because the purchase price
reflects the strategic fit and expected synergies this business will bring to the Companys
operations. The entire excess amount of $38,436 is deductible over 15 years for tax purposes.
Proforma results have not been presented because the effect of this business combination
would not result in a materially different amount of revenue or net income (loss) had the
acquisition occurred at the beginning of each period presented. The acquisition costs related
to the transaction were immaterial to the condensed consolidated financial
statements.
Note 3 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2010
and for the three months ended March 31, 2010 and 2009, and the audited balance sheet as of
December 31, 2009, include the accounts of the Company and its majority-owned and controlled
entities. All material intercompany balances and transactions have been eliminated in
consolidation. The unaudited condensed 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 items) considered necessary for a fair presentation
have been included in the unaudited condensed consolidated financial statements. Operating results
for the three months ended March 31, 2010 are not necessarily indicative of the results to be
expected for the year ending December 31, 2010. Our business is subject to substantial seasonal
variations, as our retail segment has realized a significant portion of its net sales, cash flow
and net income in the fourth quarter of each year, principally due to its Halloween season sales in
October and, to a lesser extent, other holiday season sales at the end of the calendar year. We
expect that this general pattern will continue. Our results of operations may also be affected by
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 the Companys Annual Report on Form 10-K for the year ended December 31,
2009, as filed with the Securities and Exchange Commission.
7
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
Note 4 Inventories
Inventories consisted of the following:
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Finished goods |
$ | 323,398 | $ | 325,421 | ||||
Raw Materials |
12,474 | 12,650 | ||||||
Work in Process |
5,667 | 6,431 | ||||||
341,539 | 344,502 | |||||||
Reserve for slow-moving and obsolete inventory |
(8,340 | ) | (8,552 | ) | ||||
$ | 333,199 | $ | 335,950 | |||||
Inventories are valued at the lower of cost or market. The Company determines the cost of
inventory at its retail stores using the weighted average method, which approximate the first-in,
first-out method. All other inventory cost is determined using the first-in, first-out method.
Note 5 Income Taxes
The income tax benefit for the three months ended March 31, 2010 and 2009 were determined
based upon estimates of the Companys consolidated effective income tax rates of 35.7% for the year
ending December 31, 2010 and 36.9% for the year ending December 31, 2009, respectively. The
differences between the estimated consolidated effective income tax rate and the U.S. federal
statutory rate are primarily attributable to state income taxes and available domestic
manufacturing deductions. In addition, the income tax benefit for the first quarters of both 2009
and 2010 reflect the expiration of state statutes of limitations resolving previously unrecognized
tax benefits. The income tax benefit for the first quarter of 2009 also reflects the favorable
settlement of the audits of the Companys 2005 and 2006 federal tax returns during the quarter.
Note 6 Restructuring
In connection with the November 2007 acquisition of FCPO, $9,101
was accrued related to plans to restructure FCPOs merchandising assortment and
administrative operations and involuntarily terminate a limited number of FCPO personnel.
Through March 31, 2010, the Company incurred $6,853 in restructuring costs including $150
incurred in the three months ended March 31, 2010. The Company expects to incur the
remaining balance of $2,248 in 2010.
During October of 2009, the Company communicated its plan to close the FCPO corporate
office in Naperville, Illinois and to consolidate its retail corporate office operations
with those of Party City, in Rockaway, New Jersey. The Company will continue to utilize the
Naperville facility as a distribution center for greeting cards and other products. In
connection with the closing, the Company recorded additional planned severances costs of
$1,800 in 2009. Through March 31, 2010, the Company had made severance payments of $1,300
and expects to pay additional severance of $500 during the remainder of 2010. In addition,
in connection with the closing, during the quarter ended March 31, 2010, the Company
incurred $900 in retention costs and expects to incur additional retention costs of $600
during the remainder of 2010.
Note 7 Comprehensive (Loss) Income
Comprehensive (loss) income attributable to Amscan Holdings, Inc. consisted of the
following:
Three Months ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net
(loss) income attributable to Amscan Holdings, Inc. |
$ | (412 | ) | $ | 2,403 | |||
Net change in cumulative translation adjustment |
(1,032 | ) | (743 | ) | ||||
Change in fair value of interest rate swap
contracts, net of income tax expense of $290,
and $68 |
494 | 115 | ||||||
Change in fair value of foreign exchange
contracts, net of income tax expense (benefit)
of $313, and $(127) |
532 | (217 | ) | |||||
Comprehensive (loss) income |
$ | (418 | ) | $ | 1,558 | |||
8
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
Note 8 Capital Stock
At March 31, 2010 and December 31, 2009, the Companys 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 30,226.50 were issued
and outstanding. Of these shares, 592.84 shares were redeemable at March 31, 2010 and December 31,
2009, and are classified as redeemable common securities on the balance sheet, as described below.
Certain employee stockholders owned 592.84 shares of AAH common stock at both March 31,
2010 and December 31, 2009. Under the terms of the AAH stockholders agreement dated April 30,
2004, as amended, the Company has an option to purchase all of the shares of common stock held by
former employees and, under certain circumstances, former employee stockholders can require the
Company to purchase all of their shares held by the former employee. The purchase price as
prescribed in the stockholders agreement 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 the Company to certain employee stockholders based on the
estimated fair market value of fully paid and vested common securities totaled $16,807 at March 31,
2010 and December 31, 2009, and is classified as redeemable common securities on the consolidated
balance sheet, with a corresponding adjustment to stockholders equity. As there is no active
market for the Companys common stock, the Company estimated the fair value of its common stock
based on a valuation calculated using a multiple of earnings.
In addition, in 2004, the Companys CEO and President exchanged vested options in a
predecessor company for fully vested options to purchase common stock of the Company. Since these
options vested immediately and can be exercised upon the death or disability of the officer and put
back to the Company, they are reflected as redeemable common securities of $1,582 on the Companys
balance sheet.
Note 9 Segment Information
Industry Segments
The Company has two identifiable business segments. The Wholesale segment includes the
design, manufacture, contract for manufacture and wholesale distribution of party goods, including
paper and plastic tableware, metallic balloons, accessories, novelties, gifts and stationery. The
Retail segment includes the operation of company-owned retail party supply superstores in the
United States and the sale of franchises on an individual store and franchise area basis throughout
the United States and Puerto Rico.
The Companys industry segment data for the three months ended March 31, 2010 and March
31, 2009 is as follows:
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended March 31, 2010 |
||||||||||||
Revenues: |
||||||||||||
Net sales |
$ | 160,959 | $ | 198,456 | $ | 359,415 | ||||||
Royalties and franchise fees |
| 3,844 | 3,844 | |||||||||
Total revenues |
160,959 | 202,300 | 363,259 | |||||||||
Eliminations |
(55,036 | ) | | (55,036 | ) | |||||||
Net Revenues |
$ | 105,923 | $ | 202,300 | $ | 308,223 | ||||||
Income (loss) from operations |
$ | 19,483 | $ | (11,195 | ) | $ | 8,288 | |||||
Interest expense, net |
9,301 | |||||||||||
Other expense, net |
(69 | ) | ||||||||||
Loss before income tax benefit |
$ | (944 | ) | |||||||||
Total assets |
$ | 811,933 | $ | 691,219 | $ | 1,503,152 | ||||||
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended March 31, 2009 |
||||||||||||
Revenues: |
||||||||||||
Net sales |
$ | 157,328 | $ | 202,004 | $ | 359,332 | ||||||
Royalties and franchise fees |
| 3,694 | 3,694 | |||||||||
Total revenues |
157,328 | 205,698 | 363,026 | |||||||||
Eliminations |
(50,286 | ) | | (50,286 | ) | |||||||
Net Revenues |
$ | 107,042 | $ | 205,698 | $ | 312,740 | ||||||
Income (loss) from operations |
$ | 16,598 | $ | (4,397 | ) | $ | 12,201 | |||||
Interest expense, net |
10,665 | |||||||||||
Other expense, net |
207 | |||||||||||
Income before income taxes |
$ | 1,329 | ||||||||||
Total assets |
$ | 781,689 | $ | 708,708 | $ | 1,490,397 | ||||||
9
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
Geographic Segments
The Companys export sales, other than inter-company sales between geographic areas, are
not material. Inter-company sales between geographic areas primarily consist of sales of finished
goods for distribution in foreign markets, and are made at cost plus a share of operating profit.
No single foreign operation is significant to the Companys consolidated operations.
Note 10 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 11 Stock Option Plan
The Company recorded $93 and $219 of stock-based compensation in general and
administrative expenses during the three months ended March 31, 2010 and 2009, respectively.
During March 2010, the Company granted 73 time options and 96 performance options to
employees under the terms of the AAH 2004 Equity Incentive Plan. The options vest at a rate of 20%
per year and are exercisable at $28,350 per share. The ability to exercise vested performance
options is contingent upon the occurrence of an initial public offering or a change in control, as
defined, and the achievement of specific investment returns to the Companys stockholders.
There were no options exercised during the three-month period ended March 31, 2010. There are
options to purchase 3,090.63 shares of common stock outstanding at March 31, 2010.
Note 12 Hedging Transactions, Derivative Financial Instruments and Fair Value
The Company is directly and indirectly affected by changes in certain market
conditions. These changes in market conditions may adversely impact the Companys financial
performance and are referred to as market risks. The Company, when deemed appropriate, uses
derivatives as a risk management tool to mitigate the potential impact of certain market
risks. The primary market risks managed through the use of derivative financial instruments
are interest rate risk and foreign currency exchange rate risk.
Interest Rate Risk Management
As part of the Companys risk management strategy, the Company periodically uses
interest rate swap agreements to hedge the variability of cash flows on floating rate debt
obligations. Accordingly, interest rate swap agreements are reflected in the consolidated balance
sheets at fair value and the related gains and losses on these contracts are deferred in equity
and recognized in interest expense over the same period in which the related interest payments
being hedged are recognized in income. The fair value of an interest rate swap agreement is the
estimated amount that the counterparty would receive or pay to terminate the swap agreement at
the reporting date, taking into account current interest rates and the current creditworthiness
of the swap counterparty.
At March 31, 2010 and December 31, 2009, the Company had interest rate swap agreements with
notional amounts of $142,972 and $163,441 respectively, and a net liability fair value of $5,529
and $6,313 at March 31, 2010 and December 31, 2009, respectively. The swap agreements had
unrealized net losses of $3,483 and $3,977 at March 31, 2010 and December 31, 2009, respectively,
which were included in accumulated other comprehensive income (loss). No components of these
agreements are excluded in the measurement of hedge effectiveness. As these hedges are 100%
effective, there is no current impact on earnings due to hedge ineffectiveness.
Foreign Exchange Risk Management
A portion of the Companys cash flows is derived from transactions denominated in
foreign currencies. The United States dollar value of transactions denominated in foreign
currencies fluctuates as the United States dollar strengthens or weakens relative to these
foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on
transactions denominated in foreign currencies, including the British Pound Sterling and the
Euro, the Company enters into foreign exchange contracts with major international financial
institutions. These forward contracts, which typically mature within one year, are designed to
hedge anticipated foreign currency transactions, primarily inter-company inventory purchases and
trade receivables. No components of the contracts are excluded in the measurement of hedge
effectiveness. The critical terms of the foreign exchange contracts are the same as the
underlying forecasted transactions; therefore, changes in the fair value of foreign exchange
contracts should be highly effective in offsetting changes in the expected cash flows from the
forecasted transactions.
10
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
At March 31, 2010 and December 31, 2009 the Company had foreign currency exchange contracts
with a notional amount of $14,400 and $19,200, respectively and fair value of $576 and $(269),
respectively. The foreign currency exchange contracts are reflected in the consolidated balance
sheets at fair value. The fair value of the foreign currency exchange contracts is the estimated
amount that the counter-parties would receive or pay to terminate the foreign currency exchange
contracts at the reporting date, taking into account current foreign exchange spot rates. The
fair value adjustment at March 31, 2010 and 2009 resulted in an unrealized net gain
of $532 and an unrealized net loss of $127, respectively, which are included in accumulated other
comprehensive income (loss). As these hedges are 100% effective, there is no current impact on
earnings due to hedge ineffectiveness. The Company anticipates that substantially all gains and
losses in accumulated other comprehensive income (loss) related to these foreign exchange
contracts will be reclassified into earnings by December 2010.
Fair Value Measurement
ASC Subtopic 820 defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at the measurement
date. ASC Subtopic 820 established a three-level fair value hierarchy that prioritizes the inputs
used to measure fair value. This hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair
value are as follows:
| 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. |
The following tables show assets and liabilities as of March 31, 2010 and December 31, 2009,
that are measured at fair value on a recurring basis (in thousands):
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Other | Unobservable | Total as of | |||||||||||||
Identical Assets or | Observable | Inputs | March 31, | |||||||||||||
Liabilities (Level 1) | Inputs (Level 2) | (Level 3) | 2010 | |||||||||||||
Derivative assets |
| $ | 583 | | $ | 583 | ||||||||||
Derivative liabilities |
(5,536 | ) | | (5,536 | ) |
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Other | Unobservable | Total as of | |||||||||||||
Identical Assets or | Observable | Inputs | December 31, | |||||||||||||
Liabilities (Level 1) | Inputs (Level 2) | (Level 3) | 2009 | |||||||||||||
Derivative assets |
| | | | ||||||||||||
Derivative liabilities |
(6,582 | ) | | (6,582 | ) |
In addition to assets and liabilities that are recorded at fair value on a recurring basis,
the Company is required to record other assets and liabilities at fair value on a nonrecurring
basis, generally as a result of impairment charges.
11
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
The carrying amounts for cash and cash equivalents, accounts receivables, prepaid expenses
and other current assets, accounts payable, accrued expenses and other current liabilities
approximate fair value at March 31, 2010 and December 31, 2009 because of the short-term maturity
of those instruments or their variable rates of interest.
The carrying amount and fair value (based on market prices) of the Companys Term Loan and
$175,000 Senior Subordinated Notes are as follows:
March 31, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Term Loan |
$ | 363,750 | $ | 348,291 | $ | 364,688 | $ | 331,866 | ||||||||
$175,000 Senior Subordinated Notes |
175,000 | 166,250 | 175,000 | 166,250 |
The carrying amounts for other long-term debt approximate fair value at March 31, 2010 and
December 31, 2009, based on the discounted future cash flow of each instrument at rates currently
offered for similar debt instruments of comparable maturity.
The following table summarizes the Companys outstanding derivative instruments on a gross
basis as recorded on its consolidated balance sheets as of March 31, 2010 and December 31, 2009.
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||
Notional Amounts | March 31, 2010 | December 31, 2009 | March 31, 2010 | December 31, 2009 | ||||||||||||||||||||||||||||||||||||
Balance | Balance | Balance | Balance | |||||||||||||||||||||||||||||||||||||
March 31, | December 31, | Sheet | Fair | Sheet | Fair | Sheet | Fair | Sheet | Fair | |||||||||||||||||||||||||||||||
Derivative Instrument | 2010 | 2009 | Line | Value | Line | Value | Line | Value | Line | Value | ||||||||||||||||||||||||||||||
Interest Rate Hedge |
$ | 142,972 | $ | 163,441 | $ | | $ | | (b) AE | $ | (5,529 | ) | (b) AE | $ | (6,313 | ) | ||||||||||||||||||||||||
Foreign Exchange Contracts |
$ | 14,400 | $ | 19,200 | (a) PP | $ | 583 | (a) PP | | (a) PP | $ | (7 | ) | (b) AE | $ | (269 | ) | |||||||||||||||||||||||
Total Hedges |
$ | 157,372 | $ | 182,641 | $ | 583 | $ | | $ | (5,536 | ) | $ | (6,582 | ) | ||||||||||||||||||||||||||
(a) | PP = Prepaid expenses and other current assets | |
(b) | AE = Accrued expenses |
Note 13 Recently Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB ) amended its accounting
guidance on the consolidation of variable interest entities (VIE). Among other things, the
new guidance requires a qualitative rather than a quantitative assessment to determine the
primary beneficiary of a VIE based on whether the entity (1) has the power to direct matters
that most significantly impact the activities of the VIE and (2) has the obligation to
absorb losses or the right to receive benefits of the VIE that could potentially be
significant to the VIE. In addition, the amended guidance requires an ongoing
reconsideration of the primary beneficiary. The provisions of this new guidance were
effective as of the beginning of our 2010 fiscal year, and did not have an impact on our
financial statements.
The Financial Accounting Standards Board (FASB) issued
guidance to amend the disclosure requirements related to recurring and nonrecurring fair
value measurements. The guidance requires new disclosures on the transfers of assets and
liabilities between Level 1 (quoted prices in active market for identical assets and
liabilities) and Level 2 (significant other observable inputs) of the fair value
measurement hierarchy, including the reasons and the timing of transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuances, and
settlements of the assets and liabilities measured using significant unobservable inputs
(Level 3 fair value measurements). The guidance became effective for the Company with the
reporting period beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for the Company
with the reporting period beginning July 1, 2011. Other than requiring additional
disclosures, adoption of this new guidance did not have a material impact on the condensed
consolidated financial statements. See Note 12 Hedge Transactions, Derivative Financial
Instruments and Fair Value
12
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Amounts in thousands, except share amounts)
Note 14 Condensed Consolidating Financial Information
Borrowings under the Term Loan Credit Agreement, the ABL Credit Agreement and the
Companys 8.75% $175,000 senior subordinated notes issued on April 30, 2004 and due on April 30,
2014 are guaranteed jointly and severally, fully and unconditionally, by the following wholly-owned
domestic subsidiaries of the Company (the Guarantors):
| Amscan Inc. | |
| Am-Source, LLC | |
| Anagram Eden Prairie Property Holdings LLC | |
| Anagram International, Inc. | |
| Anagram International Holdings, Inc. | |
| Anagram International, LLC | |
| Gags & Games, Inc. | |
| JCS Packaging Inc. (formerly JCS Realty Corp.) | |
| M&D Industries, Inc. | |
| Party City Corporation | |
| PA Acquisition Corporation | |
| SSY Realty Corp. |
Non-guarantor subsidiaries (Non-guarantors) include the following:
| Amscan (Asia-Pacific) Pty. Ltd. | |
| Amscan de Mexico, S.A. de C.V. | |
| Amscan Distributors (Canada) Ltd. | |
| Anagram Espana, S.A. | |
| Anagram France S.C.S. | |
| Amscan Holdings Limited | |
| Anagram International (Japan) Co., Ltd. | |
| Amscan Partyartikel GmbH | |
| JCS Hong Kong Ltd. | |
| Party City Franchise Group Holdings, LLC |
The following information presents condensed consolidating balance sheets at March
31, 2010 and December 31, 2009, and the condensed consolidating statements of operations for the
three months ended March 31, 2010 and 2009, and the related condensed consolidating statements of
cash flows for the three months ended March 31, 2010 and 2009, for the combined Guarantors and the
combined Non-guarantors, together with the elimination entries necessary to consolidate the
entities comprising the combined companies.
13
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2010
(Amounts in thousands)
March 31, 2010
(Amounts in thousands)
AHI and | Combined | |||||||||||||||
Combined | Non- | |||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 12,293 | $ | 4,761 | $ | | $ | 17,054 | ||||||||
Accounts receivable, net of allowances |
66,872 | 21,827 | | 88,699 | ||||||||||||
Inventories, net of allowances |
292,741 | 46,930 | (6,472 | ) | 333,199 | |||||||||||
Prepaid expenses and other current assets |
65,026 | 5,181 | 2,010 | 72,217 | ||||||||||||
Total current assets |
436,932 | 78,699 | (4,462 | ) | 511,169 | |||||||||||
Property, plant and equipment, net |
165,442 | 10,395 | | 175,837 | ||||||||||||
Goodwill |
538,268 | 37,374 | 558 | 576,200 | ||||||||||||
Trade names |
157,283 | 157,283 | ||||||||||||||
Other intangible assets, net |
41,856 | 24,355 | 66,211 | |||||||||||||
Other assets, net |
139,041 | 21,046 | (143,635 | ) | 16,452 | |||||||||||
Total assets |
$ | 1,478,822 | $ | 171,869 | $ | (147,539 | ) | $ | 1,503,152 | |||||||
LIABILITIES, REDEEMABLE COMMON
SECURITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Loans and notes payable |
110,805 | 7 | | 110,812 | ||||||||||||
Accounts payable |
53,676 | 7,955 | | 61,631 | ||||||||||||
Accrued expenses |
81,542 | 7,946 | | 89,488 | ||||||||||||
Income taxes payable |
26,431 | (744 | ) | (298 | ) | 25,389 | ||||||||||
Redeemable warrants |
15,444 | | | 15,444 | ||||||||||||
Current portion of long-term obligations |
28,381 | 6,500 | | 34,881 | ||||||||||||
Total current liabilities |
316,279 | 21,664 | (298 | ) | 337,645 | |||||||||||
Long-term obligations, excluding current portion |
520,672 | 15,500 | | 536,172 | ||||||||||||
Deferred income tax liabilities |
101,668 | 539 | | 102,207 | ||||||||||||
Other |
17,429 | 88,840 | (97,428 | ) | 8,841 | |||||||||||
Total liabilities |
956,048 | 126,543 | (97,726 | ) | 984,865 | |||||||||||
Redeemable common securities |
18,389 | | | 18,389 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Stockholders equity: |
||||||||||||||||
Common Stock |
| 339 | (339 | ) | | |||||||||||
Additional paid-in capital |
356,876 | 46,115 | (46,075 | ) | 356,916 | |||||||||||
Retained earnings |
155,910 | (2,797 | ) | (3,968 | ) | 149,145 | ||||||||||
Accumulated other comprehensive loss |
(8,401 | ) | (569 | ) | 569 | (8,401 | ) | |||||||||
Amscan Holdings, Inc. stockholders equity |
504,385 | 43,088 | (49,813 | ) | 497,660 | |||||||||||
Noncontrolling interests |
| 2,238 | | 2,238 | ||||||||||||
Total stockholders equity |
504,385 | 45,326 | (49,813 | ) | 499,898 | |||||||||||
Total liabilities, redeemable
common securities and
stockholders equity |
$ | 1,478,822 | $ | 171,869 | $ | (147,539 | ) | $ | 1,503,152 | |||||||
14
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONSOLIDATING BALANCE SHEET
December 31, 2009
(Amounts in thousands)
December 31, 2009
(Amounts in thousands)
AHI and | ||||||||||||||||
Combined | Combined Non- | |||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 8,240 | $ | 7,180 | $ | | $ | 15,420 | ||||||||
Accounts receivable, net of allowances |
60,655 | 22,126 | | 82,781 | ||||||||||||
Inventories, net of allowances |
295,004 | 41,893 | (947 | ) | 335,950 | |||||||||||
Prepaid expenses and other current assets |
63,528 | 6,013 | | 69,541 | ||||||||||||
Total current assets |
427,427 | 77,212 | (947 | ) | 503,692 | |||||||||||
Property, plant and equipment, net |
163,999 | 10,995 | | 174,994 | ||||||||||||
Goodwill |
510,400 | 38,039 | | 548,439 | ||||||||||||
Trade names |
157,283 | | | 157,283 | ||||||||||||
Other intangible assets, net |
29,948 | 24,721 | | 54,669 | ||||||||||||
Other assets, net |
160,401 | 7,033 | (126,010 | ) | 41,424 | |||||||||||
Total assets |
$ | 1,449,458 | $ | 158,000 | $ | (126,957 | ) | $ | 1,480,501 | |||||||
LIABILITIES, REDEEMABLE
COMMON SECURITIES
AND STOCKHOLDERS EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Loans and notes payable |
$ | 76,990 | $ | 645 | $ | | $ | 77,635 | ||||||||
Accounts payable |
67,235 | 9,666 | | 76,901 | ||||||||||||
Accrued expenses |
83,430 | 10,250 | | 93,680 | ||||||||||||
Income taxes payable |
32,969 | (817 | ) | (91 | ) | 32,061 | ||||||||||
Redeemable warrants |
15,444 | | | 15,444 | ||||||||||||
Current portion of long-term obligations |
30,906 | 4,000 | | 34,906 | ||||||||||||
Total current liabilities |
306,974 | 23,744 | (91 | ) | 330,627 | |||||||||||
Long-term obligations, excluding current portion |
519,892 | 19,000 | | 538,892 | ||||||||||||
Deferred income tax liabilities |
101,000 | 570 | | 101,570 | ||||||||||||
Other |
20,288 | 71,569 | (79,956 | ) | 11,901 | |||||||||||
Total liabilities |
948,154 | 114,883 | (80,047 | ) | 982,990 | |||||||||||
Redeemable common securities |
18,389 | | | 18,389 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Stockholders equity: |
||||||||||||||||
Common Stock |
| 339 | (339 | ) | | |||||||||||
Additional paid-in capital |
335,731 | 46,167 | (46,075 | ) | 335,823 | |||||||||||
Retained earnings |
155,579 | (5,476 | ) | (546 | ) | 149,557 | ||||||||||
Accumulated other comprehensive loss |
(8,395 | ) | (50 | ) | 50 | (8,395 | ) | |||||||||
Amscan Holdings, Inc. stockholders equity |
482,915 | 40,980 | (46,910 | ) | 476,985 | |||||||||||
Noncontrolling interests |
| 2,137 | | 2,137 | ||||||||||||
Total stockholders equity |
482,915 | 43,117 | (46,910 | ) | 479,122 | |||||||||||
Total liabilities, redeemable common
securities and stockholders equity |
$ | 1,449,458 | $ | 158,000 | $ | (126,957 | ) | $ | 1,480,501 | |||||||
15
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2010
(Amounts in thousands)
Three Months Ended March 31, 2010
(Amounts in thousands)
AHI and | ||||||||||||||||
Combined | Combined Non- | |||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Net sales |
$ | 266,083 | $ | 53,608 | $ | (15,312 | ) | $ | 304,379 | |||||||
Royalties and franchise fees |
3,844 | | | 3,844 | ||||||||||||
Total revenues |
269,927 | 53,608 | (15,312 | ) | 308,223 | |||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
175,250 | 38,027 | (13,377 | ) | 199,900 | |||||||||||
Wholesale selling expenses |
7,757 | 2,633 | | 10,390 | ||||||||||||
Retail operating expenses |
45,884 | 8,301 | (1,225 | ) | 52,960 | |||||||||||
Franchise expenses |
3,124 | | | 3,124 | ||||||||||||
General and administrative expenses |
27,110 | 3,145 | (330 | ) | 29,925 | |||||||||||
Art and development costs |
3,660 | (24 | ) | | 3,636 | |||||||||||
Total expenses |
262,785 | 52,082 | (14,932 | ) | 299,935 | |||||||||||
Income from operations |
7,142 | 1,526 | (380 | ) | 8,288 | |||||||||||
Interest expense, net |
8,653 | 648 | | 9,301 | ||||||||||||
Other income (expense), net |
(1,394 | ) | 322 | 1,003 | (69 | ) | ||||||||||
(Loss) income before income taxes |
(117 | ) | 556 | (1,383 | ) | (944 | ) | |||||||||
Income tax (benefit) expense |
(408 | ) | 95 | (262 | ) | (575 | ) | |||||||||
Net income (loss) |
$ | 291 | $ | 461 | $ | (1,121 | ) | $ | (369 | ) | ||||||
Less net income attributable to noncontrolling interests |
| 43 | | 43 | ||||||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
$ | 291 | $ | 418 | $ | (1,121 | ) | $ | (412 | ) | ||||||
16
Table of Contents
AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2009
(Amounts in thousands)
Three Months Ended March 31, 2009
(Amounts in thousands)
AHI and | ||||||||||||||||
Combined | Combined Non- | |||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Net sales |
$ | 275,263 | $ | 39,672 | $ | (5,889 | ) | $ | 309,046 | |||||||
Royalties and franchise fees |
3,694 | | | 3,694 | ||||||||||||
Total revenues |
278,957 | 39,672 | (5,889 | ) | 312,740 | |||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
184,859 | 26,690 | (6,132 | ) | 205,417 | |||||||||||
Wholesale selling expenses |
8,217 | 1,954 | | 10,171 | ||||||||||||
Retail operating expenses |
43,599 | 7,902 | | 51,501 | ||||||||||||
Franchise expenses |
2,889 | | | 2,889 | ||||||||||||
General and administrative expenses |
24,301 | 3,464 | (330 | ) | 27,435 | |||||||||||
Art and development costs |
3,126 | | | 3,126 | ||||||||||||
Total expenses |
266,991 | 40,010 | (6,462 | ) | 300,539 | |||||||||||
Income (loss) from operations |
11,966 | (338 | ) | 573 | 12,201 | |||||||||||
Interest expense, net |
10,151 | 514 | | 10,665 | ||||||||||||
Other (income) expense, net |
(1,182 | ) | 14 | 1,375 | 207 | |||||||||||
Income (loss) before income taxes |
2,997 | (866 | ) | (802 | ) | 1,329 | ||||||||||
Income tax benefit |
(662 | ) | (560 | ) | 90 | (1,132 | ) | |||||||||
Net income (loss) |
3,659 | (306 | ) | (892 | ) | 2,461 | ||||||||||
Less Net income attributed to noncontrolling interest |
| 58 | | 58 | ||||||||||||
Net income (loss) attributable to Amscan Holdings,
Inc. |
$ | 3,659 | $ | (364 | ) | $ | (892 | ) | $ | 2,403 | ||||||
17
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2010
(Amounts in thousands)
Three Months Ended March 31, 2010
(Amounts in thousands)
AHI and | ||||||||||||||||
Combined | Combined | |||||||||||||||
Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||
Cash flows used in operating activities: |
||||||||||||||||
Net income (loss) |
$ | 291 | $ | 461 | $ | (1,121 | ) | $ | (369 | ) | ||||||
Less: net income attributable to noncontrolling interest |
| 43 | | 43 | ||||||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
291 | 418 | (1,121 | ) | (412 | ) | ||||||||||
Adjustments to reconcile net income (loss) to net cash used in
operating activities: |
||||||||||||||||
Depreciation and amortization expense |
10,547 | 1,027 | | 11,574 | ||||||||||||
Amortization of deferred financing costs |
154 | 67 | | 221 | ||||||||||||
Provision for doubtful accounts |
248 | 56 | | 304 | ||||||||||||
Deferred income tax expense |
377 | | | 377 | ||||||||||||
Deferred rent |
346 | 91 | | 437 | ||||||||||||
Undistributed gain in unconsolidated joint venture |
(288 | ) | | | (288 | ) | ||||||||||
Loss on disposal of equipment |
106 | 197 | | 303 | ||||||||||||
Equity based compensation |
93 | | | 93 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
(Increase) decrease in accounts receivable |
(4,712 | ) | 243 | | (4,469 | ) | ||||||||||
Decrease (increase) in inventories |
2,264 | (223 | ) | 711 | 2,752 | |||||||||||
Increase in prepaid expenses and other current assets |
(2,983 | ) | (928 | ) | (229 | ) | (4,140 | ) | ||||||||
Decrease in accounts payable, accrued expenses and income taxes payable |
(24,366 | ) | (566 | ) | 639 | (24,293 | ) | |||||||||
Net cash (used in) provided by operating activities |
(17,923 | ) | 382 | | (17,541 | ) | ||||||||||
Cash flows used in investing activities: |
||||||||||||||||
Cash paid in connection with acquisitions |
(3,585 | ) | | | (3,585 | ) | ||||||||||
Capital expenditures |
(6,577 | ) | (347 | ) | | (6,924 | ) | |||||||||
Proceeds from disposal of property and equipment |
54 | | | 54 | ||||||||||||
Net cash used in investing activities |
(10,108 | ) | (347 | ) | | (10,455 | ) | |||||||||
Cash flows provided by financing activities: |
||||||||||||||||
Repayments of loans, notes payable and long-term obligations |
(1,745 | ) | (1,638 | ) | | (3,383 | ) | |||||||||
Proceeds from loans, notes payable and long-term obligations |
33,815 | | | 33,815 | ||||||||||||
Net cash provided by financing activities |
32,070 | (1,638 | ) | | 30,432 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
14 | (816 | ) | | (802 | ) | ||||||||||
Net decrease in cash and cash equivalents |
4,053 | (2,419 | ) | | 1,634 | |||||||||||
Cash and cash equivalents at beginning of period |
8,240 | 7,180 | | 15,420 | ||||||||||||
Cash and cash equivalents at end of period |
$ | 12,293 | $ | 4,761 | $ | | $ | 17,054 | ||||||||
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AMSCAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three months Ended March 31, 2009
(Amounts in thousands)
Three months Ended March 31, 2009
(Amounts in thousands)
AHI and | Combined | |||||||||||||||
Combined | Non- | |||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Cash flows (used in) provided by operating activities: |
||||||||||||||||
Net income (loss) |
$ | 3,659 | $ | (306 | ) | $ | (892 | ) | $ | 2,461 | ||||||
Less: net income attributable to noncontrolling interest |
| 58 | | 58 | ||||||||||||
Net income (loss) attributable to Amscan Holdings, Inc. |
3,659 | (364 | ) | (892 | ) | 2,403 | ||||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities: |
||||||||||||||||
Depreciation and amortization expense |
9,504 | 1,142 | | 10,646 | ||||||||||||
Amortization of deferred financing costs |
478 | 66 | | 544 | ||||||||||||
Provision for doubtful accounts |
387 | 50 | | 437 | ||||||||||||
Deferred income tax benefit |
(1,818 | ) | | | (1,818 | ) | ||||||||||
Deferred rent |
366 | | | 366 | ||||||||||||
Undistributed loss in unconsolidated joint venture |
130 | | | 130 | ||||||||||||
Loss on disposal of equipment |
175 | | | 175 | ||||||||||||
Equity based compensation |
219 | | | 219 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Decrease (increase) in accounts receivable |
5,389 | (1,459 | ) | | 3,930 | |||||||||||
Decrease (increase) in inventories |
23,982 | (777 | ) | (243 | ) | 22,962 | ||||||||||
Increase in prepaid expenses and other current assets |
(3,110 | ) | (4,805 | ) | | (7,915 | ) | |||||||||
(Decrease) increase in accounts payable, accrued expenses and
income taxes payable |
(74,138 | ) | 6,929 | 1,135 | (66,074 | ) | ||||||||||
Net cash (used in) provided by operating activities |
(34,777 | ) | 782 | | (33,995 | ) | ||||||||||
Cash flows used in investing activities: |
||||||||||||||||
Cash paid in connection with acquisitions |
(2 | ) | | | (2 | ) | ||||||||||
Capital expenditures |
(5,520 | ) | (441 | ) | | (5,961 | ) | |||||||||
Proceeds from disposal of property and equipment |
24 | | | 24 | ||||||||||||
Net cash used in investing activities |
(5,498 | ) | (441 | ) | | (5,939 | ) | |||||||||
Cash flows provided by (used in) financing activities: |
||||||||||||||||
Repayments of loans, notes payable and long-term obligations |
(1,591 | ) | (500 | ) | | (2,091 | ) | |||||||||
Proceeds from loans, notes payable and long-term obligations |
40,124 | | | 40,124 | ||||||||||||
Net cash provided by (used in) financing activities |
38,533 | (500 | ) | | 38,033 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(266 | ) | 914 | | 648 | |||||||||||
Net (decrease) increase in cash and cash equivalents |
(2,008 | ) | 755 | | (1,253 | ) | ||||||||||
Cash and cash equivalents at beginning of period |
8,544 | 4,514 | | 13,058 | ||||||||||||
Cash and cash equivalents at end of period |
$ | 6,536 | $ | 5,269 | $ | | $ | 11,805 | ||||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THREE MONTHS ENDED MARCH 31, 2009
The following tables set forth the Companys operating results as a percentage of total
revenues, for the three months ended March 31, 2010 and 2009.
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
Net sales |
98.8 | % | 98.8 | % | ||||
Royalties and franchise fees |
1.2 | 1.2 | ||||||
Total revenues |
100.0 | 100.0 | ||||||
Expenses: |
||||||||
Cost of sales |
64.9 | 65.7 | ||||||
Wholesale selling expenses |
3.4 | 3.3 | ||||||
Retail operating expenses |
17.2 | 16.5 | ||||||
Franchise expenses |
1.0 | 0.9 | ||||||
General and administrative expenses |
9.7 | 8.8 | ||||||
Art and development costs |
1.1 | 0.9 | ||||||
Total expenses |
97.3 | 96.1 | ||||||
Income from operations |
2.7 | 3.9 | ||||||
Interest expense, net |
3.0 | 3.4 | ||||||
Other expense, net |
0.0 | 0.1 | ||||||
(Loss) income before income taxes |
(0.3 | ) | 0.4 | |||||
Income tax benefit |
(0.2 | ) | (0.4 | ) | ||||
Net (loss) income |
(0.1 | )% | 0.8 | % | ||||
Less net income attributable to noncontrolling interests |
0.0 | (0.0 | ) | |||||
Net (loss) income attributable to Amscan Holdings, Inc. |
(0.1 | )% | 0.8 | % | ||||
Three Months Ended March 31, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Dollars in | Percentage of | Dollars in | Percentage of | |||||||||||||
Thousands | Total Revenue | Thousands | Total Revenue | |||||||||||||
Revenues |
||||||||||||||||
Sales |
||||||||||||||||
Wholesale |
$ | 160,959 | 52.2 | % | $ | 157,328 | 50.3 | % | ||||||||
Eliminations |
(55,036 | ) | (17.9 | )% | (50,286 | ) | (16.1 | )% | ||||||||
Net wholesale |
105,923 | 34.4 | % | 107,042 | 34.2 | % | ||||||||||
Retail |
198,456 | 64.4 | % | 202,004 | 64.6 | % | ||||||||||
Total net sales |
304,379 | 98.8 | % | 309,046 | 98.8 | % | ||||||||||
Franchise related |
3,844 | 1.2 | % | 3,694 | 1.2 | % | ||||||||||
Total revenues |
$ | 308,223 | 100.0 | % | $ | 312,740 | 100.0 | % | ||||||||
Wholesale
Net sales at wholesale of
$105.9 million were $1.1 million or 1.0% lower than net sales, at wholesale, for
the first quarter of 2009. Net sales to our franchised party superstores and other independent
party stores totaled $40.0 million and were $3.1 million or 7.1% lower than in the first quarter of
2009, reflecting the impact of the continued soft US economy on both retailers and wholesalers. Net
sales of metallic balloons totaled $24.3 million and were $4.4 million or 22.3% higher than in
2009. The increase in balloon sales principally reflects the normalization of purchasing patterns
by domestic distributors, following their reduction of inventory levels in 2009. International sales
totaled $19.7 million and were $2.5 million or 15.2% higher than in 2009, the combination of a
first quarter price increase, favorable foreign currency exchange rates versus 2009 and unit sales
growth at certain European national accounts. Net domestic sales to non-affiliated retail channels
totaled $21.9 million and were $5.1 million or 18.8% lower than in 2009, principally due to the inclusion,
in 2009, of a sizable, one-time seasonal direct import and contract manufacturing program for a
supplier to the mass and other channels, as well as the impact of the continued soft US economy.
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Intercompany sales to our retail affiliates of $54.5 million were $4.9 million or 9.9% higher
than in the first quarter of 2009, as our retail stores began to rebuild store level inventories,
which were significantly reduced throughout 2009. The intercompany sales of our wholesale segment
are eliminated against the intercompany purchases of our retail segment in the consolidated
financial statements.
Retail
Net retail sales for company-owned stores for the first quarter of 2010 of $198.5 million were
$3.5 million or 1.8% lower than net retail sales for the first
quarter of 2009. The decrease in net retail sales is principally
reflected by both the soft economy and the operation of an average of 3.4% fewer Big Box stores
(i.e., stores generally greater than 8,000 square feet) and 34% fewer outlet stores in the first
quarter of 2010. The decrease in net sales is partially offset by the
shift of Easter season sales that occurred in the first quarter of
2010 versus the second quarter of 2009. Additionally, there was a growth in sales following the introduction of the new
Party City web site in mid 2009. Net retail sales at our Big Box stores totaled $190.7 million and
were $0.7 million or 0.4% lower than in 2009. Same store sales during the first quarter of 2010
decreased 1.7% compared to 2009 as a 2.1% decrease in transaction count was partially offset by a
0.4% increase in average dollar per transaction. Retail sales at our outlet stores totaled $7.8
million and were $2.8 million or 26.4% lower than in 2009, reflecting the decrease in outlet stores
in operation during the first quarter of 2010. Same store sales during the first quarter of 2010
decreased 11.7% compared to 2009, reflecting an 8.6% decrease in transaction count and a 3.1%
decrease in average dollar per transaction.
Gross Profit
The following table sets forth the Companys gross profit on net sales for the three months
ended March 31, 2010 and 2009.
Three Months Ended March 31, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Dollars in | Percentage of | Dollars in | Percentage of | |||||||||||||
Thousands | Total Revenue | Thousands | Total Revenue | |||||||||||||
Wholesale |
$ | 39,949 | 37.7 | % | $ | 36,905 | 34.5 | % | ||||||||
Retail |
64,531 | 32.5 | % | 66,724 | 33.0 | % | ||||||||||
Total |
$ | 104,480 | 34.3 | % | $ | 103,629 | 33.5 | % | ||||||||
The gross profit margin on net sales at wholesale for the first quarter of 2010 was 37.7%
or 320 basis points higher than in the first quarter of 2009. The increase in wholesale gross
profit margin principally reflects lower distribution costs as a percentage of sales, improvements
in manufacturing efficiency at our metallic balloon operation during the 2010 quarter and a higher
concentration of company-manufactured goods in our 2010 sales mix.
Retail gross profit margin for the first quarter of 2010 was 32.5%, or 50 basis points higher
than in 2009, primarily due to sales mix.
Operating expenses
Wholesale selling expenses of $10.4 million for the quarter ended March 31, 2010 were
$0.2 million higher than for the first quarter of 2009 as inflationary increases and the impact of
currency exchange rates was substantially offset by a reduction in
marketing expense. As
a percent of total revenues, selling expenses were 3.4% for the quarter ended March 31, 2010 and
were comparable to the first quarter of 2009.
Retail operating expenses for the quarter ended March 31, 2009 totaled $53.0 million or
$1.5 million higher than in the first quarter of 2009, principally reflecting inflationary
increases in retail expenses and the implementation of a national television-based advertising
program in the first quarter of 2010 partially offset by the impact of operating fewer FCPO and TPF
stores in 2010. As a percent of retail sales, retail operating expenses were 26.7% for the first
quarter of 2010, as compared to 25.5% for the first quarter of 2009. Franchise expenses of
$3.1 million increased to 81.3% of franchise related revenue in the first quarter of 2010 compared
to 78.2% in 2009, as a reduction in the overall number of franchisees (5.7% compared to 2009) and
related revenues resulted in the deleveraging of fixed franchise expenses.
General and administrative expenses of $29.9 million for the quarter ended March 31, 2010 were
$2.5 million higher than in the first quarter of 2009, a combination of inflationary cost
increases, the impact of foreign currency exchange rates, additional costs incurred relating to the
restructure of the FCPO corporate office in Naperville, Illinois and additional legal costs
partially offset by the benefit of a management-directed cost reduction program implemented
throughout 2009, which included reductions in work force, travel and other expenses.
Art and development costs of $3.6 million for the quarter ended March 31, 2010 were $0.5
million higher than in the first quarter of 2009, principally due to an increase in the everyday
and Halloween design teams headcount.
Interest expense, net
Interest expense of $9.3 million for the quarter ended March 31, 2010 was $1.4 million lower
than for the first quarter of 2009, reflecting lower average borrowings and LIBOR rates.
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Other expense, net
Other
(income) expense, net, was $(0.1) million for the first quarter
of 2010 versus. 0.2 million
for the first quarter of 2009. Other (income) expense, net, principally consists of our share of
(income) loss from an unconsolidated balloon distribution joint venture in Mexico. This income
improved in 2010 compared to the first quarter of 2009.
Income tax benefit
Income tax benefit for the quarters ended March 31, 2010 and 2009 was based upon
the estimated consolidated effective income tax rates of 35.7% and 37.9% for the years ending
December 31, 2010 and 2009, respectively. The decrease in the 2010 effective income tax rate is
primarily attributable to a lower average state income tax rate and higher domestic manufacturing
deductions caused by a higher rate which began in 2010. In addition, the income tax expense for
the first quarter of 2010 and 2009 reflect the expiration of state statutes of limitations
resolving previously unrecognized tax benefits, and for 2009, the favorable settlement of the
audits of our 2005 and 2006 federal tax returns during the quarter.
Liquidity and Capital Resources
Net cash used in operating activities was $17.5 million in the first quarter 2010 compared to
$34.0 million in the first quarter 2009.
Net (loss) income, adjusted for noncontrolling interests and non-cash charges, provided cash
of $12.7 million in 2010 versus $13.1 million in 2009. Changes in working capital resulted in the
use of cash of $30.2 million in 2010 versus $47.1 million in 2009, principally due to the pay down
of Halloween and other fourth quarter seasonal trade accounts payables partially offset by the
build in first quarter inventories for later quarters.
Investing activities consist principally of cash outlays for new stores, store improvements
and renovations, investments in our manufacturing and distribution facilities, computer systems
and, in 2010, earn-out payments in connection with the 2007 acquisition of Halloween USA. Net cash
outlays totaled $10.5 million in the first quarter 2010 compared to $6.0 million in 2009.
Cash flows provided by financing activities totaled $30.4 million in 2010 versus $38.0 million
in 2009 and consisted principally of revolver borrowings to fund our operating and investing
activities noted above.
Required repayments under our term debt for the remainder of 2010 will be $2.8 million.
At March 31, 2010, we had $125.3 million of availability under the AHI revolving credit agreement.
In addition, at March 31, 2010, PCFG, an unrestricted subsidiary under the terms of the AHI credit
facility and senior subordinated notes, had availability of its entire $10 million revolving credit
agreement. At March 31, 2010, repayments under PCFGs stand-alone term loan for the remainder of
the year will be $3.0 million.
We expect that cash generated from operating activities and availability under our
primary credit facility will be our principal sources of liquidity. Based on our current
level of operations, we believe these sources will be adequate to meet our liquidity needs
for at least the next twelve months.
Legal Proceedings
The Company is a party to certain claims and litigation in the ordinary course of business.
The Company does not believe any of these proceedings will result, individually or in the
aggregate, in a material adverse effect on its financial condition or future results of operations.
Seasonality
Wholesale Operations
Despite a concentration of holidays in the fourth quarter of the year, as a result of our
expansive product lines and customer base and increased promotional activities, the impact of
seasonality on our quarterly results of wholesale operations has been limited.
Retail Operations
Our retail operations are subject to significant seasonal variations. Historically, this
segment has realized a significant portion of its revenues, cash flow and net income in the fourth
quarter of the year, principally due to its sales in October for the Halloween season and, to a
lesser extent, due to our year-end holiday sales. We believe this general pattern will continue in
the future. Our results of operations and cash flows may also fluctuate significantly as a result
of a variety of other factors, including the timing of new store openings and store closings and
the timing of potential acquisitions and dispositions of stores.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q may contain forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events. Forward-looking statements
generally can be identified by the use of forward-looking terminology such as may, will,
expect, intend, estimate, anticipate, believe, project or continue or the negative
thereof and similar words. From time to time, we also may provide oral or written forward-looking
statements in other materials we release to the public. Any or all of our forward-looking
statements in this quarterly report and in any public statements we make may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or unknown risks or
uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may
vary materially. Investors are cautioned not to place undue reliance on any forward-looking
statements. Important factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to: our inability to satisfy
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Table of Contents
our debt obligations, the reduction of volume of purchases by one or more of our large
customers, our inability to collect receivables from our customers, the termination of our
licenses, our inability to identify and capitalize on changing design trends and customer
preferences, changes in the competitive environment, increases in the costs of raw materials and
the possible risks and uncertainties that have been noted in reports filed by us with the
Securities and Exchange Commission, including our annual report on Form 10-K for the year ended
December 31, 2009.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our earnings are affected by changes in interest rates as a result of our variable rate
indebtedness. However, we have utilized interest rate swap agreements to manage the market risk
associated with fluctuations in interest rates. If market interest rates for our variable rate
indebtedness averaged 2% more than the interest rate actually paid for the three months ended March
31, 2010 and 2009, our interest expense, after considering the effects of our interest rate swap
agreements, would have increased by $1.5 million and $1.9 million, respectively. The (loss) or
income before income taxes for the quarters ended March 31, 2010 and 2009 would also have changed
by the same amounts, increasing the loss for the 2010 quarter and decreasing the income for the
2009 quarter. These amounts are determined by considering the impact of the hypothetical interest
rates on our borrowings and interest rate swap agreements. This analysis does not consider the
effects of the reduced level of overall economic activity that could exist in such an environment.
Further, in the event of a change of such magnitude, management would likely take actions to
further mitigate our exposure to the change. However, due to the uncertainty of the specific
actions that we would take and their possible effects, the sensitivity analysis assumes no changes
in our financial structure.
Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to
foreign currencies, predominately in European countries, as a result of the sales of our products
in foreign markets. Although we periodically enter into foreign currency forward contracts to hedge
against the earnings effects of such fluctuations, we may not be able to hedge such risks
completely or permanently. A uniform 10% strengthening in the value of the U.S. dollar relative to
the currencies in which our foreign sales are denominated would have resulted in a decrease in
gross profit and a decrease in operating income of $1.3 million and $1.2 million for the three
months ended March 31, 2010 and 2009, respectively. These calculations assume that each exchange
rate would change in the same direction relative to the U.S. dollar. In addition to the direct
effects of changes in exchange rates, which could change the U.S. dollar value of the resulting
sales, changes in exchange rates may also affect the volume of sales or the foreign currency sales
price as competitors products become more or less attractive. Our sensitivity analysis of the
effects of changes in foreign currency exchange rates does not factor in a potential change in
sales levels or local currency prices.
Item 4. Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of March 31, 2010 pursuant
to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the Act).
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the Act is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms; and (ii) accumulated and communicated to our management, including
our principal executive and principal financial officers, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosures.
There were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended March 31, 2010
identified in connection with the evaluation by our management, including our Chief Executive
Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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 Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
23
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMSCAN HOLDINGS, INC. |
||||
By: | /s/ Michael A. Correale | |||
Michael A. Correale | ||||
Date: May 17, 2010 | Chief Financial Officer (on behalf of the registrant and as principal financial and accounting officer) |
|||
24