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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 September 30, 2002
[ ] 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 (I.R.S. Employer Identification
or organization) 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 November 14, 2002, 1,233.27 shares of Registrant's common stock, par value
$0.10 ("Common Stock"), were outstanding.
AMSCAN HOLDINGS, INC.
FORM 10-Q
September 30, 2002
Table of Contents
Part I Page
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2002 and
December 31, 2001.............................................. 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2002 and 2001....................... 4
Consolidated Statement of Stockholders' Deficit for the
Nine Months Ended September 30, 2002........................... 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001....................... 6
Notes to Consolidated Financial Statements........................ 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 24
Item 3 Quantitative and Qualitative Disclosures About Market Risk....... 29
Item 4 Controls and Procedures.......................................... 30
Part II
Item 6 Exhibits and Reports on Form 8-K................................. 30
Signature ................................................................. 31
Certification by Chief Executive Officer.................................... 32
Certification by Chief Financial Officer.................................... 33
2
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts )
September 30, December 31,
2002 2001
------------- ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 1,952 $ 1,016
Accounts receivable, net of allowances ............................ 81,139 65,039
Inventories, net of allowances .................................... 87,969 72,582
Prepaid expenses and other current assets ......................... 15,726 13,659
--------- ---------
Total current assets ......................................... 186,786 152,296
Property, plant and equipment, net .................................... 98,021 94,589
Goodwill, net ......................................................... 76,419 55,985
Notes receivable from officers ........................................ 1,915 1,577
Other assets, net ..................................................... 8,159 6,027
--------- ---------
Total assets ................................................. $ 371,300 $ 310,474
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term obligations ............................................ $ 17,000 $ 700
Accounts payable .................................................. 39,252 33,083
Accrued expenses .................................................. 22,845 16,047
Income taxes payable .............................................. 1,552 2,298
Current portion of long-term obligations .......................... 34,026 3,455
--------- ---------
Total current liabilities .................................... 114,675 55,583
Long-term obligations, excluding current portion ...................... 245,268 278,443
Deferred income tax liabilities ....................................... 19,225 15,181
Other ................................................................. 2,312 2,353
--------- ---------
Total liabilities ............................................ 381,480 351,560
Redeemable convertible preferred stock ($0.10 par value; 43.67
shares authorized; 42.4 and 40.0 shares issued and
outstanding) ...................................................... 6,550 6,270
Redeemable Common Stock ............................................... 30,523 29,949
Commitments and Contingencies
Stockholders' deficit:
Common Stock ($0.10 par value; 3,000.00 shares authorized;
1,233.27 and 1,133.49 shares issued and outstanding) .......... -- --
Additional paid-in capital ........................................ 14,910 299
Unamortized restricted Common Stock awards, net ................... (382) (94)
Notes receivable from stockholders ................................ (629) (601)
Deficit ........................................................... (58,409) (74,016)
Accumulated other comprehensive loss .............................. (2,743) (2,893)
--------- ---------
Total stockholders' deficit .................................. (47,253) (77,305)
--------- ---------
Total liabilities, redeemable convertible preferred and Common
Stock and stockholders' deficit ............................ $ 371,300 $ 310,474
========= =========
Note: The balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
3
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales ..................................... $ 100,226 $ 87,699 $ 290,263 $ 257,443
Cost of sales ................................. 65,761 57,416 189,416 167,259
--------- --------- --------- ---------
Gross profit ......................... 34,465 30,283 100,847 90,184
Operating expenses:
Selling expenses ........................... 8,984 8,337 25,810 23,904
General and administrative expenses ........ 8,248 9,830 25,169 26,966
Art and development costs .................. 2,486 2,139 7,462 6,481
Restructuring charges ...................... 610 796
--------- --------- --------- ---------
Total operating expenses ............. 20,328 20,306 59,237 57,351
--------- --------- --------- ---------
Income from operations ............... 14,137 9,977 41,610 32,833
Interest expense, net ......................... 5,430 6,001 16,188 18,766
Other (income) expense, net ................... (364) (24) (386) 20
--------- --------- --------- ---------
Income before income taxes and
minority interests ................ 9,071 4,000 25,808 14,047
Income tax expense ............................ 3,583 1,580 10,194 5,549
Minority interests ............................ 52 29 7 23
--------- --------- --------- ---------
Net income ........................... 5,436 2,391 15,607 8,475
Dividend requirement on redeemable
convertible preferred stock ....... 95 90 280 180
--------- --------- --------- ---------
Net income applicable to common shares $ 5,341 $ 2,301 $ 15,327 $ 8,295
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
4
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Nine Months Ended September 30, 2002
(Dollars in thousands)
(Unaudited)
Unamortized
Restricted
Common Common Notes Accumulated
Stock Additional Stock Receivable Other
Common Par Paid-in Awards from Comprehensive
Shares Value Capital Net Stockholders Deficit Loss Total
------ ----- ------- --- ------------ ------- ---- -----
Balance at December 31, 2001 ... 1,133 $ -- $ 299 $ (94) $ (601) $(74,016) $ (2,893) $(77,305)
Net income ..................... 15,607 15,607
Net change in cumulative
translation adjustment ....... 945 945
Change in fair value of interest
rate swap and foreign
exchange contracts, net of
taxes (see Note 5) ........... (795) (795)
--------
Comprehensive income ....... 15,757
Issuance of Common Stock in
connection with acquisition .. 97 15,000 -- 15,000
Grant of restricted Common
Stock award .................. 3 465 (465) --
Redeemable convertible
preferred stock dividends .... (280) (280)
Amortization of restricted
Common Stock awards .......... 177 177
Accretion of interest income on
notes receivable from
stockholders ................. (28) (28)
Increase in redeemable Common
Stock due to vesting of
restricted Common Stock
award ..................... (574) (574)
-------- --------- -------- -------- -------- -------- -------- --------
Balance at September 30, 2002 .. 1,233 $ -- $ 14,910 $ (382) $ (629) $(58,409) $ (2,743) $(47,253)
======== ========= ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
5
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income ...................................................................... $ 15,607 $ 8,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 9,852 11,722
Amortization of deferred financing costs ..................................... 843 748
Amortization of restricted Common Stock awards ............................... 177 222
Provision for doubtful accounts .............................................. 1,462 3,100
Deferred income tax expense .................................................. 4,462 481
Gain on disposal of equipment ................................................ (311)
Changes in operating assets and liabilities, net of acquisition:
Increase in accounts receivable ........................................... (13,530) (11,757)
Increase in inventories ................................................... (9,311) (2,162)
Increase in prepaid expenses and other current assets ..................... (2,390) (2,010)
Increase in accounts payable, accrued expenses and income taxes payable ... 7,028 4,363
Other, net ................................................................... (2,042) (3,551)
-------- --------
Net cash provided by operating activities ................................. 11,847 9,631
Cash flows from investing activities:
Cash paid in connection with acquisition ........................................ (13,547)
Capital expenditures ............................................................ (11,396) (27,157)
Proceeds from disposal of property and equipment ................................ 515
-------- --------
Net cash used in investing activities ..................................... (24,428) (27,157)
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred stock ................ 6,000
Proceeds from short-term obligations ............................................ 16,300 14,665
Repayment of loans, notes payable and long-term obligations ..................... (2,535) (3,138)
Proceeds from the exercise of common stock options .............................. 41
Payments received on notes receivable from stockholders ......................... 9
-------- --------
Net cash provided by financing activities ................................. 13,765 17,577
Effect of exchange rate changes on cash and cash equivalents ....................... (248) (557)
-------- --------
Net increase (decrease) in cash and cash equivalents ...................... 936 (506)
Cash and cash equivalents at beginning of period ................................... 1,016 1,469
-------- --------
Cash and cash equivalents at end of period ......................................... $ 1,952 $ 963
======== ========
Supplemental Disclosures:
Interest paid ............................................................. $ 12,487 $ 16,301
Income taxes paid ......................................................... $ 5,851 $ 5,056
See accompanying notes to consolidated financial statements.
6
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
(Unaudited)
Supplemental information on non-cash activities:
In January 2002, 3.0 shares of restricted Common Stock aggregating $465 were
issued to an officer of the Company, subject to future vesting provisions.
In February 2002, the Company issued 96.774 shares of its Common Stock, at a
value of $155 per share, to American Greetings Corporation in connection
with the acquisition of M&D Balloons, Inc. See Note 10 to the consolidated
financial statements.
There were no capital lease obligations recorded during the nine months
ended September 30, 2002. Capital lease obligations of $144 were recorded
during the nine months ended September 30, 2001.
See accompanying notes to consolidated financial statements.
7
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and Description of Business
Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "Amscan," "AHI" or the "Company") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities. AHI designs, manufactures, contracts for manufacture and
distributes decorative party goods, metallic balloons, stationery and gift items
principally in North America, South America, Europe, Asia and Australia.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Amscan Holdings and its majority-owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation. The unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States 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 three and nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002. 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, 2001 as filed with the Securities and Exchange
Commission.
In November 2001, the Emerging Issues Task Force issued EITF 01-09,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Product." EITF 01-09 was effective for Amscan as of January 1,
2002. EITF 01-09 clarifies the income statement classification of costs incurred
by a vendor in connection with the reseller's purchase or promotion of the
vendor's products, resulting in certain advertising and product placement costs
previously classified as selling expenses to be reflected as a reduction of
revenues earned from that activity. The new guidance requires retroactive
restatement of all periods presented to reflect the new accounting provision. As
a result of applying the provisions of EITF 01-09, the Company's revenues and
selling expenses were each reduced by $311,000 and $1,436,000 for the three and
nine months ended September 30, 2001, respectively.
Note 3 - Inventories
Inventories consisted of the following (dollars in thousands):
September 30, December 31,
2002 2001
---- ----
Finished goods ..................................... $ 73,976 $ 65,376
Raw materials ...................................... 8,931 5,992
Work-in-process .................................... 8,285 4,520
-------- --------
91,192 75,888
Less: reserve for slow moving and obsolete inventory (3,223) (3,306)
-------- --------
$ 87,969 $ 72,582
======== ========
Inventories are valued at the lower of cost, determined on a first-in, first-out
basis, or market.
8
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 4 - Income Taxes
The consolidated income tax expense for the three and nine months ended
September 30, 2002 and 2001 was determined based upon estimates of the Company's
consolidated effective income tax rates for the year ending December 31, 2002
and the year ended December 31, 2001. The differences between the consolidated
effective income tax rate and the U.S. Federal statutory rate are primarily
attributable to state income taxes and the effects of foreign operations.
Note 5 - Comprehensive Income (Loss)
Comprehensive income consisted of the following (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net income ............................................... $ 5,436 $ 2,391 $ 15,607 $ 8,475
Net change in cumulative translation adjustment .......... (10) 116 945 (662)
Cumulative effect of a change in accounting principle to
recognize the fair value of the Company's interest rate
swap contracts, net of taxes of $(148) ................ (227)
Change in fair value of the Company's interest rate swap
contracts, net of taxes of $(225), $87, $(415) and $90,
respectively .......................................... (345) 133 (636) 138
Change in fair value of the Company's foreign exchange
contracts, net of taxes of $84 and $(104), respectively 129 (159)
-------- -------- -------- --------
$ 5,210 $ 2,640 $ 15,757 $ 7,724
======== ======== ======== ========
Accumulated other comprehensive loss consisted of the following
(dollars in thousands):
September 30, December 31,
2002 2001
------- -------
Cumulative translation adjustment ...................... $(1,834) $(2,779)
Interest rate swap contract qualifying as a hedge,
net of taxes of $(415) ............................... (636)
Foreign exchange contracts qualifying as hedges,
net of taxes of $(178) and $(76), respectively ....... (273) (114)
------- -------
$(2,743) $(2,893)
======= =======
Note 6 - Capital Stock
On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as "Series A
Redeemable Convertible Preferred Stock." Also 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 $6.0 million.
Dividends are cumulative and payable annually at 6% per annum. Such dividends
payable on or prior to March 30, 2004, shall be payable in additional shares of
Series A Redeemable Convertible Preferred Stock based on a value of $150,000 per
share. Subsequent to March 30, 2004, dividends shall be payable, at the option
of the Company, either in cash or additional shares of Series A Redeemable
Convertible Preferred Stock. As of September 30, 2002, accrued dividends
aggregated $190,000 and are included in redeemable convertible preferred stock
on the consolidated balance sheet.
At September 30, 2002 and December 31, 2001, 42.40 and 40.0 shares of
Series A Redeemable Convertible
9
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Preferred Stock, respectively, were issued and outstanding.
Each share of the Series A Redeemable Convertible Preferred Stock is
convertible at the option of the holder at any time, into shares of Common Stock
at a conversion price equal to the fair value of the Common Stock at the date
the Series A Redeemable Convertible Preferred Stock was issued, subject to
adjustment for the effects of subsequent common stock splits or stock dividends.
At September 30, 2002, the Series A Redeemable Convertible Preferred Stock is
convertible into Common Stock at a price of $150,000 per common share. As of
September 30, 2002, there were 43.67 shares of Common Stock reserved for such
conversion.
The Series A Redeemable Convertible Preferred Stock is not redeemable
prior to March 30, 2004. To the extent the Company shall have funds legally
available to redeem these shares, the Company may redeem these shares, in whole
or, with the consent of the holders of a majority of the outstanding Series A
Redeemable Convertible Preferred Stock, in part, at a redemption price of
$150,000 per share, in cash, together with accrued and unpaid dividends. To the
extent the Company shall have funds legally available to redeem these shares on
March 30, 2008, the Company is required to redeem all outstanding shares of
Series A Redeemable Convertible Preferred Stock at a redemption price per share
equal to $150,000 in cash, together with accrued and unpaid dividends. The
holders of the Series A Redeemable Convertible Preferred Stock have liquidation
rights equal to their original investment plus accrued but unpaid dividends.
On January 1, 2002, the Company issued 3.0 shares of restricted Common
Stock with an aggregate value of $465,000 to its Executive Vice President,
subject to the vesting provisions of an employment agreement.
In February 2002, the Company issued 96.774 shares of its Common Stock,
at a value of $155,000 per share, to American Greetings Corporation in
connection with the acquisition of M&D Balloons, Inc. (see Note 10).
At September 30, 2002, of the 1,233.27 shares of Common Stock issued
and outstanding, 203.3 shares of redeemable Common Stock were held by employees,
of which 6.38 shares (the "Restricted Stock") are subject to the vesting
provisions of employment agreements with the President and Executive Vice
President of the Company. The Restricted Stock held by the President and
Executive Vice President will vest in June 2003 and December 2004, respectively.
During the three and nine months ended September 30, 2002 and 2001, the Company
recorded the amortization of Restricted Stock of $59,000 and $177,000, and
$192,000 and $222,000, respectively, as compensation expense, which is included
in general and administrative expenses in the Company's consolidated statements
of income.
In September 1998, the Company issued warrants to purchase 10 shares of
Common Stock at $125,000 per share in connection with the acquisition of all the
capital stock of Anagram International, Inc. and certain related companies
("Anagram"). The warrants, which were valued at $225,000, were fully exercisable
upon issuance and expire on September 17, 2008.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. In addition,
the Company's current credit facility and the indenture governing its notes
contain restrictive covenants which have the effect of limiting the Company's
ability to pay dividends or distributions to its stockholders.
Note 7 - Segment Information
Industry Segments
- -----------------
The Company manages its operations as one industry segment which
involves the design, manufacture,
10
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
contract for manufacture and distribution of 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 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 is as follows (dollars in thousands):
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
Three Months Ended September 30, 2002
Sales to unaffiliated customers ................. $ 85,574 $ 14,652 $ 100,226
Sales between geographic areas .................. 8,996 $ (8,996) --
--------- --------- --------- ---------
Net sales ....................................... $ 94,570 $ 14,652 $ (8,996) $ 100,226
========= ========= ========= =========
Income from operations .......................... $ 13,000 $ 1,137 $ 14,137
========= =========
Interest expense, net ........................... 5,430
Other income, net ............................... (364)
---------
Income before income taxes and minority interests $ 9,071
=========
Long-lived assets, net at September 30, 2002 .... $ 177,693 $ 6,746 $ 184,439
========= ========= =========
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
Three Months Ended September 30, 2001
Sales to unaffiliated customers ................. $ 74,735 $ 12,964 $ 87,699
Sales between geographic areas .................. 7,071 $ (7,071) --
--------- --------- --------- ---------
Net sales ....................................... $ 81,806 $ 12,964 $ (7,071) $ 87,699
========= ========= ========= =========
Income from operations .......................... $ 8,636 $ 1,341 $ 9,977
========= =========
Interest expense, net ........................... 6,001
Other income, net ............................... (24)
---------
Income before income taxes and minority interests $ 4,000
=========
Long-lived assets, net at September 30, 2001 .... $ 146,814 $ 7,021 $ 153,835
========= ========= =========
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
Nine Months Ended September 30, 2002
Sales to unaffiliated customers ................. $ 250,406 $ 39,857 $ 290,263
Sales between geographic areas .................. 20,281 $ (20,281) --
--------- --------- --------- ---------
Net sales ....................................... $ 270,687 $ 39,857 $ (20,281) $ 290,263
========= ========= ========= =========
Income from operations .......................... $ 39,930 $ 1,680 $ 41,610
========= =========
Interest expense, net ........................... 16,188
Other income, net ............................... (386)
---------
Income before income taxes and minority interests $ 25,808
=========
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
Nine Months Ended September 30, 2001
Sales to unaffiliated customers ................. $ 222,509 $ 34,934 $ 257,443
Sales between geographic areas .................. 19,336 $ (19,336) --
--------- --------- --------- ---------
Net sales ....................................... $ 241,845 $ 34,934 $ (19,336) $ 257,443
========= ========= ========= =========
Income from operations .......................... $ 30,071 $ 2,762 $ 32,833
========= =========
Interest expense, net ........................... 18,766
Other expense, net .............................. 20
---------
Income before income taxes and minority interests $ 14,047
=========
11
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 8 - 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.
Note 9 - Recently Adopted Accounting Pronouncements
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No 142"). SFAS No 141 revises the accounting treatment
for business combinations to require the use of purchase accounting and prohibit
the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS No 142 revises the accounting
for goodwill to eliminate the amortization of goodwill on transactions
consummated after June 30, 2001 and of all other goodwill as of January 1, 2002.
Other intangible assets will continue to be amortized over their useful lives.
SFAS No. 142 also requires goodwill and other intangible assets to be assessed
for impairment each year and more frequently if circumstances indicate a
possible impairment. During the second quarter of 2002, the Company completed
the initial impairment test as of January 1, 2002 and no impairment was noted.
Had SFAS No. 142 been effective in fiscal year 2001, net income would have been
reported as the following amounts (dollars in thousands):
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported net income ........................ $ 5,436 $ 2,391 $15,607 $ 8,475
Add back goodwill amoritzation, net of taxes 391 1,173
------- ------- ------- -------
Adjusted net income ........................ $ 5,436 $ 2,782 $15,607 $ 9,648
======= ======= ======= =======
Other intangible assets, net of amortization, of $807,000 at September
30, 2002 were comprised of licensing agreements which are being amortized using
the straight-line method over the lives of the contracts (one to three years
with an average life of 2.7 years). Other intangible assets at December 31, 2001
were fully amortized and were comprised of patents which were amortized using
the straight-line method over three years. Accumulated amortization was
$3,263,000 and $3,000,000 at September 30, 2002 and December 31, 2001,
respectively. Amortization of other intangible assets for the three and nine
months ended September 30, 2002 was $108,000 and $263,000, respectively.
Amortization of other intangible assets for the three and nine months ended
September 30, 2001, was $207,000 and $705,000, respectively. Estimated
amortization expense for the years ending December 31, 2002, 2003 and 2004 was
$383,000, $456,000 and $231,000, respectively.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No 144"). SFAS No. 144 supercedes Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the
accounting and reporting provisions of Accounting Principles Board No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 provides updated guidance concerning the
recognition and measurement of an impairment loss for certain types of
long-lived assets
12
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and expands the scope of a discontinued operation to include a component of an
entity. The adoption of SFAS No. 144 on January 1, 2002 did not impact the
Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated With Exit or Disposal Activities." SFAS No. 146 addresses accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF Issue No.
94-3, a liability for an exit cost was recognized at the date an entity
committed to an exit plan. The provisions of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002.
Note 10- Acquisition
On February 19, 2002, the Company purchased all of the outstanding
common stock of M&D Balloons, Inc. ("M&D Balloons"), a Manteno, Illinois-based
manufacturer of metallic and plastic balloons, from American Greetings
Corporation ("American Greetings") for $27,500,000 plus certain other related
costs of $1,047,000. The Company believes that this acquisition will supplement
its existing balloon operations. The Company financed the acquisition by
borrowing $13,547,000 under its revolving credit facility and issuing 96.774
shares of its Common Stock to American Greetings. American Greetings continues
to distribute metallic balloons under a supply agreement with the Company. The
acquisition has been accounted for under the provisions of SFAS No. 141,
"Business Combinations," and, accordingly, the operating results of M&D Balloons
have been included in the Company's consolidated financial statements since the
date of acquisition.
The purchase price has been preliminarily allocated based upon the
estimated fair value of net assets acquired at the date of acquisition. Such
allocations are 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 preliminarily allocated to
intangible assets consisting of licensing agreements in the amount of
$1,070,000, which are being amortized using the straight-line method over the
lives of the contracts (one to three years with an average life of 2.7 years),
and goodwill in the amount of $20,233,000, which is not being amortized. The
transaction was structured as a purchase of common stock and, accordingly, the
amortization of intangible assets is not deductible for income tax purposes.
The following unaudited pro forma information assumes the M&D Balloons
acquisition had occurred on January 1, 2001. The pro forma information, as
presented below, is not necessarily indicative of the results that would have
been obtained had the transaction occurred on January 1, 2001, nor is it
necessarily indicative of the Company's future results (dollars in thousands):
Three Months Ended Nine Months
September 30, Ended September 30,
2001 2002 2001
---- ---- ----
Net sales...................... $93,620 $294,370 $274,184
Net income..................... 2,398 16,000 9,029
The net income amounts reflect adjustments for interest expense from
additional borrowings necessary to finance the acquisition and amortization of
other intangible assets, net of their related income tax effects based upon a
pro forma effective tax rate of 39.5%. The unaudited pro forma information gives
effect only to adjustments described above and does not reflect management's
estimate of any anticipated cost savings or other benefits as a result of the
acquisition.
13
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the three and nine months ended September 30, 2002, the Company
sold $978,000 and $4,494,000, respectively, of metallic balloons and other party
goods to American Greetings. Trade accounts receivable from American Greetings
at September 30, 2002 were $1,669,000.
Note 11 - Restructuring Charges
During the three and nine months ended September 30, 2002, the Company
incurred charges of $504,000 resulting from the consolidation of the fabrication
operations of M&D Balloons into its existing balloon operations. The Company
also incurred charges of $65,000 and $158,000 during the three and nine month
periods ended September 30, 2002 relating to the closure of certain foreign
distribution facilities which has resulted in the elimination of 6 positions. In
addition, the Company incurred charges of $41,000 and $134,000 during the three
and nine month periods ended September 30, 2002 relating to the consolidation of
its domestic distribution operations. The continued consolidation of the
Company's distribution and balloon operations may result in additional
restructuring charges in subsequent periods.
Note 12 - Initial Public Offering
On June 13, 2002, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the Common
Stock. The filing has not yet become effective. The Company anticipates that, if
the offering is completed, it will use the net proceeds it receives to pay
existing debt. In addition, the board of directors plans to approve a 10,000 for
one stock split of the Common Stock, effective prior to the initial public
offering.
Note 13 - Amended Revolving Loan Credit Agreement
On July 3, 2002, the Company entered into an amended revolving loan
credit agreement which extended the expiration of its revolving credit facility
from December 2002 to December 2003 and reduced the maximum borrowing from $50
million to $40 million (the "Revolving Credit Facility"). The Revolving Credit
Facility bears interest, at the option of the Company, at the lenders' prime
rate plus, based on performance, a range of 1.25% to 3.50% per annum or at the
lenders' reserve adjusted Eurodollar rate plus, based on performance, a range of
1.875% to 4.50% per annum.
Note 14 - Condensed Consolidating Financial Information
On December 19, 1997, the Company entered into a bank credit agreement
(the "Bank Credit Facilities") providing for borrowings in the aggregate
principal amount of approximately $117,000,000 under a term loan (the "Term
Loan") and additional borrowings under the Revolving Credit Facility. The Term
Loan was subsequently amended in September 1998 to provide for additional
borrowings of $40,000,000 to partially finance the acquisition
14
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
of one of its subsidiaries, Anagram. On December 19, 1997, the Company also
issued $110,000,000 aggregate principal amount of 9.875% senior subordinated
notes due in December 2007 (the "Notes"). The repayment of the Notes and
borrowings under the Bank Credit Facilities are guaranteed jointly and
severally, fully and unconditionally, by the wholly-owned domestic subsidiaries
of the Company (the "Guarantors").
Guarantor subsidiaries include the following:
o Amscan Inc.
o Trisar, Inc.
o Am-Source, LLC
o Anagram International, Inc.
o Anagram International Holdings, Inc.
o Anagram International, LLC
o M&D Balloons, Inc.
o SSY Realty Corp.
o JCS Realty Corp.
o Anagram Eden Prairie Property Holdings LLC
Non-guarantor subsidiaries ("Non-guarantors") include the following:
o Amscan Distributors (Canada) Ltd.
o Amscan Holdings Limited
o Amscan (Asia-Pacific) Pty. Ltd.
o Amscan Partyartikel GmbH
o Amscan Svenska AB
o Amscan de Mexico, S.A. de C.V.
o Anagram International (Japan) Co., Ltd.
o Anagram Mexico S. de R.L. de C.V.
o Anagram Espana, S.A.
o Anagram France S.C.S.
The following information presents consolidating balance sheets as of
September 30, 2002 and December 31, 2001, and the related consolidating
statements of income for the three and nine months ended September 30, 2002 and
2001, and cash flows for the nine months ended September 30, 2002 and 2001 for
the combined Guarantors and the combined Non-guarantors and elimination entries
necessary to consolidate the entities comprising the combined companies.
15
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING BALANCE SHEET
September 30, 2002
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................... $ 1,206 $ 746 $ 1,952
Accounts receivable, net of allowances ...... 68,177 12,962 81,139
Inventories, net of allowances .............. 77,602 11,238 $ (871) 87,969
Prepaid expenses and other current assets ... 13,622 2,104 15,726
--------- --------- --------- ---------
Total current assets ........................ 160,607 27,050 (871) 186,786
Property, plant and equipment, net ............... 96,659 1,362 98,021
Goodwill, net .................................... 71,362 5,057 76,419
Notes receivable from officers ................... 1,915 1,915
Other assets, net ................................ 34,656 1,179 (27,676) 8,159
--------- --------- --------- ---------
Total assets ................................ $ 365,199 $ 34,648 $ (28,547) $ 371,300
========= ========= ========= =========
Current liabilities:
Short-term obligations ...................... $ 17,000 $ -- $ 17,000
Accounts payable ............................ 37,409 1,843 39,252
Accrued expenses ............................ 17,955 4,890 22,845
Income taxes payable ........................ 1,448 104 1,552
Current portion of long-term
obligations ............................... 33,876 150 34,026
--------- --------- --------- ---------
Total current liabilities ................... 107,688 6,987 114,675
Long-term obligations, excluding
current portion ................................ 245,117 151 245,268
Deferred income tax liabilities .................. 19,225 19,225
Other ............................................ 2,478 15,218 $ (15,384) 2,312
--------- --------- --------- ---------
Total liabilities ................................ 374,508 22,356 (15,384) 381,480
Redeemable convertible preferred stock ........... 6,550 6,550
Redeemable Common Stock .......................... 30,523 30,523
Commitments and Contingencies
Stockholders' (deficit) equity:
Common Stock ................................ 339 (339) --
Additional paid-in capital .................. 14,910 658 (658) 14,910
Unamortized restricted Common Stock
award, net ............................... (382) (382)
Notes receivable from stockholders .......... (629) (629)
(Deficit) retained earnings ................. (57,538) 13,334 (14,205) (58,409)
Accumulated other comprehensive loss ........ (2,743) (2,039) 2,039 (2,743)
--------- --------- --------- ---------
Total stockholders' (deficit) equity .... (46,382) 12,292 (13,163) (47,253)
--------- --------- --------- ---------
Total liabilities, redeemable convertible
preferred and Common Stock and
stockholders' (deficit) equity ...... $ 365,199 $ 34,648 $ (28,547) $ 371,300
========= ========= ========= =========
16
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING BALANCE SHEET
December 31, 2001
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................... $ 60 $ 956 $ 1,016
Accounts receivable, net of allowances ...... 56,408 8,631 65,039
Inventories, net of allowances .............. 65,939 7,414 $ (771) 72,582
Prepaid expenses and other current assets ... 12,339 1,320 13,659
--------- --------- --------- ---------
Total current assets ........................ 134,746 18,321 (771) 152,296
Property, plant and equipment, net ............... 93,420 1,169 94,589
Goodwill, net .................................... 51,136 4,849 55,985
Notes receivable from officers ................... 1,577 1,577
Other assets, net ................................ 22,922 4,880 (21,775) 6,027
--------- --------- --------- ---------
Total assets ................................ $ 303,801 $ 29,219 $ (22,546) $ 310,474
========= ========= ========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Short-term obligations ...................... $ 700 $ -- $ 700
Accounts payable ............................ 32,127 956 33,083
Accrued expenses ............................ 12,178 3,869 16,047
Income taxes payable ........................ 2,225 73 2,298
Current portion of long-term
obligations ............................... 3,318 137 3,455
--------- --------- --------- ---------
Total current liabilities ................... 50,548 5,035 55,583
Long-term obligations, excluding
current portion ................................ 278,198 245 278,443
Deferred income tax liabilities .................. 15,181 15,181
Other ............................................ 189 14,236 $ (12,072) 2,353
--------- --------- --------- ---------
Total liabilities ................................ 344,116 19,516 (12,072) 351,560
Redeemable convertible preferred stock ........... 6,270 6,270
Redeemable Common Stock .......................... 29,949 29,949
Commitments and Contingencies
Stockholders' (deficit) equity:
Common Stock ................................ 339 (339) --
Additional paid-in capital .................. 299 658 (658) 299
Unamortized restricted Common Stock
award, net ............................... (94) (94)
Notes receivable from stockholders .......... (601) (601)
(Deficit) retained earnings ................. (73,245) 11,082 (11,853) (74,016)
Accumulated other comprehensive loss ........ (2,893) (2,376) 2,376 (2,893)
--------- --------- --------- ---------
Total stockholders' (deficit) equity .... (76,534) 9,703 (10,474) (77,305)
--------- --------- --------- ---------
Total liabilities, redeemable convertible
preferred and Common Stock and
stockholders' (deficit) equity ...... $ 303,801 $ 29,219 $ (22,546) $ 310,474
========= ========= ========= =========
17
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended September 30, 2002
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Net sales ..................................... $ 89,252 $ 14,652 $ (3,678) $ 100,226
Cost of sales ................................. 59,121 10,231 (3,591) 65,761
--------- --------- --------- ---------
Gross profit ......................... 30,131 4,421 (87) 34,465
Operating expenses:
Selling expenses .......................... 7,366 1,618 8,984
General and administrative expenses ....... 6,887 1,601 (240) 8,248
Art and development costs ................. 2,486 2,486
Restructuring charges ..................... 545 65 610
--------- --------- --------- ---------
Total operating expenses ............. 17,284 3,284 (240) 20,328
--------- --------- --------- ---------
Income from operations ............... 12,847 1,137 153 14,137
Interest expense, net ......................... 5,274 156 5,430
Other (income) expense, net ................... (1,199) (12) 847 (364)
--------- --------- --------- ---------
Income before income taxes
and minority interests ............. 8,772 993 (694) 9,071
Income tax expense ............................ 3,249 334 3,583
Minority interests ............................ 52 52
--------- --------- --------- ---------
Net income ........................... 5,523 607 (694) 5,436
Dividend requirement on redeemable
convertible preferred stock ....... 95 95
--------- --------- --------- ---------
Net income applicable to common shares $ 5,428 $ 607 $ (694) $ 5,341
========= ========= ========= =========
18
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended September 30, 2001
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Net sales ..................................... $ 78,766 $ 12,965 $ (4,032) $ 87,699
Cost of sales ................................. 52,279 9,068 (3,931) 57,416
-------- -------- -------- --------
Gross profit ......................... 26,487 3,897 (101) 30,283
Operating expenses:
Selling expenses .......................... 7,018 1,319 8,337
General and administrative expenses ...... 8,641 1,237 (48) 9,830
Art and development costs ................. 2,139 2,139
-------- -------- -------- --------
Total operating expenses ............. 17,798 2,556 (48) 20,306
-------- -------- -------- --------
Income from operations ............... 8,689 1,341 (53) 9,977
Interest expense, net ......................... 5,845 156 6,001
Other (income) expense, net ................... (830) 4 802 (24)
-------- -------- -------- --------
Income before income taxes
and minority interests ............. 3,674 1,181 (855) 4,000
Income tax expense ............................ 1,181 399 1,580
Minority interests ............................ 29 29
-------- -------- -------- --------
Net income ........................... 2,493 753 (855) 2,391
Dividend requirement on redeemable
convertible preferred stock ....... 90 90
-------- -------- -------- --------
Net income applicable to common shares $ 2,403 $ 753 $ (855) $ 2,301
======== ======== ======== ========
19
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF INCOME
For the Nine Months Ended September 30, 2002
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Net sales ..................................... $ 266,220 $ 39,857 $ (15,814) $ 290,263
Cost of sales ................................. 176,831 28,299 (15,714) 189,416
--------- --------- --------- ---------
Gross profit ......................... 89,389 11,558 (100) 100,847
Operating expenses:
Selling expenses .......................... 21,300 4,510 25,810
General and administrative expenses ....... 20,679 5,210 (720) 25,169
Art and development costs ................. 7,462 7,462
Restructuring charges ..................... 638 158 796
--------- --------- --------- ---------
Total operating expenses ............. 50,079 9,878 (720) 59,237
--------- --------- --------- ---------
Income from operations ............... 39,310 1,680 620 41,610
Interest expense, net ......................... 15,716 472 16,188
Other (income) expense, net ................... (1,808) (18) 1,440 (386)
--------- --------- --------- ---------
Income before income taxes
and minority interests ............. 25,402 1,226 (820) 25,808
Income tax expense ............................ 9,695 499 10,194
Minority interests ............................ 7 7
--------- --------- --------- ---------
Net income ........................... 15,707 720 (820) 15,607
Dividend requirement on redeemable
convertible preferred stock ....... 280 280
--------- --------- --------- ---------
Net income applicable to common shares $ 15,427 $ 720 $ (820) $ 15,327
========= ========= ========= =========
20
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF INCOME
For the Nine Months Ended September 30, 2001
(Dollars in thousands)
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Net sales ..................................... $ 241,110 $ 34,946 $ (18,613) $ 257,443
Cost of sales ................................. 161,161 24,281 (18,183) 167,259
--------- --------- --------- ---------
Gross profit ......................... 79,949 10,665 (430) 90,184
Operating expenses:
Selling expenses .......................... 19,915 3,989 23,904
General and administrative expenses ....... 23,196 3,914 (144) 26,966
Art and development costs ................. 6,481 6,481
--------- --------- --------- ---------
Total operating expenses ............. 49,592 7,903 (144) 57,351
--------- --------- --------- ---------
Income from operations ............... 30,357 2,762 (286) 32,833
Interest expense, net ......................... 18,283 483 18,766
Other (income) expense, net ................... (1,671) 51 1,640 20
--------- --------- --------- ---------
Income before income taxes
and minority interests ............. 13,745 2,228 (1,926) 14,047
Income tax expense ............................ 4,839 710 5,549
Minority interests ............................ 23 23
--------- --------- --------- ---------
Net income ........................... 8,906 1,495 (1,926) 8,475
Dividend requirement on redeemable
convertible preferred stock ....... 180 180
--------- --------- --------- ---------
Net income applicable to common shares $ 8,726 $ 1,495 $ (1,926) $ 8,295
========= ========= ========= =========
21
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2002
(Dollars in thousands)
Amscan Holdings Combined
and Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income .................................................. $ 15,707 $ 720 $ (820) $ 15,607
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................ 9,557 295 9,852
Amortization of deferred financing costs ................. 843 843
Provision for doubtful accounts .......................... 725 737 1,462
Amortization of restricted Common Stock award ............ 177 177
Deferred income tax expense .............................. 4,462 4,462
(Gain) loss on disposal of equipment ..................... (346) 35 (311)
Changes in operating assets and liabilities, net of
acquisition:
Increase in accounts receivable .................... (9,013) (4,517) (13,530)
(Increase) decrease in inventories ................. (7,494) (1,917) 100 (9,311)
Increase in prepaid expenses and other current
assets .......................................... (1,748) (642) (2,390)
Increase in accounts payable, accrued expenses
and income taxes payable ........................ 5,317 1,711 7,028
Other, net .............................................. (5,952) 3,190 720 (2,042)
-------- -------- -------- --------
Net cash provided by (used in) operating activities 12,235 (388) -- 11,847
Cash flows from investing activities:
Cash paid in connection with acquisition .................... (13,547) (13,547)
Capital expenditures ........................................ (11,129) (267) (11,396)
Proceeds from disposal of property and equipment ............ 481 34 515
-------- -------- -------- --------
Net cash used in investing activities .............. (24,195) (233) -- (24,428)
Cash flows from financing activities:
Proceeds from short-term obligations, ..................... 16,300 16,300
Repayment of loans, notes payable and
long-term obligations ................................. (2,523) (12) (2,535)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 13,777 (12) -- 13,765
Effect of exchange rate changes on cash and cash equivalents ... (671) 423
-------- -------- -------- --------
(248)
Net increase (decrease) in cash and cash equivalents 1,146 (210) 936
Cash and cash equivalents at beginning of period ............... 60 956 1,016
-------- -------- -------- --------
Cash and cash equivalents at end of period ..................... $ 1,206 $ 746 $ -- $ 1,952
======== ======== ======== ========
22
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2001
(Dollars in thousands)
Amscan Holdings Combined
and Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income .............................................. $ 8,906 $ 1,495 $ (1,926) $ 8,475
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................ 11,292 430 11,722
Amortization of deferred financing costs ............. 748 748
Provision for doubtful accounts ...................... 2,933 167 3,100
Amortization of restricted Common Stock award ........ 222 222
Deferred income tax expense .......................... 481 481
Changes in operating assets and liabilities:
Increase in accounts receivable ................ (9,886) (1,871) (11,757)
Decrease (increase) in inventories ............. 1,560 (4,152) 430 (2,162)
Increase in prepaid expenses and other
current assets .............................. (1,748) (262) (2,010)
Increase in accounts payable, accrued
expenses and income taxes payable ........... 4,059 304 4,363
Other, net .......................................... (9,594) 4,547 1,496 (3,551)
-------- -------- -------- --------
Net cash provided by operating activities ...... 8,973 658 -- 9,631
Cash flows from investing activities:
Capital expenditures ................................. (26,896) (261) (27,157)
-------- -------- -------- --------
Net cash used in investing activities .......... (26,896) (261) -- (27,157)
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible
preferred stock .................................... 6,000 6,000
Proceeds from short-term obligations .................... 14,665 14,665
Repayment of loans, notes payable and long-term
obligations ......................................... (3,058) (80) (3,138)
Proceeds from the exercise of common stock options ...... 41 41
Payments received on notes receivable from stockholders
and other ............................................. (296) 305 9
-------- -------- -------- --------
Net cash provided by financing activities ...... 17,352 225 -- 17,577
Effect of exchange rate changes on cash and cash equivalents 63 (620) (557)
-------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents ........................ (508) 2 (506)
Cash and cash equivalents at beginning of period ........... 559 910 1,469
-------- -------- -------- --------
Cash and cash equivalents at end of period ................. $ 51 $ 912 $ -- $ 963
======== ======== ======== ========
23
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Percentage of Net Sales
- -----------------------
Three Months Ended
------------------
September 30,
-------------
2002 2001
---- ----
Net sales .............................................. 100.0% 100.0%
Cost of sales .......................................... 65.6 65.5
----- -----
Gross profit .................................... 34.4 34.5
Operating expenses:
Selling expenses ................................... 9.0 9.5
General and administrative expenses ................ 8.2 11.2
Art and development costs .......................... 2.5 2.4
Restructuring charges .............................. 0.6
----- -----
Total operating expenses ........................ 20.3 23.1
----- -----
Income from operations .......................... 14.1 11.4
Interest expense, net .................................. 5.4 6.8
Other income, net ...................................... (0.4)
----- -----
Income before income taxes and minority interests 9.1 4.6
Income tax expense ..................................... 3.6 1.9
Minority interests ..................................... 0.1
----- -----
Net income ...................................... 5.4% 2.7%
===== =====
Net sales of $100.2 million for the three months ended September 30,
2002 were $12.5 million higher than net sales for the three months ended
September 30, 2001. During the third quarter of 2002, the Company's sales of
printed ensembles, solid color tableware and other party goods to the national
superstore distribution channel grew by 8.9%. The Company's specialty sales
force, which brings party goods and related gift products to card and gift
stores and other independent retailers, achieved 42.5% sales growth during the
third quarter of 2002. Domestic net sales of metallic balloons and flexible
packaging during the third quarter of 2002 increased by 43.6% over the third
quarter of 2001, principally as a result of the February 2002 acquisition of M&D
Balloons (see Liquidity and Capital Resources). In addition, net sales to
international customers increased by 9.8%.
Gross profit for the third quarter of 2002 of 34.4% was 0.1% lower than
the third quarter of 2001 as the incremental margin achieved as a result of
increased sales was offset by lower margin attributable to product mix.
Selling expenses of $9.0 million for the three months ended September
30, 2002 were $0.6 million higher than in the corresponding period in 2001
principally due to the inclusion of the operating results of M&D Balloons.
Selling expenses, as a percentage of net sales, decreased from 9.5% to 9.0%,
resulting from the leveraging of our sales infrastructure and continued
maturation of our specialty sales force.
General and administrative expenses of $8.2 million for the three
months ended September 30, 2002 decreased by $1.6 million as compared to the
corresponding period in 2001. As a percentage of sales, general and
administrative expenses decreased by 3.0%, to 8.2%. The net decrease in general
and administrative expenses is primarily due to the elimination of goodwill
amortization in 2002, which amortization totaled $0.6 million during the third
quarter of 2001, and a decrease in bad debt expense of $1.8 million, partially
offset by the inclusion of the operating results of M&D Balloons and higher
employee wages. During the third quarter of 2001, the Company charged an
additional $1.5 million to the provision for doubtful accounts as one of its
customers filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code.
24
Art and development costs of $2.5 million for the third quarter of 2002
were $0.3 million higher than in the third quarter of 2001, principally due to
an increase of staff, higher wages and the inclusion of the operating results of
M&D Balloons.
During the third quarter of 2002, the Company incurred charges of
$504,000 resulting from the consolidation of the fabrication operations of M&D
Balloons into its existing balloon operations. In addition, the Company incurred
charges of $65,000 during the quarter relating to the closure of certain foreign
distribution facilities and $41,000 relating to the consolidation of its
domestic distribution operations. The continued consolidation of the Company's
distribution and balloon operations may result in additional restructuring
charges in subsequent periods.
Interest expense, net, of $5.4 million for the third quarter of 2002
was $0.6 million lower than in the corresponding period in 2001 and reflects a
lower average interest rate (6.8% in 2002 versus 8.4% in 2001), partially offset
by the impact of higher average borrowings.
Income taxes for the third quarter of 2002 and 2001 were based upon
estimated consolidated effective income tax rates of 39.5% for the years ending
December 31, 2002 and 2001.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Percentage of Net Sales
- -----------------------
Nine Months Ended
-----------------
September 30,
-------------
2002 2001
---- ----
Net sales .............................................. 100.0% 100.0%
Cost of sales .......................................... 65.3 65.0
----- -----
Gross profit .................................... 34.7 35.0
Operating expenses:
Selling expenses ................................... 8.9 9.2
General and administrative expenses ................ 8.6 10.5
Art and development costs .......................... 2.6 2.5
Restructuring charges .............................. 0.3
----- -----
Total operating expenses ........................ 20.4 22.2
----- -----
Income from operations .......................... 14.3 12.8
Interest expense, net .................................. 5.5 7.3
Other income, net ...................................... (0.1)
----- -----
Income before income taxes and minority interests 8.9 5.5
Income tax expense ..................................... 3.5 2.2
Minority interests .....................................
----- -----
Net income ...................................... 5.4% 3.3%
===== =====
Net sales of $290.3 million for the nine months ended September 30,
2002 were $32.8 million higher than net sales for the nine months ended
September 30, 2001. During the nine months ended September 30, 2002, the
Company's sales of printed ensembles, solid color tableware and other party
goods to the national superstore distribution channel grew by 5.9%. The
Company's specialty sales force, which brings party goods and related gift
products to card and gift stores and other independent retailers, achieved 50.5%
sales growth during the nine months ended September 30, 2002. Domestic net sales
of metallic balloons and flexible packaging during the nine months ended
September 30, 2002 increased by 37.1% compared to the corresponding period in
2001, principally as a result of the February 2002 acquisition of M&D Balloons
(see Liquidity and Capital Resources). In addition, net sales to international
customers increased by 8.0%.
25
Gross profit for the nine months ended September 30, 2002 of 34.7% was
0.3% lower than in the corresponding period in 2001 due to incremental margins
achieved as a result of higher sales that were more than offset by the impact of
product mix, particularly solid color tableware.
Selling expenses of $25.8 million for the nine months ended September
30, 2002 were $1.9 million higher than in the corresponding period in 2001
principally due to the inclusion of the operating results of M&D Balloons and
the continued development of the Company's specialty sales force. Selling
expenses, as a percentage of net sales, decreased from 9.2% to 8.9%, resulting
from the leveraging of our sales infrastructure and continued maturation of our
specialty sales force.
General and administrative expenses of $25.2 million for the nine
months ended September 30, 2002 represents a decrease of $1.8 million as
compared to the corresponding period in 2001. As a percentage of sales, general
and administrative expenses decreased by 1.9% to 8.6%. The net decrease in
general and administrative expenses is primarily due to the elimination of
goodwill amortization in 2002, which amortization totaled $1.9 million during
the nine months ended September 30, 2001, and a decrease in bad debt expense of
$1.6 million, partially offset by the inclusion of the operating results of M&D
Balloons and higher employee wages. During the third quarter of 2001, the
Company charged an additional $1.5 million to the provision for doubtful
accounts as one of the Company's customers filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code.
Art and development costs of $7.5 million for the nine months ended
September 30, 2002 were $1.0 million higher as compared to the corresponding
period in 2001, principally due to an increase in staff, higher employee wages
and the inclusion of the operating results of M&D Balloons.
During the nine months ended September 30, 2002, the Company incurred
charges of $504,000 resulting from the consolidation of the fabrication
operations of M&D Balloons into its existing balloon operations. In addition,
the Company incurred charges of $134,000 relating to the consolidation of its
domestic distribution operations. The Company also incurred charges of $158,000
relating to the closure of certain foreign distribution facilities, which has
resulted in the elimination of 6 positions. The continued consolidation of the
Company's distribution and balloon operations may result in additional
restructuring charges in subsequent periods.
Interest expense, net, of $16.2 million for the nine months ended
September 30, 2002 was $2.6 million lower than in the corresponding period in
2001 and reflects a lower average interest rate (6.8% in 2002 versus 8.8% in
2001), partially offset by the impact of higher average borrowings.
Income taxes for the nine months ended September 30, 2002 and 2001 were
based upon estimated consolidated effective income tax rates of 39.5% for the
years ending December 31, 2002 and 2001.
Liquidity and Capital Resources
At September 30, 2002, the Company had an outstanding Term Loan of
$148.5 million provided under the Bank Credit Facilities, together with the
Notes (collectively, the "Financings"). The Term Loan matures in December 2004
and provides for amortization (in quarterly installments) of one percent of the
principal amount thereof per year for the first five years and 32.3% and 62.7%
of the principal amount thereof in 2003 and 2004, respectively. The Term Loan
bears interest, at the option of the Company, at the lenders' prime rate plus
1.625% per annum or at the lenders' reserve adjusted Eurodollar rate plus 2.625%
per annum. At September 30, 2002, the floating interest rate on the Term Loan
was 4.46%. The Notes bear interest at a rate of 9.875% per annum and mature in
December 2007. The Company is required to make prepayments on the Bank Credit
Facilities based upon the net proceeds from certain asset sales, the issuances
of certain debt and equity securities and insurance or condemnation awards, as
well as based on annual cash flows, as defined.
26
The Bank Credit Facilities, as amended on July 3, 2002, also provide
for revolving loan borrowings of up to $40 million under the Revolving Credit
Facility. The Revolving Credit Facility bears interest, at the option of the
Company, at the lenders' prime rate plus, based on performance, a range of 1.25%
to 3.50% per annum or at the lenders' reserve adjusted Eurodollar rate plus,
based on performance, a range of 1.875% to 4.50% per annum. At September 30,
2002, the Company had borrowing capacity of approximately $15.9 million under
the terms of the Revolving Credit Facility, as amended. The Revolving Credit
Facility requires the Company to maintain certain financial ratios including, a
ratio of consolidated earnings before interest income taxes, depreciation and
amortizaton ("EBITDA"), as defined, to consolidated fixed charges (principally
capital expenditures, scheduled debt payments, cash interest and income tax
payments) equal to or greater than 1.10 to 1.00 for the four fiscal quarters
ended September 30, 2002 and a ratio of consolidated debt to EBITDA of not more
than 4.70 to 1.00 for the four fiscal quarters ended September 30, 2002 and to
limit annual capital expenditures to not more than $15,000,000 plus any prior
year capital expenditure carryover up to $7,500,000.
The Financings may affect the Company's ability to make future capital
expenditures and potential acquisitions. However, management believes that
current asset levels provide adequate capacity to support its operations for at
least the next 12 months. At September 30, 2002, the Company did not have
material commitments for capital expenditures or other acquisitions.
In addition to the Revolving Credit Facility, the Company has a
$400,000 Canadian dollar denominated revolving credit facility which bears
interest at the Canadian prime rate and expires on June 15, 2003, a $1.0 million
British Pound Sterling denominated revolving credit facility which bears
interest at the U.K. base rate plus 1.75% and expires on June 1, 2003 and a $1.0
million revolving credit facility which bears interest at LIBOR plus 1.0% and
expires on January 31, 2003. No borrowings were outstanding under these
revolving credit facilities at September 30, 2002.
The Company financed the costs to purchase property in 2000 and to
construct a new domestic distribution facility completed in 2001 (total cost of
$30.2 million), using borrowings under the Revolving Credit Facility and, in
2001, the proceeds from the issuance of the Series A Redeemable Convertible
Preferred Stock of $6.0 million (noted below) and long-term borrowings
consisting of a first and second lien mortgage note of $10.0 million each with a
financial institution and the New York State Job Development Authority,
respectively. The first lien mortgage note bears interest at LIBOR plus 2.75%.
However, the Company has utilized an interest rate swap agreement to effectively
fix the loan rate at 8.40% for the term of the loan. The second lien mortgage
note bears interest at a rate 4.75%, and is subject to review and adjustment
semi-annually based on the New York State Job Development Authority's
confidential internal protocols. Both notes are for a term of 96 months and
require monthly payments based on a 180-month amortization period with balloon
payments upon maturity in January 2010. The Company has amended and restated the
Bank Credit Facilities to provide for, among other things, the additional
borrowings and capital expenditures for the construction of the facility.
On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as Series A
Redeemable Convertible Preferred Stock. Also on March 30, 2001, the Company
issued 40 shares of Series A Redeemable Convertible Preferred Stock to GSCP for
proceeds of $6.0 million. Dividends are cumulative and payable annually at 6%
per annum. Such dividends payable on or prior to March 30, 2004, shall be
payable in additional shares of Series A Redeemable Convertible Preferred Stock
based on a value of $150,000 per share. Subsequent to March 30, 2004, dividends
shall be payable, at the option of the Company, either in cash or additional
shares of Series A Redeemable Convertible Preferred Stock. Annual dividends were
distributed in additional shares of Series A Redeemable Convertible Preferred
Stock on March 30, 2002. At September 30, 2002, 42.40 shares of Series A
Redeemable Convertible Preferred Stock were issued and outstanding.
The Company has several non-cancelable operating leases principally for
office, distribution and manufacturing facilities, showrooms and warehouse
equipment. These leases expire on various dates through 2017 and generally
contain renewal options and require the Company to pay real estate taxes,
utilities and related insurance. Rent expense for the three and nine months
ended September 30, 2002, totaled $2.6 million and $8.0 million, respectively.
The minimum lease payments currently required under non-cancelable operating
leases for the year ending December 31, 2002, approximate $11.8 million.
27
On February 19, 2002, the Company purchased all of the outstanding
common stock of M&D Balloons, a Manteno, Illinois-based manufacturer of metallic
and plastic balloons, from American Greetings for $27.5 million plus related
costs. The Company financed the acquisition by borrowing $13.5 million under its
Revolving Credit Facility and issuing 96.774 shares of its Common Stock to
American Greetings, at a value of $155,000 per share. American Greetings will
continue to distribute metallic balloons under a supply agreement with the
Company.
On June 13, 2002, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the Common
Stock. The filing has not yet become effective. The Company anticipates that, if
the offering is completed, it will use the net proceeds it receives to pay
existing debt. In addition, the board of directors plans to approve a 10,000 for
one stock split of the Common Stock, effective immediately prior to the
offering.
Scheduled debt payments for the year ending December 31, 2003 total
$52.3 million with increasing amounts thereafter. In addition to the potential
public offering of its Common Stock, the Company is exploring a number of other
options to repay or refinance these debt maturities. The Company has had good
access to capital markets and expects to repay or refinance these debt
maturities as they become due. However, the Company's ability to make scheduled
payments of principal of, or to pay interest on, or to refinance its
indebtedness and to satisfy its other obligations will depend upon several
factors including the volatility of capital markets and the Company's future
performance, which, to a certain extent, will be subject to general economic,
financial, competitive, business and other factors beyond its control. Based
upon the current level of operations and anticipated growth, assuming the
Company can successfully repay or refinance debt maturities, the Company
anticipates that its operating cash flow, together with available borrowings
under the Revolving Credit Facility will be adequate to meet its anticipated
future requirements for working capital and operating expenses for at least the
next 12 months.
Cash Flow Data - Nine Months Ended September 30, 2002 Compared Nine Months Ended
- --------------------------------------------------------------------------------
September 30, 2001
- ------------------
Net cash provided by operating activities during the nine months ended
September 30, 2002 and 2001, totaled $11.8 million and $9.6 million,
respectively. Net cash flow provided by operating activities before changes in
operating assets and liabilities for the nine months ended September 30, 2002
and 2001, was $32.1 million and $24.7 million, respectively. Changes in
operating assets and liabilities, net of acquisition for the nine months ended
September 30, 2002 and 2001, resulted in the use of cash of $20.3 million and
$15.1 million, respectively. The changes in operating assets and liabilities
principally reflect increased seasonal working capital requirements and, in
2002, increased inventory levels as a result of the Company's planned transition
to its new domestic distribution facility during the fourth quarter.
Net cash used in investing activities during the nine months ended
September 30, 2002 of $24.4 million consisted of $13.5 million relating to the
acquisition of M&D Balloons and $11.4 million of costs associated with the new
domestic distribution facility as well as additional investments in data
processing and manufacturing equipment, partially offset by proceeds from
disposal of property and equipment. During the nine months ended September 30,
2001, net cash used in investing activities of $27.2 million included payments
of $20.4 million associated with the construction of the new domestic
distribution facility and $6.8 million of additional investments primarily in
manufacturing equipment.
During the nine months ended September 30, 2002, net cash provided by
financing activities of $13.8 million consisted of proceeds from short-term
borrowings, including $13.5 million used to finance the acquisition of M&D
Balloons, partially offset by the scheduled payments of the Term Loan and other
long-term obligations. During the nine months ended September 30, 2001, net cash
provided by financing activities was $17.6 million and consisted principally of
proceeds from both short-term working capital borrowings and the issuance of the
Series A Redeemable Convertible Preferred Stock totaling $6.0 million partially
offset by payments made against the Term Loan and other long-term obligations.
28
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.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this report
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, including any changes to operations, goals, expansion and
growth of the Company's business and operations, plans, references to future
success and other such matters are forward-looking statements. These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. Actual results may differ materially from
those discussed. Whether actual results and developments will conform with the
Company's expectations and predictions is subject to a number of risks and
uncertainties, including, but not limited to (1) the concentration of sales by
the Company to party goods superstores where the reduction of purchases by a
small number of customers could materially reduce the Company's sales and
profitability, (2) the concentration of the Company's credit risk in party goods
superstores, several of which are privately held and have expanded rapidly in
recent years, (3) the failure by the Company to anticipate changes in tastes and
preferences of party goods retailers and consumers, (4) introduction of new
product lines by the Company, (5) the introduction of new products by the
Company's competitors, (6) the inability of the Company to increase prices to
recover fully future increases in raw material prices, especially increases in
paper prices, (7) the loss of key employees, (8) changes in general business
conditions, (9) other factors which might be described from time to time in the
Company's filings with the Commission and (10) other factors which are beyond
the control of the Company. Consequently, all of the forward-looking statements
made in this report are qualified by these cautionary statements, and the actual
results or developments anticipated by the Company may not be realized or, even
if substantially realized, may not have the expected consequences to or effects
on the Company or its business or operations. Although the Company believes that
it has the product offerings and resources needed for continued growth in
revenues and margins, future revenue and margin trends cannot be reliably
predicted. Changes in such trends may cause the Company to adjust its operations
in the future. Because of the foregoing and other factors, recent trends should
not be considered reliable indicators of future financial results. In addition,
the highly leveraged nature of the Company may impair its ability to finance its
future operations and capital needs and its flexibility to respond to changing
business and economic conditions and business opportunities.
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 utilize 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 September
30, 2002 and 2001, our interest expense, after considering the effects of our
interest rate swap agreements, would have increased, and income before income
taxes would have decreased, by $0.9 million and $0.5 million, respectively. If
market interest rates for our variable rate indebtedness averaged 2% more than
the interest rate actually paid for the nine months ended September 30, 2002 and
2001, our interest expense, after considering the effects of our interest rate
swap agreements, would have increased, and income before income taxes would have
decreased, by $2.5 million and $1.4 million, respectively. 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
29
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
dollar relative to the currencies in which our foreign sales are denominated
would have resulted in a decrease in gross profit of $0.4 million in each of the
three months ended September 30, 2002 and 2001. A uniform 10% strengthening in
the value of the dollar relative to the currencies in which our foreign sales
are denominated would have resulted in a decrease in gross profit of $1.2
million and $1.1 million for the nine month periods ended September 30, 2002 and
2001, 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
Based on an evaluation of the Company's disclosure controls and
procedures performed by the Company's Chief Executive Officer and its Chief
Financial Officer within 90 days of the filing of this report, the Company's
Chief Executive Officer and its Chief Financial Officer concluded that the
Company's disclosure controls and procedures have been effective.
As used herein, "disclosure controls and procedures" means controls and
other procedures of the Company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms issued by the
Securities and Exchange Commission. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Since the date of the evaluation described above, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.
Part II
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
99 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
None.
30
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
Chief Financial Officer
(on behalf of the registrant and as
Date: November 14, 2002 principal financial and accounting
----------------- officer)
31
CERTIFICATION
BY CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14
I, Gerald C. Rittenberg, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Amscan Holdings, Inc;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record , process, summarize and report financial data and have
identified for the registrant's auditor's any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Gerald C. Rittenberg
----------------- --------------------------------------
Gerald C. Rittenberg
Chief Executive Officer
(Principal executive officer)
32
CERTIFICATION
BY CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14
I, Michael A. Correale, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Amscan Holdings, Inc;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record , process, summarize and report financial data and have
identified for the registrant's auditor's any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Michael A. Correale
----------------- -------------------------------------
Michael A. Correale
Chief Financial Officer
(Principal financial officer)
33