AMSCAN HOLDINGS INC - FORM 8-K - EX-99.1 - CERTAIN INFORMATION TO BE PROVIDED TO PROSPECTIVE DEBT FINANCING SOURCES

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8-K - FORM 8-K - AMSCAN HOLDINGS INC	d381114d8k.htm

Exhibit 99.1

Certain Information to Be Provided to Prospective Debt Financing Sources

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial statements have been derived by applying pro forma adjustments to our historical consolidated financial statements included elsewhere in this offering memorandum. The unaudited pro forma consolidated statements of comprehensive income give effect to the Transactions as if they had occurred on January 1, 2011. The unaudited pro forma consolidated balance sheet gives effect to the Transactions as if they had occurred on March 31, 2012. The unaudited pro forma consolidated statement of comprehensive income for the twelve months ended March 31, 2012 has been derived by taking the pro forma consolidated statement of comprehensive income for the year ended December 31, 2011, plus the pro forma consolidated condensed statement of comprehensive income for the three months ended March 31, 2012, less the pro forma condensed consolidated statement of comprehensive income for the three months ended March 31, 2011. The pro forma consolidated financial information for the twelve months ended March 31, 2012 has been included in this offering memorandum in order to provide investors with historical and pro forma information for the latest practicable twelve month period.

The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial statements are presented for informational purposes only. The unaudited pro forma condensed consolidated financial statements do not purport to represent what our actual consolidated results of operations or the consolidated financial condition would have been had the Transactions actually occurred on the dates indicated, nor does it purport to project our results of operations or financial condition for any future period or as of any future date. The unaudited pro forma consolidated financial statements should be read in conjunction with the information contained in “Summary—Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data,” “The Transactions,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this offering memorandum. All pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma consolidated statements of operations give effect to adjustments that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) expected to have a continuing impact. The unaudited pro forma consolidated balance sheet gives effect to adjustments that are (i) directly attributable to the Transactions and (ii) factually supportable, regardless of whether they have a continuing impact or are non-recurring.

The Acquisition will be accounted for using the acquisition method of accounting. The pro forma information presented, including allocations of purchase price, is based on preliminary estimates of fair value of assets and liabilities, available information as of the date of this offering memorandum and management assumptions, and will be revised as additional information becomes available. The actual adjustments to our consolidated financial statements upon the closing of the Transactions will depend on a number of factors, including a final independent third-party valuation of assets and liabilities and the actual balance of our net assets on the Closing Date. Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of March 31, 2012

(dollars in thousands)


	Historical			Adjustments			Pro Forma
Assets

Current assets:
Cash and cash equivalents	$	16,976		$	—	(1)	$	16,976
Accounts receivable, net		121,657			—			121,657
Inventories, net		429,052			84,193	(2)		513,245
Prepaid expenses and other current assets		79,403			25,642	(2)		105,045

Total current assets		647,088			109,835			756,923
Property, plant and equipment, net		201,223			6,071	(2)		207,294
Goodwill		682,933			969,599	(2)		1,652,532
Trade names		132,793			250,567	(2)		383,360
Other intangible assets, net		44,548			27,485	(2)		72,033
Other assets, net		23,100			42,580	(2)(3)		65,680

Total assets	$	1,731,685		$	1,406,137		$	3,137,822

Liabilities, Redeemable Common Securities and Stockholders’ Equity
Current liabilities:
Loans and notes payable	$	176,939		$	(57,939	)(2)(4)	$	119,000
Accounts payable		84,654			—			84,654
Accrued expenses		104,416			(10,023	)(2)(4)		94,393
Income taxes payable		33,056			26,145	(2)		59,201
Current portion of long-term obligations		8,215			8,143	(2)(4)		16,358

Total current liabilities		407,280			(33,674	)		373,606
Long-term obligations, excluding current portion		832,746			907,388	(2)(4)		1,740,134
Deferred income tax liabilities		101,082			10,149	(2)		111,231
Deferred rent and other long-term liabilities		21,961			(20,992	)(2)		969

Total liabilities		1,363,069			862,871			2,225,940
Redeemable common securities (including 1,210.49 common shares issued and outstanding at March 31, 2012 and 1,210.49 common shares issued and outstanding at December 31, 2011)		52,456			(52,456	)		—
Commitments and contingencies
Stockholders’ equity:
Class A common stock ($0.01 par value, 19,051.31 shares issued and outstanding at March 31, 2012 and 19,051.31 shares issued and outstanding at December 31, 2011)		—			—			—
Class B common stock ($0.01 par value; convertible into Class A common stock, 11,918.71 shares issued and outstanding at March 31, 2012 and 11,918.71 shares issued and outstanding at December 31, 2011)		—			—			—
Additional paid-in capital		271,676			637,766	(5)		909,442
Retained earnings		50,761			(50,761	)(5)		—
Accumulated other comprehensive loss		(8,717	)		8,717	(5)		—

Party City Holdings Inc. stockholders’ equity		313,720			595,722	(5)		909,442
Noncontrolling interests		2,440			—			2,440

Total stockholders’ equity		316,160			595,722			911,882

Total liabilities, redeemable common securities and stockholders’ equity	$	1,731,685		$	1,406,137		$	3,137,822

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(1)	Represents the net effect of the Transactions on cash and cash equivalents based on the estimated sources and uses of cash for the Transactions as if they had occurred on March 31, 2012 as presented below (in millions):


Sources of funds			Uses of funds
Senior Credit Facilities:			Purchase of equity	$	1,665.7
New Term Loan Facility	$	1,050.0	Refinance existing debt		998.7
New ABL Facility		100.0	Rolled debt		25.5
Notes offered hereby		700.0	Transaction fees and expenses		95.0

Rolled debt		25.5
Equity contribution		909.4

Total sources of funds	$	2,784.9	Total uses of funds	$	2,784.9

The equity contribution of $909.4 million will be used with borrowings under our New Term Loan Facility and New ABL Facility, $1,050.0 million and $100.0 million, respectively, rolled debt of $25.5 million (of which $19.2 million was outstanding at March 31, 2012), and notes offered hereby of $700.0 million to fund the cash purchase consideration of $1,665.7 million, refinance the existing debt of $1,024.2 million (including rolled debt), and fund estimated transaction fees and expenses of $95.0 million. See “Use of Proceeds” for further detail.

(2)	Reflects the effect of acquisition method accounting based on preliminary allocation of the purchase price to identifiable assets acquired and liabilities assumed, based on preliminary valuations. The preliminary allocation is summarized as follows (in thousands):


Fair value of equity interests:
Cash paid to acquire Party City Holdings Inc. equity interests	$	909,442
Fair value of noncontrolling interests		2,440

Subtotal	$	911,882
Historical book value of net assets		368,616

Excess of fair value of equity interests over historical book value of net assets	$	543,266


Allocated to:

Inventories, net	$	84,193
Prepaid expenses and other current assets		25,642
Property, plant and equipment, net		6,071
Goodwill		969,599
Trade names		250,567
Other intangible assets, net		27,485
Other assets, net		42,580
Loans, notes payable and long-term obligations		(857,592	)
Accrued expenses		10,023
Income taxes payable		(26,145	)
Deferred income tax liabilities		(10,149	)
Deferred rent and other long-term liabilities		20,992

Total adjustment	$	543,266

(3)	Adjustments to Other assets, net represent costs attributable to the financing of the Transactions which are capitalized as debt financing costs, estimated to be $57.6 million, net of write-off of historical deferred financing costs of $15.0 million.

Transaction costs have been allocated between acquistion-related activities and financing costs based on current estimates. These estimates will be revised to reflect actual amounts at closing. Costs relating to the Acquisition are not capitalized, but are accounted for as period expenses. Of the total estimated $95.0 million of costs expected to be incurred in connection with the Transactions, approximately $27.0 million is expected to be attributed to the Acquisition. Such costs are not reflected in the pro forma statements of comprehensive income.

(4)	Adjustments reflect additional indebtedness issued in connection with the Transactions, partially offset by the repayment of existing debt and the corresponding accrued interest. See Note #1 above and “Use of Proceeds” for further detail.

(5)	Adjustments to equity reflect:

(i)

Equity contributions in the amount of $909.4, net of transaction costs of $27.0 million, which will be expensed, relating to the Acquisition; and

(ii)

Elimination of historical equity in the amount of $313.7 million.

Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Income

For the Year Ended December 31, 2011

(dollars in thousands)


	Historical			Adjustments			Pro Forma
Revenues:
Net sales	$	1,852,869		$			$	1,852,869
Royalties and franchise fees		19,106						19,106

Total revenues		1,871,975						1,871,975
Expenses:
Cost of sales (1)		1,118,973			162			1,119,135
Selling expenses		57,905						57,905
Retail operating expenses		325,332						325,332
Franchise expenses (2)		13,685			2,249			15,934
General and administrative expenses (3)		138,074			(1,064	)		137,010
Art and development costs		16,636						16,636

Total expenses		1,670,605			1,347			1,671,952

Income (loss) from operations		201,370			(1,347	)		200,023
Interest expense, net (4)		77,743			68,099			145,842
Other expense, net		1,476						1,476

Income/(loss) before income taxes and equity income		122,151			(69,446	)		52,705
Income tax expense (benefit) (5)		45,741			(26,005	)		19,736

Net income (loss)		76,410			(43,441	)		32,969
Less net income attributable to noncontrolling interest		135						135

Net income (loss) attributable to Party City Holdings Inc.	$	76,275		$	(43,441	)	$	32,834

Other comprehensive (loss) income, net of tax:
Foreign currency adjustments		(7,404	)		—			(7,404	)
Impact of cash flow hedges, net		1,795			—			1,795

Other comprehensive (loss) income, net		(5,609	)		—			(5,609	)

Comprehensive income		70,801			(43,441	)		27,360
Less: comprehensive (loss) income attributable to noncontrolling interest		(35	)		—			(35	)

Comprehensive income attributable to Party City Holdings Inc.	$	70,836		$	(43,441	)	$	27,395

Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Income

For the Three Months Ended March 31, 2012

(dollars in thousands)


	Historical			Adjustments			Pro Forma
Revenues:
Net sales	$	379,281		$			$	379,281
Royalties and franchise fees		3,796						3,796

Total revenues		383,077						383,077
Expenses:
Cost of sales (1)		236,624			41			236,665
Selling expenses		13,628						13,628
Retail operating expenses		70,617						70,617
Franchise expenses (2)		2,727			562			3,289
General and administrative expenses (3)		33,780			(151	)		33,629
Art and development costs		4,544						4,544

Total expenses		361,920			452			362,372

Income (loss) from operations		21,157			(452	)		20,705
Interest expense, net (4)		18,102			17,972			36,074
Other (income) expense, net		(237	)					(237	)

Income/(loss) before income taxes and equity income		3,292			(18,424	)		(15,132	)
Income tax expense (benefit) (5)		1,208			(6,762	)		(5,554	)

Net income (loss)		2,084			(11,662	)		(9,578	)
Less: net income attributable to noncontrolling interests		40						40

Net income (loss) attributable to Party City Holdings Inc.	$	2,044		$	(11,662	)	$	(9,618	)

Other comprehensive (loss) income, net of tax:
Foreign currency adjustments		3,266			—			3,266
Impact of cash flow hedges, net		(506	)		—			(506	)

Other comprehensive (loss) income, net		2,760			—			2,760

Comprehensive income		4,844			(11,662	)		(6,818	)
Less: comprehensive (loss) income attributable to noncontrolling interest		163			—			163

Comprehensive income attributable to Party City Holdings Inc.	$	4,681		$	(11,662	)	$	(6,981	)

Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Income

For the Three Months Ended March 31, 2011

(dollars in thousands)


	Historical			Adjustments			Pro Forma
Revenues:
Net sales	$	352,501		$			$	352,501
Royalties and franchise fees		3,681						3,681

Total revenues		356,182						356,182
Expenses:
Cost of sales (1)		225,014			41			225,055
Selling expenses		13,852						13,852
Retail operating expenses		61,848						61,848
Franchise expenses (2)		3,365			562			3,927
General and administrative expenses (3)		31,545			(66	)		31,479
Art and development costs		3,950						3,950

Total expenses		339,574			537			340,111

Income (loss) from operations		16,608			(537	)		16,071
Interest expense, net (4)		20,368			16,257			36,625
Other (income) expense, net		62						62

Income/(loss) before income taxes and equity income		(3,822	)		(16,794	)		(20,616	)
Income tax expenses (benefit) (5)		(1,330	)		(5,844	)		(7,174	)

Net income (loss)		(2,492	)		(10,950	)		(13,442	)
Less: net income attributable to noncontrolling interests		71						71

Net loss attributable to Party City Holdings Inc.	$	(2,563	)	$	(10,950	)	$	(13,513	)

Other comprehensive (loss) income, net of tax:
Foreign currency adjustments		3,794			—			3,794
Impact of cash flow hedges, net		508			—			508

Other comprehensive (loss) income, net		4,302			—			4,302

Comprehensive income		1,810			(10,950	)		(9,140	)
Less: comprehensive (loss) income attributable to noncontrolling interest		71			—			71

Comprehensive income attributable to Party City Holdings Inc.	$	1,739		$	(10,950	)	$	(9,211	)

Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Income

For the Twelve Months Ended March 31, 2012

(dollars in thousands)


	Historical			Adjustments			Pro Forma
Revenues:
Net sales	$	1,879,649		$			$	1,879,649
Royalties and franchise fees		19,221						19,221

Total revenues		1,898,870						1,898,870
Expenses:
Cost of sales (1)		1,130,583			162			1,130,745
Selling expenses		57,681						57,681
Retail operating expenses		334,101						334,101
Franchise expenses (2)		13,047			2,249			15,296
General and administrative expenses (3)		140,309			(1,149	)		139,160
Art and development costs		17,230						17,230

Total expenses		1,692,951			1,262			1,694,213

Income (loss) from operations		205,919			(1,262	)		204,657
Interest expense, net (4)		75,477			69,814			145,291
Other (income) expense, net		1,177						1,177

Income/(loss) before income taxes and equity income		129,265			(71,076	)		58,189
Income tax expense (benefit) (5)		48,279			(26,922	)		21,357

Net income (loss)		80,986			(44,154	)		36,832
Less net income attributable to noncontrolling interest		104						104

Net income (loss) attributable to Party City Holdings Inc.	$	80,882		$	(44,154	)		36,728

Other comprehensive (loss) income, net of tax:
Foreign currency adjustments		(7,932	)		—			(7,932	)
Impact of cash flow hedges, net		781			—			781

Other comprehensive (loss) income, net		(7,151	)		—			(7,151	)

Comprehensive income		73,835			(44,154	)		29,681
Less: comprehensive (loss) income attributable to noncontrolling interest		57			—			57

Comprehensive income attributable to Party City Holdings Inc.	$	73,778		$	(44,154	)	$	29,624

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(1)	Represents depreciation on an adjustment to the values of manufacturing and distribution assets.

The pro forma income statement does not reflect amortization expense of $71.5 million, $35.6 million and $35.9 million during the twelve months ended December 31, 2011, the three months ended March 31, 2011 and the twelve months ended March 31, 2012, respectively, related to the fair value adjustment recorded to inventory. As inventory turns approximately every seven months, this adjustment is non-recurring and has not been reflected in the pro forma adjustments.

(2)	Reflects a change in amortization expense resulting from the preliminary estimated fair value assigned to amortizable intangible assets.

(3)	Primarily represents the elimination of expense related to equity-based compensation awards, which will be paid out at closing.

(4)

Reflects interest expense related to the new Senior Credit Facilities and notes offered hereby, net of interest expense related to our Existing ABL Facility and Existing Term Loan Facility, which will be terminated prior to or concurrently with the consummation of the Transactions, and net of interest expense related to the 2014 Notes, all of which will either be tendered or redeemed in conjunction with the Transactions. Also reflects amortization of deferred financing costs related to the new Senior Credit Facilities and notes offered hereby, net of amortization of deferred financing costs related to the Existing ABL Facility, Existing Term Loan Facility and 2014 Notes.

Pro forma interest expense for the New ABL Facility was based upon estimated borrowings on the Closing Date. Pro forma interest expense assumes a weighted average interest rate on the Senior Credit Facilities and notes offered hereby of 7.3%. Additionally, pro forma interest expense assumes amortization of expense on the estimated $57.6 million of deferred financing costs associated with our new borrowings, utilizing a weighted average maturity of 7 years. A 0.125% change in the interest rates for the Senior Credit Facilities and notes offered hereby would increase (or decrease) pro forma annual interest expense by approximately $2.3 million.

(5)	Reflects the estimated tax effects of pro forma adjustments resulting from the Transactions.

AMSCAN HOLDINGS INC - FORM 8-K - EX-99.1 - CERTAIN INFORMATION TO BE PROVIDED TO PROSPECTIVE DEBT FINANCING SOURCES - July 16, 2012

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