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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-21827

Amscan Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		13-3911462
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

80 Grasslands Road Elmsford, NY		10523
(Address of Principal Executive Offices)		(Zip Code)

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 ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 15, 2012, 1,000.00 shares of the Registrant’s common stock were outstanding.

AMSCAN HOLDINGS, INC.

FORM 10-Q

March 31, 2012

TABLE OF CONTENTS


	Page
PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011		3

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011		4

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2012		5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3. Quantitative and Qualitative Disclosures About Market Risk		29

Item 4. Controls and Procedures		29

PART II

Item 6. Exhibits		30

Signature		31

References throughout this document to “Amscan,” “AHI” and the “Company” include Amscan Holdings, Inc. and its subsidiaries. In this document the words “we,” “our,” “ours” and “us” refer only to the Company and its subsidiaries and not to any other person.

You may read and copy any materials we file with the Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC, including us.

AMSCAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)


	March 31,			December 31,
	2012			2011
	(unaudited)			(Note 3)
ASSETS
Current assets:
Cash and cash equivalents	$	16,976		$	22,053
Accounts receivable, net		121,657			127,122
Inventories, net		429,052			434,983
Prepaid expenses and other current assets		79,403			74,520

Total current assets		647,088			658,678
Property, plant and equipment, net		201,223			204,329
Goodwill		682,933			681,760
Trade names		132,793			132,722
Other intangible assets, net		44,548			47,084
Other assets, net		23,100			25,765

Total assets	$	1,731,685		$	1,750,338


LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	176,939		$	139,282
Accounts payable		84,654			119,305
Accrued expenses		104,416			125,875
Income taxes payable		33,056			39,273
Current portion of long-term obligations		8,215			8,666

Total current liabilities		407,280			432,401
Long-term obligations, excluding current portion		832,746			834,310
Deferred income tax liabilities		101,082			100,183
Deferred rent and other long-term liabilities		21,961			20,414

Total liabilities		1,363,069			1,387,308

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			36,939

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)		0			0
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)		0			0
Additional paid-in capital		271,676			286,451
Retained earnings		50,761			48,717
Accumulated other comprehensive loss		(8,717	)		(11,354	)

Amscan Holdings, Inc. stockholders’ equity		313,720			323,814
Noncontrolling interests		2,440			2,277

Total stockholders’ equity		316,160			326,091

Total liabilities, redeemable common securities and stockholders’ equity	$	1,731,685		$	1,750,338

See accompanying notes to unaudited condensed consolidated financial statements.

AMSCAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2012			2011
Revenues:
Net sales	$	379,281		$	352,501
Royalties and franchise fees		3,796			3,681

Total revenues		383,077			356,182

Expenses:
Cost of sales		236,624			225,014
Wholesale selling expenses		13,628			13,852
Retail operating expenses		70,617			61,848
Franchise expenses		2,727			3,365
General and administrative expenses		33,780			31,545
Art and development costs		4,544			3,950

Total expenses		361,920			339,574

Income from operations		21,157			16,608

Interest expense, net		18,102			20,368
Other (income) expense, net		(237	)		62

Income (loss) before income taxes		3,292			(3,822	)
Income tax expense (benefit)		1,208			(1,330	)

Net income (loss)		2,084			(2,492	)
Less: net income attributable to noncontrolling interests		40			71

Net income (loss) attributable to Amscan Holdings, Inc.	$	2,044		$	(2,563	)


Comprehensive income	$	4,844		$	1,859
Less: comprehensive income attributable to noncontrolling interests		163			120

Comprehensive income attributable to Amscan Holdings, Inc.	$	4,681		$	1,739

See accompanying notes to unaudited condensed consolidated financial statements.

AMSCAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2012

(Unaudited)

(Amounts in thousands, except share amounts)


	Class A and Class B Common Shares		Class A and Class B Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Amscan Holdings, Inc. Stockholders’ Equity			Noncontrolling Interests		Total Equity

Balance at December 31, 2011		30,970.02	$	0	$	286,451		$	48,717	$	(11,354	)	$	323,814		$	2,277	$	326,091
Net income									2,044					2,044			40		2,084

Foreign currency adjustments											3,143			3,143			123		3,266
Impact of foreign exchange contracts, net of income taxes											(506	)		(506	)				(506	)

Comprehensive income														4,681			163		4,844
Revaluation of redeemable shares						(15,010	)							(15,010	)				(15,010	)
Equity based compensation expense						235								235					235

Balance at March 31, 2012		30,970.02	$	0	$	271,676		$	50,761	$	(8,717	)	$	313,720		$	2,440	$	316,160

See accompanying notes to unaudited condensed consolidated financial statements.

AMSCAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2012			2011

Cash flows used in operating activities:
Net income (loss)	$	2,084		$	(2,492	)
Less: net income attributable to noncontrolling interests		40			71

Net income (loss) attributable to Amscan Holdings, Inc.		2,044			(2,563	)

Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense		14,408			13,249
Amortization of deferred financing costs		1,126			1,197
Provision for doubtful accounts		394			361
Deferred income tax expense		40			261
Deferred rent		2,368			2,023
Undistributed income in unconsolidated joint venture		(412	)		(313	)
Loss on disposal of equipment		27			5
Equity based compensation		742			143
Changes in operating assets and liabilities, net of effects of acquired businesses:
Decrease in accounts receivable		6,445			1,660
Decrease in inventories		7,628			2,721
(Increase) decrease in prepaid expenses and other current assets		(4,625	)		3,392
Decrease in accounts payable, accrued expenses and income taxes payable		(62,268	)		(35,043	)

Net cash used in operating activities		(32,083	)		(12,907	)

Cash flows used in investing activities:
Cash paid in connection with acquisitions		0			(56,420	)
Capital expenditures		(8,066	)		(10,977	)
Proceeds from disposal of property and equipment		113			1

Net cash used in investing activities		(7,953	)		(67,396	)

Cash flows provided by financing activities:
Repayment of loans, notes payable and long-term obligations		(4,503	)		(2,506	)
Proceeds from loans, notes payable and long-term obligations		39,276			77,816
Distribution in lieu of dividend		0			2
Proceeds from exercise of stock options		0			28

Net cash provided by financing activities		34,773			75,340
Effect of exchange rate changes on cash and cash equivalents		186			2,730

Net decrease in cash and cash equivalents		(5,077	)		(2,233	)
Cash and cash equivalents at beginning of period		22,053			20,454

Cash and cash equivalents at end of period	$	16,976		$	18,221


Supplemental disclosure of cash flow information:
Cash paid during the period
Interest	$	13,631		$	14,032
Income taxes	$	7,534		$	3,081

See accompanying notes to unaudited condensed consolidated financial statements.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 1 – Description of Business

Amscan Holdings, Inc. (“Amscan”, “AHI” or the “Company”) designs, manufactures, contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, accessories, novelties, costumes, other garments, gifts and stationery throughout the world. In addition, the Company operates specialty retail party supply stores in the United States and Canada, principally under the names Party City, Halloween City and Party Packagers, and operates its e-commerce website, PartyCity.com. The Company also franchises both individual stores and franchise areas throughout the United States and Puerto Rico principally under the name Party City. The Company is a wholly-owned subsidiary of Party City Holdings Inc. (“PCHI”).

Note 2 – Acquisitions

Wholesale Acquisitions

On January 30, 2011, the Company acquired all of the common stock of Riethmüller GmbH (“Riethmüller”) for $47,069 in cash, in a transaction accounted for as a purchase business combination. Riethmüller is a German distributor of party goods and carnival items with latex balloon manufacturing operations in Malaysia and the ability to manufacture certain party goods in Poland. The results of this business are included in the consolidated financial statements since the January 30, 2011 acquisition date and are reported in the operating results of the Company’s Wholesale segment.

Retail Acquisitions

On July 29, 2011, the Company acquired all of the common stock of Party Packagers Inc. (“Party Packagers”) for $31,783 in cash in a transaction accounted for as a purchase business combination. Party Packagers is a Canadian retailer of party goods and outdoor toys. The results of this newly acquired business are included in the consolidated financial statements since the July 29, 2011 acquisition date and are reported in the operating results of the Company’s Retail segment.

The preliminary estimate of the excess of the Party Packagers purchase price over the fair value of the net assets acquired is initially being assigned to goodwill. The following summarizes the estimated fair value of the assets acquired and liabilities assumed: accounts receivable of $284, inventory of $10,477, fixed assets of $4,457, other current and non-current assets of $1,373, accounts payable and other current liabilities of $8,157 and other liabilities of $311. The remaining $23,660 has been initially recorded as goodwill. The allocation of the purchase price is based on our preliminary estimate of the fair value of the tangible assets acquired and liabilities assumed. The Company is still in the process of accumulating information to complete the determination of the fair value of certain acquired assets, including identifiable intangible assets acquired. Goodwill arises because the purchase price reflects the strategic fit and expected synergies this business will bring to the Company’s operations. The acquisition expands the Company’s vertical business model by giving the Company a significant retail presence in Canada.

During the three months ended March 31, 2011, the Company acquired three franchisee stores in California for total consideration of $9,351. The results of these stores are included in the consolidated financial statements from the acquisition dates and are reported in the operating results of the Company’s Retail segment.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 3 – Basis of Presentation and Recently Issued Accounting Pronouncements

The accompanying unaudited condensed consolidated financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011, and the audited balance sheet as of December 31, 2011, include the accounts of the Company and its majority-owned and controlled entities. All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.

Our retail operations define a fiscal year (“Fiscal Year”) as the 52-week period or 53-week period ended on the Saturday nearest December 31st of each year and define their fiscal quarters (“Fiscal Quarter”) as the four interim 13-week periods following the end of the previous Fiscal Year, except in the case of a 53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The consolidated financial statements of the Company combine the Fiscal Quarters of our retail operations with the calendar quarters of our wholesale operations.

The Company has determined the differences between the retail operation’s Fiscal Year and Fiscal Quarters and the calendar year and calendar quarters to be insignificant.

Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. Our business is subject to substantial seasonal variations as our retail segment has realized a significant portion of its net sales, cash flows and net income in the fourth quarter of each year, principally due to its Halloween season sales in October and, to a lesser extent, other year-end holiday sales. We expect that this general pattern will continue. Our results of operations may also be affected by industry factors that may be specific to a particular period such as movement in, and the general level of, raw material costs. For further information see the consolidated financial statements, and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. These amendments are effective during interim and annual periods beginning on or after January 1, 2013. Although the Company continues to review this pronouncement, it does not believe it will have a material impact on its financial statements or the notes thereto.

In September 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income”. The pronouncement gives two choices of how to present items of net income, items of other comprehensive income (“OCI”) and total comprehensive income: one continuous statement of comprehensive income or two separate consecutive statements can be presented. OCI is no longer allowed to be presented in the statement of stockholder’s equity. The guidance also required the reclassification adjustments for each component of accumulated other comprehensive income (“AOCI”) to be displayed in both net income and OCI. However, in December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, which deferred such requirement. The FASB expects to complete a project to reconsider the presentation requirements for reclassification adjustments in 2012. For public companies, ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively. The Company adopted the pronouncement during the three months ended March 31, 2012. Since the update only required a change in presentation, the adoption did not have a material impact on the Company’s results of operations, cash flows or financial condition.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards, or “IFRS”. The ASU amends the fair value measurement and disclosure guidance in Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, to converge U.S. GAAP and IFRS requirements for measuring amounts at fair value as well as disclosures about these measurements. Many of the amendments clarify existing concepts and are generally not expected to result in significant changes to application of fair value principles. In certain instances, however, the FASB changed a principle to achieve convergence, and while limited, these amendments have the potential to significantly change practice. These amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted the pronouncement during the three months ended March 31, 2012. Such adoption did not have a material impact on the Company’s financial statements or the notes thereto.

Note 4 – Inventories

Inventories consisted of the following:


	March 31,			December 31,
	2012			2011
Finished goods	$	420,679		$	428,281
Raw Materials		15,296			13,660
Work in Process		7,107			6,012

		443,082			447,953
Reserve for slow-moving and obsolete inventory		(14,030	)		(12,970	)

	$	429,052		$	434,983

Inventories are valued at the lower of cost or market. The Company determines the cost of inventory at its retail stores using the weighted average method. All other inventory cost is determined principally using the first-in, first-out method.

The Company estimates retail inventory shortage for the period between physical inventory dates on a store-by-store basis. Inventory shrinkage estimates can be affected by changes in merchandise mix and changes in actual shortage trends. The shrinkage rate from the most recent physical inventory, in combination with historical experience, is the basis for estimating shrinkage.

Note 5 – Income Taxes

The income tax expense (benefit) for the three months ended March 31, 2012 and 2011 were determined based upon the Company’s estimated consolidated effective income tax rates of 36.3% and 35.8% for the years ending December 31, 2012 and 2011, respectively. The differences between the estimated consolidated effective income tax rates and the U.S. federal statutory rate are primarily attributable to state income taxes and available domestic manufacturing deductions.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 6 – Comprehensive Income

Comprehensive income attributable to Amscan Holdings, Inc. consisted of the following:


	Three Months Ended March 31,
	2012			2011
Net income (loss) attributable to Amscan Holdings, Inc.	$	2,044		$	(2,563	)

Foreign currency adjustments		3,143			3,794
Impact of interest rate swap contracts, net of income tax expense of $- and $416		—			708
Impact of foreign exchange contracts, net of income tax benefit of $296 and $117		(506	)		(200	)

Comprehensive income attributable to Amscan Holdings, Inc.	$	4,681		$	1,739

Note 7 – Capital Stock

At March 31, 2012 and December 31, 2011, the Company’s authorized capital stock, including redeemable common securities, consisted of 10,000.00 shares of preferred stock, $0.01 par value, of which no shares were issued or outstanding, 40,000.00 shares of Class A Common Stock, $0.01 par value, of which 20,261.80 shares were issued and outstanding and 15,200.00 shares of Class B Common Stock, $0.01 par value, of which 11,918.71 shares were issued and outstanding. At March 31, 2012 and December 31, 2011, 15,200 shares of Class A Common Stock, $0.01 par value, were reserved for issuance upon the conversion of Class B Common Stock, $0.01 par value.

The holders of common stock are entitled to vote as a single class on all matters upon which shareholders have a right to vote, subject to the requirements of applicable laws. Each share of Class A and Class B Common Stock entitles its holder to one vote and both classes participate equally in any dividend or distribution of earnings of the Company. For so long as at least 50% of the shares of Class B Common Stock issued at the effective time of the Second Amended and Restated Certificate of Incorporation remain outstanding, the holders of a majority of outstanding shares of Class B Common Stock must affirmatively vote or consent to sell, merge, consolidate, reorganize, liquidate or otherwise dispose of all or substantially all of the assets of the Company and, among other things and in certain instances, to incur indebtedness, to pay dividends or distributions and to effectuate a public offering of the Company’s Class A Common Stock.

Each share of Class B Common Stock is convertible into a share of Class A Common Stock on a one-for-one basis (i) upon transfer to a person or entity which is not a Permitted Transferee (as defined in our Second Amended and Restated Certificate of Incorporation), (ii) upon a Qualified Initial Public Offering (as defined in our Second Amended and Restated Certificate of Incorporation) and (iii) at such time as less than 20% of the 11,918.71 shares of Class B Common Stock are controlled or owned by Permitted Transferees.

Of the Class A Common stock, 1,210.49 shares were redeemable at March 31, 2012 and December 31, 2011 and classified as “redeemable common securities” on the balance sheet, as described below.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Under the terms of the Company’s stockholders’ agreement dated April 30, 2004, as amended, the Company has an option to purchase all of the shares of common stock held by former employees and, under certain circumstances, former employee stockholders can require the Company to purchase all of the shares held by the former employees. The purchase price, as prescribed in the stockholders’ agreement, is to be determined through a market valuation of the minority-held shares or, under certain circumstances, based on cost, as defined therein. The aggregate amount that may be payable by the Company to certain employee stockholders, based on the estimated fair market value of fully paid and vested common securities, totaled $50,841 at March 31, 2012 and $35,831 at December 31, 2011, and is classified as redeemable common securities on the consolidated balance sheet, with a corresponding adjustment to stockholders’ equity. As there is no active market for the Company’s common stock, the Company estimates the fair value of its common stock based on a valuation model confirmed periodically by recent acquisitions or independent appraisals.

In addition, in 2004, the Company’s CEO and President exchanged vested options in a predecessor company for fully vested options to purchase common stock of the Company. Since these options vested immediately and can be exercised upon the death or disability of the officer and put back to the Company, they are reflected as redeemable common securities on the Company’s consolidated balance sheet.

The changes in redeemable common securities during the three months ended March 31, 2012 were as follows:


	Common Shares		Rollover options		Total

Balance December 31, 2011	$	35,831	$	1,108	$	36,939
Common stock revaluation		15,010		507		15,517

Balance March 31, 2012	$	50,841	$	1,615	$	52,456

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 8 – Segment Information

Industry Segments

The Company has two identifiable business segments. The Wholesale segment includes the design, manufacture, contract for manufacture and wholesale distribution of party goods, including paper and plastic tableware, metallic and latex balloons, accessories, novelties, costumes, other garments, gifts and stationery. The Retail segment includes the operation of company-owned retail party supply superstores in the United States and Canada, the Company’s e-commerce operations through its PartyCity.com website and the sale of franchises on an individual store and franchise area basis throughout the United States and Puerto Rico.

The Company’s industry segment data for the three months ended March 31, 2012 and March 31, 2011 is as follows:


	Wholesale			Retail		Consolidated
Three Months Ended March 31, 2012
Revenues:
Net sales	$	214,795		$	246,933	$	461,728
Royalties and franchise fees		—			3,796		3,796

Total revenues		214,795			250,729		465,524
Eliminations		(82,447	)		—		(82,447	)

Net Revenues	$	132,348		$	250,729	$	383,077

Income from operations	$	18,908		$	2,249	$	21,157

Interest expense, net							18,102
Other income, net							(237	)

Income before income taxes						$	3,292


Total assets	$	1,000,232		$	731,453	$	1,731,685


	Wholesale			Retail			Consolidated
Three Months Ended March 31, 2011
Revenues:
Net sales	$	199,576		$	220,106		$	419,682
Royalties and franchise fees		—			3,681			3,681

Total revenues		199,576			223,787			423,363
Eliminations		(67,181	)		—			(67,181	)

Net Revenues	$	132,395		$	223,787		$	356,182

Income (loss) from operations	$	17,286		$	(678	)	$	16,608

Interest expense, net								20,368
Other expense, net								62

Loss before income taxes							$	(3,822	)


Total assets	$	1,036,646		$	672,682		$	1,709,328

Geographic Segments

Intercompany sales between geographic areas primarily consist of sales of finished goods for distribution in foreign markets and are made at cost plus a share of operating profit. During the three months ended March 31, 2012 and March 31, 2011, net revenues related to foreign operations were $42,900 and $41,308, respectively. Additionally, during the three months ended March 31, 2012 and March 31, 2011, net revenues related to U.S. export sales of metallic balloons were $4,599 and $4,217, respectively.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 9 – Commitments and Contingencies

The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations.

We are an assignor with contingent lease liability for 14 stores sold to franchisees and other parties. The potential contingent lease obligations continue until the applicable leases expire in 2018. The maximum amount of the contingent lease obligations may vary, but is limited to the sum of the total amount due under the leases. At March 31, 2012, the maximum amount of the contingent lease obligations was approximately $5,202. Payment of such amount is contingent upon certain events occurring, which management has not assessed as probable or estimable at this time.

Note 10 – Stock Option Plan

The Company recorded $742 and $143 of stock-based compensation expense in general and administrative expenses during the three months ended March 31, 2012 and 2011, respectively.

During the three months ended March 31, 2012, the Company granted 10 time-based options to an employee under the Company’s 2004 Equity Incentive Plan. The options vest at a rate of 20% per year and are exercisable at $42,000 per share.

During the three months ended March 31, 2012, no options were exercised. There are options to purchase 3,708.27 shares of common stock outstanding at March 31, 2012.

Additionally, in December 2010, in connection with the refinancing of the Company’s $675,000 Term Loan Agreement (“New Term Loan Credit Agreement”), the Company’s Board of Directors declared a one-time cash dividend of $9,400 per share of outstanding common stock. In addition, holders of unvested options at the declaration date may also receive a distribution of $9,400 per share if, and when, the options vest. During the three months ended March 31, 2012, certain options vested and the Company recorded a $287 charge to stock-based compensation expense. At March 31, 2012, the aggregate potential distribution associated with unvested time and performance options is $17,418.

Note 11 – Derivative Financial Instruments

The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed through the use of derivative financial instruments are interest rate risk and foreign currency exchange rate risk.

Interest Rate Risk Management

As part of the Company’s risk management strategy, the Company periodically uses interest rate swap agreements to hedge the variability of cash flows on floating rate debt obligations. Accordingly, interest rate swap agreements are reflected in the consolidated balance sheets at fair value and the related gains and losses on these contracts are deferred in stockholders’ equity and recognized in interest expense over the same period in which the related interest payments being hedged are recognized in income. The fair value of an interest rate swap agreement is the estimated amount that the counterparty would receive or pay to terminate the swap agreement at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparty.

Foreign Exchange Risk Management

A portion of the Company’s cash flows is derived from transactions denominated in foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling, the Euro, the Malaysian Ringgit, the Canadian Dollar and the Australian Dollar, the Company enters into foreign exchange contracts with major international financial institutions. Most of the forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For the contracts that qualify for hedge accounting, the terms of the contracts are such that cash flows from the contracts should be highly effective in offsetting the expected cash flows from the underlying forecasted transactions.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

The foreign exchange contracts are reflected in the consolidated balance sheets at fair value. The fair value of the foreign exchange contracts is the estimated amount that the counterparties would receive or pay to terminate the foreign exchange contracts at the reporting date, taking into account current foreign exchange rates. At March 31, 2012 and December 31, 2011, the Company had unrealized net (losses) gains of $(1) and $505, respectively, recorded in accumulated other comprehensive loss related to foreign exchange contracts that qualify for hedge accounting. No components of these agreements are excluded in the measurement of hedge effectiveness. As these hedges are 100% effective, there is no current impact on earnings due to hedge ineffectiveness. The Company anticipates that substantially all unrealized gains and losses in accumulated other comprehensive loss related to these foreign exchange contracts will be reclassified into earnings by December 2012.

The following table displays the fair values and notional amounts of the Company’s derivatives at March 31, 2012 and December 31, 2011:

Derivative Assets

Derivative Liabilities

Notional Amounts

March 31, 2012

December 31, 2011

March 31, 2012

December 31, 2011

Derivative Instrument

March 31,
2012

December 31,
2011

Balance
Sheet
Line

Fair
Value

Balance
Sheet
Line

Fair
Value

Balance
Sheet
Line

Fair
Value

Balance
Sheet
Line

Fair
Value

Foreign Exchange Contracts

27,012

27,884

(a) PP

266

(a) PP

808

(b) AE

160

(b) AE

(a)	PP = Prepaid expenses and other current assets

(b)	AE = Accrued expenses

Note 12 – Fair Value Measurements

The provisions of FASB ASC Topic 820, “Fair Value Measurement”, define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

The following table shows assets and liabilities as of March 31, 2012 that are measured at fair value on a recurring basis:


	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total as of March 31, 2012
Foreign exchange contract assets		—	$	266		—	$	266
Foreign exchange contract liabilities		—		160		—		160

The following table shows assets and liabilities as of December 31, 2011 that are measured at fair value on a recurring basis:


	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total as of December 31, 2011
Foreign exchange contract assets		—	$	808		—	$	808
Foreign exchange contract liabilities		—		18		—		18

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record other assets and liabilities at fair value on a nonrecurring basis, generally as a result of impairment charges and restructuring charges.

The carrying amounts for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value at March 31, 2012 and December 31, 2011 because of the short-term maturities of the instruments and/or their variable rates of interest.

The carrying amounts and fair values (based on observable inputs, including interest rates) of the Company’s borrowings under the New Term Loan Credit Agreement and the 8.75% $175,000 Senior Subordinated Notes (“Senior Subordinated Notes”) are as follows:


	March 31, 2012				December 31, 2011
	Carrying Amount		Fair Value (Level 2)		Carrying Amount		Fair Value (Level 2)
New Term Loan Credit Agreement	$	659,469	$	667,712	$	660,905	$	663,383
Senior Subordinated Notes		175,000		176,750		175,000		176,750

The carrying amounts for other long-term debt approximate fair value at March 31, 2012 and December 31, 2011 based on the discounted future cash flow of each instrument at rates currently offered for similar debt instruments of comparable maturity.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 13 – Condensed Consolidating Financial Information

Borrowings under the New Term Loan Credit Agreement, the $350 million ABL revolving credit facility (“New ABL Facility”) and the Senior Subordinated Notes are guaranteed jointly and severally, fully and unconditionally, by the following domestic subsidiaries of the Company (collectively, “the Guarantors”):

•

Amscan Inc.

•

Am-Source, LLC

•

Anagram Eden Prairie Property Holdings LLC

•

Anagram International, Inc.

•

Anagram International Holdings, Inc.

•

Anagram International, LLC

•

Factory Card & Party Outlet Corp.

•

Gags & Games, Inc.

•

JCS Packaging Inc.

•

M&D Industries, Inc.

•

Party City Corporation

•

PA Acquisition Corporation

•

Party City Franchise Group Holdings, LLC

•

SSY Realty Corp.

•

Trisar, Inc.

Non-guarantor subsidiaries (collectively, “Non-guarantors”) include the following:

•

Amscan (Asia-Pacific) Pty. Ltd.

•

Amscan Asia International Ltd.

•

Amscan de Mexico, S.A. de C.V.

•

Amscan Distributors (Canada) Ltd.

•

Anagram Espana, S.A.

•

Anagram France S.C.S.

•

Amscan Holdings Limited

•

Anagram International (Japan) Co., Ltd.

•

Amscan Partyartikel GmbH

•

Christy’s Asia, Ltd.

•

Christy’s By Design, Ltd.

•

Christy’s Dress Up, Ltd.

•

Christy’s Garments & Accessories Ltd.

•

Party Packagers Inc.

•

Riethmüller GmbH

The following information presents condensed consolidating balance sheets at March 31, 2012 and December 31, 2011, the condensed consolidating statements of comprehensive income for the three months ended March 31, 2012 and 2011, and the related condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011, for the combined Guarantors and the combined Non-guarantors, together with the elimination entries necessary to consolidate the entities comprising the combined companies.

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2012

(Amounts in thousands)


	AHI and Combined Guarantors			Combined Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	7,278		$	9,698		$	—		$	16,976
Accounts receivable, net		83,221			38,436			—			121,657
Inventories, net		372,214			58,890			(2,052	)		429,052
Prepaid expenses and other current assets		67,900			13,290			(1,787	)		79,403

Total current assets		530,613			120,314			(3,839	)		647,088
Property, plant and equipment, net		182,737			18,486			—			201,223
Goodwill		610,285			72,648			—			682,933
Trade names		129,882			2,911			—			132,793
Other intangible assets, net		42,739			1,809			—			44,548
Investment in and advances to consolidated subsidiaries		249,850			—			(249,850	)		—
Due from affiliates		119,622			62,183			(181,805	)		—
Other assets, net		24,985			241			(2,126	)		23,100

Total assets	$	1,890,713		$	278,592		$	(437,620	)	$	1,731,685


LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	164,197		$	12,742		$	—		$	176,939
Accounts payable		73,038			11,616			—			84,654
Accrued expenses		91,098			13,318			—			104,416
Income taxes payable		35,175			—			(2,119	)		33,056
Due to affiliates		82,328			99,478			(181,806	)		—
Current portion of long-term obligations		8,157			58			—			8,215

Total current liabilities		453,993			137,212			(183,925	)		407,280
Long-term obligations, excluding current portion		832,708			38			—			832,746
Deferred income tax liabilities		101,323			—			(241	)		101,082
Deferred rent and other long-term liabilities		21,559			2,287			(1,885	)		21,961

Total liabilities		1,409,583			139,537			(186,051	)		1,363,069

Redeemable common securities		52,456			—			—			52,456

Commitments and contingencies

Stockholders’ equity:
Common Stock		—			336			(336	)		—
Additional paid-in capital		384,911			113,893			(227,128	)		271,676
Retained earnings		52,480			30,984			(32,703	)		50,761
Accumulated other comprehensive loss		(8,717	)		(8,598	)		8,598			(8,717	)

Amscan Holdings Inc. stockholders’ equity		428,674			136,615			(251,569	)		313,720
Noncontrolling interests		—			2,440			—			2,440

Total stockholders’ equity		428,674			139,055			(251,569	)		316,160

Total liabilities, redeemable common securities and stockholders’ equity	$	1,890,713		$	278,592		$	(437,620	)	$	1,731,685

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONSOLIDATING BALANCE SHEET

December 31, 2011

(Amounts in thousands)


	AHI and Combined Guarantors			Combined Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	14,012		$	8,041		$	—		$	22,053
Accounts receivable , net		84,322			42,800			—			127,122
Inventories, net		386,264			49,875			(1,156	)		434,983
Prepaid expenses and other current assets		64,882			10,073			(435	)		74,520

Total current assets		549,480			110,789			(1,591	)		658,678
Property, plant and equipment, net		186,999			17,330			—			204,329
Goodwill		610,285			71,475			—			681,760
Trade names		129,882			2,840			—			132,722
Other intangible assets, net		45,292			1,792			—			47,084
Investment in and advances to consolidated subsidiaries		250,799			—			(250,799	)		—
Due from affiliates		89,325			56,001			(145,326	)		—
Other assets, net		24,603			1,162			—			25,765

Total assets	$	1,886,665		$	261,389		$	(397,716	)	$	1,750,338


LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	131,089		$	8,193		$	—		$	139,282
Accounts payable		103,774			15,531			—			119,305
Accrued expenses		113,531			12,344			—			125,875
Income taxes payable		39,758			—			(485	)		39,273
Due to affiliates		61,479			83,849			(145,328	)		—
Current portion of long-term obligations		8,625			41			—			8,666

Total current liabilities		458,256			119,958			(145,813	)		432,401
Long-term obligations, excluding current portion		834,262			48			—			834,310
Deferred income tax liabilities		98,782			1,401			—			100,183
Deferred rent and other long-term liabilities		20,273			141			—			20,414

Total liabilities		1,411,573			121,548			(145,813	)		1,387,308

Redeemable common securities		36,939			—			—			36,939

Commitments and contingencies

Stockholders’ equity:
Common Stock		—			336			(336	)		—
Additional paid-in capital		399,686			113,893			(227,128	)		286,451
Retained earnings		49,821			33,958			(35,062	)		48,717
Accumulated other comprehensive loss		(11,354	)		(10,623	)		10,623			(11,354	)

Amscan Holdings, Inc. stockholders’ equity		438,153			137,564			(251,903	)		323,814
Noncontrolling interests		—			2,277			—			2,277

Total stockholders’ equity		438,153			139,841			(251,903	)		326,091

Total liabilities, redeemable common securities and stockholders’ equity	$	1,886,665		$	261,389		$	(397,716	)	$	1,750,338

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2012

(Amounts in thousands)


	AHI and Combined Guarantors		Combined Non-Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	344,531	$	44,050		$	(9,300	)	$	379,281
Royalties and franchise fees		3,796		—			—			3,796

Total revenues		348,327		44,050			(9,300	)		383,077

Expenses:
Cost of sales		211,586		33,441			(8,403	)		236,624
Wholesale selling expenses		7,881		5,747			—			13,628
Retail operating expenses		68,023		2,594			—			70,617
Franchise expenses		2,727		—			—			2,727
General and administrative expenses		27,874		5,906			—			33,780
Art and development costs		4,344		200			—			4,544

Total expenses		322,435		47,888			(8,403	)		361,920

Income (loss) from operations		25,892		(3,838	)		(897	)		21,157

Interest expense, net		17,862		240			—			18,102
Other expense (income), net		3,260		285			(3,782	)		(237	)

Income (loss) before income taxes		4,770		(4,363	)		2,885			3,292

Income tax expense (benefit)		2,161		(621	)		(332	)		1,208

Net income (loss)		2,609		(3,742	)		3,217			2,084
Less: net income attributable to noncontrolling interests		—		40			—			40

Net income (loss) attributable to Amscan Holdings, Inc.	$	2,609	$	(3,782	)	$	3,217		$	2,044


Comprehensive income (loss)	$	5,246	$	(1,594	)	$	1,192		$	4,844
Less: comprehensive income attributable to noncontrolling interests		—		163			—			163

Comprehensive income (loss) attributable to Amscan Holdings, Inc.	$	5,246	$	(1,757	)	$	1,192		$	4,681

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2011

(Amounts in thousands)


	AHI and Combined Guarantors			Combined Non-Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	316,743		$	41,308		$	(5,550	)	$	352,501
Royalties and franchise fees		3,681			—			—			3,681

Total revenues		320,424			41,308			(5,550	)		356,182

Expenses:
Cost of sales		198,141			32,362			(5,489	)		225,014
Wholesale selling expenses		8,313			5,539			—			13,852
Retail operating expenses		61,848			—			—			61,848
Franchise expenses		3,365			—			—			3,365
General and administrative expenses		27,046			4,829			(330	)		31,545
Art and development costs		3,889			61			—			3,950

Total expenses		302,602			42,791			(5,819	)		339,574


Income (loss) from operations		17,822			(1,483	)		269			16,608

Interest expense, net		20,129			239			—			20,368
Other expense (income), net		1,840			(638	)		(1,140	)		62


Loss before income taxes		(4,147	)		(1,084	)		1,409			(3,822	)
Income tax (benefit) expense		(1,622	)		315			(23	)		(1,330	)

Net loss		(2,525	)		(1,399	)		1,432			(2,492	)
Less: Net income attributable to noncontrolling interests		—			71			—			71

Net loss attributable to Amscan Holdings, Inc.	$	(2,525	)	$	(1,470	)	$	1,432		$	(2,563	)


Comprehensive income	$	1,777		$	1,819		$	(1,737	)	$	1,859
Less: Comprehensive income attributable to noncontrolling interests		—			120			—			120

Comprehensive income attributable to Amscan Holdings, Inc.	$	1,777		$	1,699		$	(1,737	)	$	1,739

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2012

(Amounts in thousands)


	AHI and Combined Guarantors			Combined Non-Guarantors			Eliminations			Consolidated
Cash flows used in operating activities:
Net income (loss)	$	2,609		$	(3,742	)	$	3,217		$	2,084
Less: net income attributable to noncontrolling interests		—			40			—			40

Net income (loss) attributable to Amscan Holdings, Inc.		2,609			(3,782	)		3,217			2,044

Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense		13,466			942			—			14,408
Amortization of deferred financing costs		1,126			—			—			1,126
Provision for doubtful accounts		282			112			—			394
Deferred income tax expense (benefit)		1,713			(1,673	)		—			40
Deferred rent		2,305			63			—			2,368
Undistributed income in unconsolidated joint venture		(412	)		—			—			(412	)
Loss on disposal of equipment		4			23			—			27
Equity based compensation		742			—			—			742
Changes in operating assets and liabilities:
Decrease in accounts receivable		819			5,626			—			6,445
Decrease (increase) in inventories		12,767			(6,036	)		897			7,628
Increase in prepaid expenses and other current assets		(1,156	)		(3,469	)		—			(4,625	)
(Decrease) increase in accounts payable, accrued expenses and income taxes payable		(65,090	)		6,936			(4,114	)		(62,268	)

Net cash used in operating activities		(30,825	)		(1,258	)		—			(32,083	)

Cash flows used in investing activities:
Capital expenditures		(6,514	)		(1,552	)		—			(8,066	)
Proceeds from disposal of property and equipment		100			13			—			113

Net cash used in investing activities		(6,414	)		(1,539	)		—			(7,953	)

Cash flows provided by financing activities:
Repayments of loans, notes payable and long-term obligations		(2,604	)		(1,899	)		—			(4,503	)
Proceeds from loans, notes payable and long-term obligations		33,109			6,167			—			39,276

Net cash provided by financing activities		30,505			4,268			—			34,773
Effect of exchange rate changes on cash and cash equivalents		—			186			—			186

Net (decrease) increase in cash and cash equivalents		(6,734	)		1,657			—			(5,077	)
Cash and cash equivalents at beginning of period		14,012			8,041			—			22,053


Cash and cash equivalents at end of period	$	7,278		$	9,698		$	—		$	16,976

AMSCAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2011

(Amounts in thousands)


	AHI and Combined Guarantors			Combined Non-Guarantors			Eliminations			Consolidated
Cash flows (used in) provided by operating activities:
Net loss	$	(2,525	)	$	(1,399	)	$	1,432		$	(2,492	)
Less: net income attributable to noncontrolling interests		—			71			—			71

Net loss attributable to Amscan Holdings, Inc.		(2,525	)		(1,470	)		1,432			(2,563	)

Adjustments to reconcile net loss to net cash ( used in) provided by operating activities:
Depreciation and amortization expense		12,691			558			—			13,249
Amortization of deferred financing costs		1,197			—			—			1,197
Provision for doubtful accounts		312			49			—			361
Deferred income tax expense		261			—			—			261
Deferred rent		2,023			—			—			2,023
Undistributed income in unconsolidated joint venture		(313	)		—			—			(313	)
Loss on disposal of equipment		5			—			—			5
Equity based compensation		143			—			—			143
Changes in operating assets and liabilities, net of effects of acquired businesses:
Decrease in accounts receivable		1,249			411			—			1,660
Decrease (increase) in inventories		6,693			(4,033	)		61			2,721
(Increase) decrease in prepaid expenses and other current assets		(198	)		3,590			—			3,392
(Decrease) increase in accounts payable, accrued expenses and income taxes payable		(34,500	)		950			(1,493	)		(35,043	)

Net cash (used in) provided by operating activities		(12,962	)		55			—			(12,907	)

Cash flows used in investing activities:
Cash paid in connection with acquisitions		(56,420	)		—			—			(56,420	)
Capital expenditures		(10,701	)		(276	)		—			(10,977	)
Proceeds from disposal of property and equipment		1			—			—			1

Net cash used in investing activities		(67,120	)		(276	)		—			(67,396	)

Cash flows provided by financing activities:
Repayments of loans, notes payable and long-term obligations		(2,497	)		(9	)		—			(2,506	)
Proceeds from loans, notes payable and long-term obligations		77,534			282			—			77,816
Distribution in lieu of dividend		2			—			—			2
Proceeds from exercise of stock options		28			—			—			28

Net cash provided by financing activities		75,067			273			—			75,340
Effect of exchange rate changes on cash and cash equivalents		425			2,305			—			2,730

Net (decrease) increase in cash and cash equivalents		(4,590	)		2,357			—			(2,233	)
Cash and cash equivalents at beginning of period		14,198			6,256			—			20,454


Cash and cash equivalents at end of period	$	9,608		$	8,613		$	—		$	18,221

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

Our Company

We are a global leader in decorated party supplies. We make it easy and fun to enhance special occasions with a wide assortment of innovative and exciting merchandise at a compelling value. With the 2005 acquisition of Party City Corporation (“Party City”), we created a vertically integrated business combining the leading product design, manufacturing and distribution platform, Amscan, with the largest U.S. retailer of party supplies. We believe we have the industry’s broadest selection of decorated party supplies, which we distribute to over 100 countries. Our party superstore retail network consists of approximately 800 locations in the United States, and approximately 25 locations in Canada, and is approximately 15 times larger than that of our next largest party superstore competitor. Our vertically integrated business model and scale differentiate us from other party supply companies and allow us to capture the manufacturing-to-retail margin on a significant portion of the products sold in our stores. We believe our widely recognized brands, broad product offering, low-cost global sourcing model and category-defining retail concept are significant competitive advantages. We believe these characteristics, combined with our vertical business model and scale, position us for continued organic and acquisition-led growth in the United States and internationally.

How We Assess the Performance of Our Company

In assessing the performance of our company, we consider a variety of performance and financial measures for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses.

Segments

Our Wholesale segment generates revenues globally through sales of our Amscan, Designware, Anagram and other party supplies to party goods superstores, including our company-owned and franchised stores, independent party supply stores, dollar stores, mass merchants, grocery retailers and gift shops. Sales to international customers accounted for 20% of our gross wholesale sales during the three months ended March 31, 2012. International wholesale sales are expected to increase as a result of our recent acquisitions and the further maturation of international party supply markets.

Our Retail segment generates revenues from the sale of merchandise to the end consumer through our chain of company-owned party goods stores, online through our e-commerce websites, including PartyCity.com, and through our chain of temporary Halloween locations. Franchise revenues include royalties on franchise retail sales and franchise fees charged for the initial franchise award and subsequent renewals. Our retail sales of party goods are fueled by everyday events such as birthdays, various seasonal events and other special occasions occurring throughout the year. In addition, through Halloween City, our temporary Halloween business, we seek to maximize our Halloween seasonal opportunity. As a result, during 2011, our Halloween business represented approximately 26% of our total domestic retail sales, generally occurring in a five-week selling season ending on October 31. We expect to continue to generate a significant portion of our retail sales during the Halloween selling season.

Intercompany sales between the Wholesale and the Retail segment are eliminated, and the profits on intercompany sales are deferred and realized at the time the merchandise is sold to the consumer. For segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on total revenues.

Financial Measures

Revenues. Revenues from retail operations are recognized at point of sale. We estimate future retail sales returns and record a provision in the period in which the related sales are recorded based on historical information. Retail revenues include shipping revenue related to e-commerce sales. Retail sales are reported net of taxes collected. Franchise royalties are recognized based on reported franchise retail sales.

Revenues from our wholesale operations represent the sale of our products to third parties, less rebates, discounts and other allowances. The terms of our wholesale sales are generally FOB shipping point, and revenue is recognized when goods are shipped. We estimate reductions to revenues for volume-based rebate programs and subsequent credits at the time sales are recognized. Intercompany sales from our wholesale operations to our retail stores are eliminated in our consolidated total revenues.

Comparable Retail Same-Store Sales. The growth in same-store sales represents the percentage change in same-store sales in the period presented compared to the prior year. Same-store sales exclude the net sales of a store for any period if the store was not open during the same period of the prior year. Comparable sales are calculated based upon stores that were open at least thirteen full months as of the end of the applicable reporting period. When a store is reconfigured or relocated within the same general territory, the store continues to be treated as the same store. If, during the period presented, a store was closed, sales from that store up to and including the closing day are included as same-store sales as long as the store was open during the same period of the prior year. Factory Card & Party Outlet (“ FCPO”) stores that are in the process of being converted have not been included in Party City same-store sales and will not be included until the thirteenth month following conversion. Same-store sales for the Party City brand include e-commerce sales.

Cost of Sales. Cost of sales at wholesale reflects the production costs (i.e., raw materials, labor and overhead) of manufactured goods and the direct cost of purchased goods, inventory shrinkage, inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution costs and outbound freight to get goods to our wholesale customers. At retail, cost of sales reflects the direct cost of goods purchased from third parties and the production or purchase costs of goods acquired from our wholesale operations. Retail cost of sales also includes inventory shrinkage, inventory adjustments, inbound freight, occupancy costs related to store operations (such as rent and common area maintenance, utilities and depreciation on assets) and all logistics costs associated with our e-commerce business.

Our cost of sales increases in higher volume periods as the direct costs of manufactured and purchased goods, inventory shrinkage and freight are generally tied to sales. However, other costs are largely fixed or vary based on other factors and do not necessarily increase as sales volume increases. Changes in the mix of our products, such as changes in the proportion of company manufactured goods, which have higher margins, to total sales, may also impact our overall cost of sales. The direct costs of manufactured and purchased goods are influenced by raw material costs (principally paper, petroleum-based resins and cotton), domestic and international labor costs in the countries where our goods are purchased or manufactured and logistics costs associated with transporting our goods. We monitor our inventory levels on an on-going basis in order to identify slow-moving goods and generally use our outlet stores to clear such goods.

Wholesale Selling Expenses. Wholesale selling expenses include the costs associated with our wholesale sales and marketing efforts, including licensing, merchandising and customer service. Costs include the salaries and benefits of the related work force, including sales-based bonuses and commissions. Other costs include catalogues, showroom rent, travel and other operating costs. Certain selling expenses, such as sales-based bonuses and commissions, vary in proportion to sales, while other costs vary based on other factors, such as our marketing efforts, or are largely fixed and do not necessarily increase as sales volume increases.

Retail Operating Expenses. Retail operating expenses include all of the costs associated with retail store operations, excluding occupancy-related costs included in the cost of sales. Costs include store payroll and benefits, advertising, supplies and credit card costs. Retail expenses are largely variable but do not necessarily vary in proportion to sales.

Franchise Expenses. Franchise expenses include the costs associated with operating our franchise network, including salaries and benefits of the administrative workforce and other administrative costs. These expenses generally do not vary proportionally with net sales or royalties and franchise fees.

General and Administrative Expenses. General and administrative expenses include all operating costs not included elsewhere in the statement of comprehensive income (loss). These expenses include payroll and other expenses related to operations at our corporate offices, including occupancy costs, related depreciation and amortization, legal and professional fees and data-processing costs. These expenses generally do not vary proportionally with net sales.

Art and Development Costs. Art and development costs include the costs associated with art production, creative development and product management. Costs include the salaries and benefits of the related work force. These expenses generally do not vary proportionally with net sales.

Results of Operations

Three Months Ended March 31, 2012 Compared To Three Months Ended March 31, 2011

The following tables set forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended March 31, 2012 and 2011.


	Three Months Ended March 31,
	2012					2011
	(Dollars in thousands)
Revenues:
Net sales	$	379,281		99.0	%	$	352,501		99.0	%
Royalties and franchise fees		3,796		1.0			3,681		1.0

Total revenues		383,077		100.0			356,182		100.0

Expenses:
Cost of sales		236,624		61.8			225,014		63.2
Wholesale selling expenses		13,628		3.6			13,852		3.9
Retail operating expenses		70,617		18.4			61,848		17.4
Franchise expenses		2,727		0.7			3,365		0.9
General and administrative expenses		33,780		8.8			31,545		8.9
Art and development costs		4,544		1.2			3,950		1.0

Total expenses		361,920		94.5			339,574		95.3

Income from operations		21,157		5.5			16,608		4.7

Interest expense, net		18,102		4.7			20,368		5.8
Other (income) expense, net		(237	)	(0.1	)		62		0.0


Income (loss) before income taxes		3,292		0.9			(3,822	)	(1.1	)

Income tax expense (benefit)		1,208		0.4			(1,330	)	(0.4	)

Net income (loss)		2,084		0.5			(2,492	)	(0.7	)
Less: net income attributable to noncontrolling interests		40		0.0			71		0.0


Net income (loss) attributable to Amscan Holdings, Inc.	$	2,044		0.5	%	$	(2,563	)	(0.7	)%

Revenues

Total revenues for the first quarter of 2012 were $383.1 million and were 7.6% higher than the first quarter of 2011. The following table sets forth the Company’s total revenues for the quarters ended March 31, 2012 and March 31, 2011.


	Three Months Ended March 31,
	2012						2011
	Dollars in Thousands			Percentage of Total Revenues			Dollars in Thousands			Percentage of Total Revenues
Net Sales:
Wholesale	$	214,795			56.1	%	$	199,576			56.1	%
Eliminations		(82,447	)		(21.5	)%		(67,181	)		(18.9	)%

Net wholesale		132,348			34.6	%		132,395			37.2	%
Retail		246,933			64.4	%		220,106			61.8	%

Total net sales		379,281			99.0	%		352,501			99.0	%
Royalties and franchise fees		3,796			1.0	%		3,681			1.0	%

Total revenues	$	383,077			100.0	%	$	356,182			100.0	%

Wholesale

Net sales for the first quarter of 2012 were $132.3 million and were principally consistent with the corresponding quarter of 2011. During the first quarter of 2012, net sales to domestic party goods retailers, including our franchisee network, and to other domestic party goods distributors totaled $71.2 million and were $5.0 million, or 7.6%, higher than the first quarter of 2011. The increase in net sales was partially attributable to higher juvenile birthday sales resulting from new licenses and new products for existing licenses. Additionally, the timing of shipments positively impacted the first quarter of 2012 as seasonal sales of certain Hawaiian luau and patriotic products shifted from the second quarter of 2011 to the first quarter of 2012. Net sales of metallic balloons, including export sales, totaled $28.0 million and were $1.2 million, or 4.5%, higher than the corresponding quarter of 2011, with the sales growth principally occurring in both the domestic and international balloon distributors channels. International net sales, excluding export sales of metallic balloons, totaled $33.1 million and were $6.3 million, or 16.0%, lower than the first quarter of 2011. The decrease was principally due to reduced sales volumes in Europe as certain customers accelerated the timing of their purchases into the fourth quarter of 2011. Additionally, as a result of the July 2011 acquisition of Party Packagers, our wholesale sales to the retailer are now included in intercompany sales and eliminated. Changes in foreign currency exchange rates resulted in a $0.6 million, or 1.5%, decrease in international net sales compared to the corresponding quarter of 2011.

Intercompany sales to our retail affiliates were $82.5 million and were $15.3 million, or 22.7%, higher than the corresponding quarter of 2011. Such sales represented 38.4% of total wholesale sales during the first quarter of 2012, compared to 33.7% during the first quarter of 2011. The increase in intercompany sales primarily related to higher sales of sports products and juvenile birthday products. Additionally, intercompany sales reflect the acquisition of Party Packagers in July 2011. During the first quarter of 2012 our wholesale sales to our domestic retail operations, including e-commerce, represented 65.4% of the retail operations’ total purchases, compared to 62.7% during the corresponding quarter of 2011. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.

Retail

Retail net sales for the first quarter of 2012 were $246.9 million and were $26.8 million, or 12.2%, higher than retail net sales for the corresponding quarter of 2011. The retail net sales at our domestic Party City stores (including all converted FCPO stores) totaled $203.1 million and were $23.0 million, or 12.8%, higher than the first quarter of 2011. Additionally, our e-commerce sales totaled $18.9 million during the first quarter of 2012 and were $6.7 million higher than 2011. Same-store sales for the Party City brand, including e-commerce, increased by 7.2% from the corresponding quarter of 2011, with e-commerce sales increasing by 54.9%, as a 55.4% increase in transaction count was partially offset by a 0.5% decrease in average transaction dollar size, and Party City same-store sales increasing by 4.0%, driven by a 2.5% increase in transaction count and a 1.5% increase in average transaction dollar size. The increase in sales was partially attributable to the continued shift in our principal advertising strategy from free standing newspaper inserts to a national broadcasting campaign, coupled with other successful online initiatives implemented since our re-launch of the PartyCity.com website in August 2009. The increase in domestic Party City store sales also reflected the net addition of 64 new stores during the twelve month period ended March 31, 2012, including the opening of 15 stores, the acquisition of five stores from franchisees, and the conversion of 49 FCPO stores to the Party City format during that time period, offset by the closure of five stores. During the first quarter of 2012, sales at stores converted from the FCPO format to the Party City format during the twelve month period ended March 31, 2012 were 20.1% higher than sales at those same stores during the corresponding quarter of 2011. Converted FCPO stores are included in Party City’s same-store sales beginning with the thirteenth month following conversion. The Party Packagers stores acquired at the end of July 2011 contributed net sales of $7.7 million during the first quarter of 2012. Sales at all other store formats, including unconverted FCPO and outlet stores, totaled $17.2 million and were $10.6 million, or 38.1%, lower than the corresponding quarter of 2011. The decrease principally reflected the conversion of 49 FCPO stores to the Party City format and the closure of 33 stores during the twelve month period ended March 31, 2012.

Royalties and franchise fees

Royalties and franchise fees for the first quarter of 2012 were $3.8 million, compared to $3.7 million for the first quarter of 2011. The negative impact on royalty income from the net decrease of nine franchise stores during the twelve month period ended March 31, 2012 was more than offset by the impact of increased same-store sales at the remaining franchise stores.

Gross Profit

Our total gross profit on net sales for the first quarter of 2012 was 37.6%. The gross profit percentage was 140 basis points higher than the first quarter of 2011. The following table sets forth the Company’s gross profit for the quarters ended March 31, 2012 and March 31, 2011.


	Three Months Ended March 31,
	2012					2011
	Dollars in Thousands		Percentage of Net Sales			Dollars in Thousands		Percentage of Net Sales
Wholesale	$	46,079		34.8	%	$	44,171		33.4	%
Retail		96,578		39.1	%		83,315		37.9	%

Total	$	142,657		37.6	%	$	127,486		36.2	%

The gross profit on net sales at wholesale for the first quarter of 2012 was 34.8%. The gross profit percentage was 140 basis points higher than the corresponding quarter of 2011. The increase was principally due to price increases on certain products and a favorable product mix on sales to domestic party goods retailers.

The gross profit on net sales at retail for the first quarter of 2012 was 39.1%. The gross profit percentage was 120 basis points higher than the corresponding quarter of 2011 as lower occupancy costs, as a percentage of net sales, were partially offset by the inclusion of lower margin Party Packagers sales. During the first quarter of 2012, 62.9% of our domestic retail sales, including e-commerce, were products supplied by our wholesale operations, compared to 64.1% for the first quarter of 2011.

Operating expenses

Wholesale selling expenses of $13.6 million for the first quarter of 2012 were $0.2 million, or 1.6%, lower than the corresponding quarter of 2011. Wholesale selling expenses were 10.3% of net wholesale sales during the first quarter of 2012, compared to 10.5% during the first quarter of 2011.

Retail operating expenses during the first quarter of 2012 were $70.6 million and were $8.8 million, or 14.2%, higher than the first quarter of 2011. The increase was principally due to higher spending on a national broadcasting campaign, $2.6 million of operating expenses related to Party Packagers, increased e-commerce costs due to the growth of the business, and inflationary increases in retail expenses. Retail operating expenses were 28.6% of retail net sales during the first quarter of 2012, compared to 28.1% during the corresponding quarter of 2011. Franchise expenses during the first quarter of 2012 were $2.7 million and were $0.6 million lower than the first quarter of 2011.

General and administrative expenses during the first quarter of 2012 were $33.8 million and were $2.2 million, or 7.1%, higher than the first quarter of 2011, principally due to $1.2 million of expenses related to Party Packagers, and inflationary increases in general and administrative expenses. General and administrative expenses were 8.8% of total revenues during the first quarter of 2012, compared to 8.9% during the corresponding quarter of 2011.

Art and development costs totaled $4.5 million during the first quarter of 2012 and were $0.6 million higher than the corresponding quarter of 2011. As a percentage of total revenues, art and development costs were 1.2% during the first quarter of 2012, compared to 1.0% during the first quarter of 2011.

Interest expense, net

Interest expense, net, totaled $18.1 million during the first quarter of 2012 and was $2.3 million, or 11.1%, lower than the first quarter of 2011 due to higher interest rates in 2011, including the impact of an interest rate swap agreement, and reduced usage of the New ABL Facility.

Other (income) expense, net

Other income, net, was $0.2 million during the first quarter of 2012, compared to $0.1 million of expense during the first quarter of 2011. During both periods, other (income) expense, net, included income from an unconsolidated balloon distribution joint venture in Mexico. Additionally, the first quarter of 2011 included acquisition-related expenses.

Income tax expense (benefit)

The income tax expense (benefit) for the first quarters of 2012 and 2011 were determined based upon the Company’s estimated consolidated effective income tax rates of 36.3% and 35.8% for the years ending December 31, 2012 and 2011, respectively. The differences between the estimated consolidated effective income tax rates and the U.S. federal statutory rate are primarily attributable to state income taxes and available domestic manufacturing deductions.

Liquidity

We expect that cash generated from operating activities and availability under our credit agreements will be our principal sources of liquidity. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the New ABL Facility and the New Term Loan Credit Agreement in amounts sufficient to enable us to repay our indebtedness, including the Senior Subordinated Notes, or to fund our other liquidity needs.

Cash Flow Data — Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

Net cash used in operating activities totaled $32.1 million during the first quarter of 2012, as compared to $12.9 million during the comparable quarter of 2011. Net cash flows provided by operating activities before changes in operating assets and liabilities were $20.7 million during the first quarter of 2012 and $14.4 million during the comparable quarter of 2011. Changes in operating assets and liabilities during the first quarter of 2012 and the first quarter of 2011 resulted in the use of cash of $52.8 million and $27.3 million, respectively, and principally reflect the pay down of Halloween and other fourth quarter seasonal trade accounts payables.

Net cash used in investing activities totaled $8.0 million during the first quarter of 2012, as compared to $67.4 million during the comparable quarter of 2011. Investing activities during the first quarter of 2011 included $47.1 million paid in connection with the purchase of Riethmuller and $9.3 million paid in connection with the purchase of retail franchise stores. Capital expenditures totaled $8.1 million during the first quarter of 2012, compared to $11.0 million during the corresponding quarter of 2011. Retail capital expenditures totaled $5.6 million in 2012 and were principally for store conversions, while wholesale capital expenditures, principally for printing plates and dies, totaled $2.5 million.

Net cash provided by financing activities was $34.8 million during the first quarter of 2012, compared to $75.3 million during the first quarter of 2011. Both periods principally reflect borrowings under the New ABL Facility, net of scheduled repayments for the New Term Loan Credit Agreement. Borrowings during the first quarter of 2012 and 2011 were used to pay down Halloween and other fourth quarter seasonal trade accounts payable. Borrowings during the first quarter of 2011 were also used to purchase Riethmuller.

Required repayments under the New Term Loan Credit Agreement for the remainder of 2012 will be $5.1 million. At March 31, 2012, we had $169.4 million of excess availability under the New ABL Facility.

Legal Proceedings

The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe any of these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations.

Seasonality

Wholesale Operations

Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween and Christmas, the inventory balances of our wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, the promotional activities of our wholesale business, including special dating terms, particularly with respect to Halloween products sold to retailers and other distributors, result in slightly higher accounts receivable balances during the third quarter.

Retail Operations

Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent, our year-end holiday sales. We believe this general pattern will continue in the future.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that convey our current expectations or forecasts of future events. All statements in this report other than statements of historical fact are forward-looking statements. Forward-looking statements include statements about the adequacy of our liquidity, our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “might,” “should,” “predict,” “potential,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “seek,” “anticipate” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Any or all of our forward-looking statements in this report may turn out not to occur as contemplated. They are based largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These factors include the effects of competition in the industry, the failure by us to anticipate changes in tastes and preferences of party goods retailers and consumers, the inability to increase store growth, the inability to increase prices to recover fully future increases in commodity prices, the loss of key employees, changes in general business conditions, other factors which are beyond our control and the possible risks and uncertainties that have been noted in reports filed by us with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2011.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a result of our variable rate indebtedness, our earnings are affected by changes in interest rates. From time to time we have utilized interest rate swap agreements to manage the risk associated with such changes. If market interest rates for our variable rate indebtedness averaged 2% more than the interest rate actually incurred during the three months ended March 31, 2012 and 2011, our interest expense, after considering the effects of any interest rate swap agreements, would have increased by $4.1 million and $3.6 million, respectively. The income (loss) before income taxes for the quarters ended March 31, 2012 and 2011 would also have been impacted by the same amounts. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowings and considering any 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 could potentially take action to mitigate our exposure to the change. However, due to the uncertainty of the specific actions that we would take and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

As a result of the sale of our products in foreign markets, our earnings are also affected by fluctuations in the value of the U.S. dollar when compared to the values of foreign currencies. Although we periodically enter into foreign currency forward contracts to hedge against the earnings effects of such fluctuations, we (1) may not be able to achieve hedge effectiveness to qualify for hedge-accounting treatment and, therefore, would record any gain or loss on the fair value of the derivative in other expense (income) and (2) may not be able to hedge such risks completely or permanently. A uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which our foreign sales are denominated would have resulted in a decrease in income from operations of $3.0 million and $3.1 million for the three months ended March 31, 2012 and 2011, respectively. In addition to the direct effects of changes in exchange rates, changes in exchange rates may also affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

Item 4. Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012 pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is: (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 6. Exhibits


31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32		Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (ii) the Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2012 and 2011; (iii) the Condensed Consolidated Statement of Stockholders’ Equity for the three month period ended March 31, 2012 and (iv) the Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2012 and 2011; and (v) the Notes to the Condensed Consolidated Financial Statements tagged as blocks of text.*

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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 principal
Date: May 15, 2012		financial and accounting officer)

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AMSCAN HOLDINGS INC 10-Q