AMSCAN HOLDINGS, INC.
Filed pursuant to Rule 424(b)(3)
Registration No. 333-45457
Supplement No. 4 to Prospectus dated October 1, 1998, as supplemented by
Supplement No. 1 dated November 16, 1998,
Supplement No. 2 dated December 1, 1998, and
Supplement No. 3 dated March 31, 1999
The date of this supplement No. 4 is May 17, 1999
On May 17, Amscan Holdings, Inc. filed the attached report on Form 10-Q.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 000-21827
--------------
AMSCAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3911462
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
80 Grasslands Road
Elmsford, New York 10523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 345-2020
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
As of May 12, 1999, 1,132.41 shares of Registrants' Common Stock, par value
$0.10, were outstanding.
<PAGE>
AMSCAN HOLDINGS, INC.
FORM 10-Q
March 31, 1999
Table of Contents
Part I Page
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1999 and December 31,
1998.......................................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 1998.......................... 4
Consolidated Statement of Stockholders' Deficit for the
Three Months Ended March 31, 1999............................. 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998.......................... 6
Notes to Consolidated Financial Statements......................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 11
Item 3 Quantitative and Qualitative Disclosures About Market
Risk......................................................... 15
Part II
Item 6 Exhibits and Reports on Form 8-K.................................. 15
Signature................................................................... 16
2
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
1999 1998
--------------- ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents...................... $ 934 $ 1,117
Accounts receivable, net of allowances......... 57,954 49,339
Inventories.................................... 53,408 54,691
Prepaid expenses and other current assets...... 13,942 9,113
----------- -----------
Total current assets..................... 126,238 114,260
Property, plant and equipment, net................ 59,585 59,260
Intangible assets, net............................ 65,600 66,500
Other assets, net................................. 9,398 8,832
----------- -----------
Total assets............................. $260,821 $248,852
======== ========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term obligations......................... $ 17,235 $ 9,628
Accounts payable............................... 11,783 11,494
Accrued expenses............................... 19,095 17,520
Income taxes payable........................... 3,455 593
Current portion of long-term obligations....... 3,434 3,549
---------- -----------
Total current liabilities................ 55,002 42,784
Long-term obligations, excluding current portion.. 269,926 270,127
Deferred income tax liabilities................... 8,320 8,128
Other............................................. 3,341 3,553
---------- ----------
Total liabilities........................ 336,589 324,592
Redeemable Common Stock........................... 19,547 19,547
Stockholders' deficit:
Common Stock................................... - -
Additional paid-in capital..................... 225 225
Unamortized restricted Common Stock award, net. (532) (575)
Notes receivable from officers................. (698) (718)
Deficit ....................................... (93,054) (92,969)
Accumulated other comprehensive loss........... (1,256) (1,250)
----------- ----------
Total stockholders' deficit.............. (95,315) (95,287)
----------- ----------
Total liabilities, Redeemable Common
Stock and stockholders' deficit.... $260,821 $248,852
=========== ==========
Note: The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
3
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AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- ------------
<S> <C> <C>
Net sales............................................................... $76,440 $55,561
Cost of sales........................................................... 48,120 35,989
------- -------
Gross profit...................................................... 28,320 19,572
Operating expenses:
Selling expenses..................................................... 5,854 3,626
General and administrative........................................... 7,044 4,319
Provision for doubtful accounts (includes $5,950 in 1999
related to Party City Corporation)................................ 6,412 772
Art and development costs............................................ 2,666 1,620
-------- --------
Total operating expenses.......................................... 21,976 10,337
-------- --------
Income from operations............................................ 6,344 9,235
Interest expense, net................................................... 6,434 5,265
Other expense (income), net............................................. 22 (40)
---------- ---------
(Loss) income before income taxes and minority interests....... (112) 4,010
Income tax (benefit) expense............................................ (46) 1,664
Minority interests...................................................... 19 75
---------- ----------
Net (loss) income................................................. $ (85) $ 2,271
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Three Months Ended March 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unamortized
Restricted Notes Accumulated
Additional Common Receivable Other
Common Paid-in Stock Award, from Comprehensive
Stock Capital Net Officers Deficit Loss Total
------ ---------- ------------ --------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998.. $ $ 225 $ (575) $ (718) $(92,969) $ (1,250) $(95,287)
Net loss................... (85) (85)
Net change in cumulative
translation adjustment.. (6) (6)
--------
Comprehensive loss... (91)
Payments received on notes
receivable from officers 20 20
Amortization of restricted
Common Stock award...... 43 43
------ --------- ---------- ---------- -------- ------- ---------
Balance at March 31, 1999..... $ - $ 225 $ (532) $ (698) $(93,054) $(1,256) $(95,315)
====== ======== ========== ========== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................................. $ (85) $ 2,271
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization................................................... 3,219 1,723
Amortization of deferred financing costs........................................ 217 162
Amortization of restricted Common Stock award................................... 43 65
Provision for doubtful accounts................................................. 6,412 772
Deferred income tax benefit..................................................... (1,891) (135)
Loss on disposal of property and equipment...................................... 71
Changes in operating assets and liabilities:
Increase in accounts receivable.............................................. (14,954) (9,938)
Decrease in inventories...................................................... 1,283 4,939
(Increase) decrease in prepaid expenses and other current assets............. (2,746) 632
Increase (decrease) in accounts payable, accrued expenses and
income taxes payable...................................................... 4,746 (1,249)
Other, net......................................................................... (1,005) (635)
----------- -------
Net cash used in operating activities........................................... (4,690) (1,393)
Cash flows from investing activities:
Capital expenditures............................................................... (2,205) (1,072)
Proceeds from sale of property and equipment....................................... 100 17
------------ ----------
Net cash used in investing activities........................................... (2,105) (1,055)
Cash flows from financing activities:
Payments to acquire Common Stock in Merger......................................... (18) (92,731)
Proceeds from short-term obligations............................................... 7,607
Repayment of loans, notes payable and long-term obligations........................ (942) (1,116)
Other ............................................................................. 20
----------- --------
Net cash provided by (used in) financing activities............................. 6,667 (93,847)
Effect of exchange rate changes on cash and cash equivalents....................... (55) (104)
---------- -----------
Net decrease in cash and cash equivalents....................................... (183) (96,399)
Cash and cash equivalents at beginning of period........................................ 1,117 111,539
--------- ----------
Cash and cash equivalents at end of period.............................................. $ 934 $ 15,140
========== ==========
Supplemental Disclosures:
Interest paid................................................................ $3,553 $2,839
Taxes paid................................................................... $292 $188
</TABLE>
Capital lease obligations of $651 were incurred during the three months ended
March 31, 1999. There were no capital lease obligations incurred during the
three months ended March 31, 1998.
See accompanying notes to consolidated financial statements.
6
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AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Organization and Description of Business
Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "AHI" or the "Company") was incorporated on October 3, 1996 for
the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities in connection with an initial public offering of common
stock.
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for a recapitalization of Amscan Holdings in
which Confetti would be merged with and into Amscan Holdings (the "Merger"),
with Amscan Holdings as the surviving corporation.
On December 19, 1997 (the "Effective Time"), the Merger was consummated
pursuant to the Merger Agreement. At the Effective Time, each share of the
Common Stock, par value $0.10 per share, of the Company (the "Company Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares of Company Common Stock owned, directly or indirectly, by the
Company or by Confetti) was converted, at the election of each of the Company's
stockholders, into the right to receive from the Company either (a) $16.50 in
cash or (b) $9.33 in cash plus a retained interest in the Company equal to one
share of Company Common Stock for every 150,000 shares held by such stockholder,
with fractional shares of Company Common Stock paid in cash. Also pursuant to
the Merger Agreement, at the Effective Time each outstanding share of Common
Stock, par value $0.10 per share, of Confetti ("Confetti Common Stock"), was
converted into an equal number of shares of Company Common Stock as the
surviving corporation in the Merger. The Merger was financed with an equity
contribution of approximately $67.5 million (including contributions of Company
Common Stock by certain employee stockholders and including issuances of
restricted stock), $117 million from a senior term loan and $110 million from
the issuance of senior subordinated notes. The Merger was accounted for as a
recapitalization and, accordingly, the historical basis of the Company's assets
and liabilities were not affected by the Merger.
Amscan Holdings and its subsidiaries design, manufacture, contract for
manufacture and distribute party and novelty goods principally in the United
States, Canada and Europe.
Note 2: Basis of Presentation
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries. Investments in less than
majority-owned subsidiaries are accounted for on an equity basis.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The results of
7
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
operations may be affected by seasonal factors such as the timing of holidays or
industry factors that may be specific to a particular period, such as movement
in and the general level of raw material costs. For further information, see the
financial statements and footnotes thereto included in the Amscan Holdings'
Annual Report on Form 10-K for the year ended December 31, 1998.
Note 3: Inventories
Inventories consisted of the following:
March 31, December 31,
1999 1998
----------- -------------
(In thousands)
Finished goods ............ $46,474 $48,093
Raw materials ............. 4,538 4,845
Work-in-process ........... 4,406 3,345
-------- --------
55,418 56,283
Less: reserve for slow
moving and obsolete
inventory................. (2,010) (1,592)
-------- --------
$53,408 $54,691
======== ========
Inventories are valued at the lower of cost, determined on a first in -
first out basis, or market.
Note 4: Income Taxes
The consolidated income tax (benefit) provision for the three months ended
March 31, 1999 and 1998 were determined based upon estimates of the Company's
consolidated effective income tax rates for the years ending December 31, 1999
and 1998, respectively. The differences between the consolidated effective
income tax rate and the U.S. Federal statutory rate are primarily attributable
to state income taxes and the effects of foreign operations.
Note 5: Comprehensive (Loss) Income
During the first quarter of 1999 and 1998, total comprehensive (loss)
income amounted to $(91,000) and $2,256,000, respectively, consisting of net
(loss) income of $(85,000) and $2,271,000 and foreign currency translation
adjustments of $(6,000) and $(15,000), respectively. Accumulated other
comprehensive loss at March 31, 1999 and December 31, 1998 consisted solely of
the Company's foreign currency translation adjustment.
8
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 6: Capital Stock
At March 31, 1999 and December 31, 1998, respectively, the Company's
authorized capital stock consisted of 5,000,000 shares of preferred stock, $0.10
par value, of which no shares were issued or outstanding, and 3,000 shares of
common stock, $0.10 par value, of which 1,132.41 shares were issued and
outstanding.
Note 7: Segment Information
Industry Segments
The Company operates in one operating segment which involves the design,
manufacture, contract for manufacture and distribution of party and novelty
goods.
Geographic Segments
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets. No one single foreign operation is significant to the
Company's consolidated operations. Sales between geographic areas are made at
cost plus a share of operating profit.
The Company's geographic area data is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C>
Three Months Ended March 31, 1999
Sales to unaffiliated customers................... $ 66,534 $ 9,906 $ 76,440
Sales between geographic areas.................... 4,496 471 $ (4,967) -
----------- ---------- ----------- ----------------
Net sales......................................... $ 71,030 $10,377 $ (4,967) $ 76,440
========= ======= =========== ==========
Income from operations............................ $ 6,039 $ 305 $ 6,344
======== ======
Interest expense, net............................. 6,434
Other expense, net................................ 22
----------
Loss before income taxes and minority
interests..................................... $ (112)
==========
Long-lived assets at March 31, 1999 $133,121 $ 14,686 $ (13,224) $ 134,583
======== ========= ========== =========
Three Months Ended March 31, 1998
Sales to unaffiliated customers................... $ 49,287 $ 6,274 $ 55,561
Sales between geographic areas.................... 1,793 $ (1,793) -
---------- ------------- ----------- ----------
Net sales......................................... $ 51,080 $ 6,274 $ (1,793) $ 55,561
========= ======== =========== =========
Income from operations............................ $ 8,922 $ 313 $ 9,235
========== =========
Interest expense, net............................. 5,265
Other income, net................................. (40)
--------
Income before income taxes and minority
interests..................................... $ 4,010
=======
Long-lived assets at March 31, 1998............... $53,422 $ 1,799 $ (1,939) $53,282
======= ======== ========= =======
</TABLE>
9
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 8: Provision for Doubtful Accounts
During the first quarter of 1999, the Company's largest customer, Party
City Corporation ("Party City") announced that, due to difficulties implementing
new financial reporting and accounting systems, it would not be able to complete
its year end audit and that it would be in default of certain covenants of its
credit facility as of December 31, 1998. The Company understands that Party City
is negotiating with its lenders to amend its credit facility and with its
vendors to amend existing credit terms on certain inventory. The Company also
understands that Party City is considering various alternatives to improve its
current financial condition. Based on the current financial condition of Party
City, the Company has established reserves approximating 50% of the $13,200,000
accounts receivable balance due from Party City corporate stores at March 31,
1999, including $5,950,000 charged to the provision for doubtful accounts during
the first quarter of 1999.
For the three months ended March 31, 1999 and 1998, sales to Party City's
corporate stores represented 18% and 11%, respectively, of consolidated net
sales. If Party City were to significantly reduce their volume of purchases from
the Company for any reason, the Company's financial condition and results of
operations could be materially adversely affected.
10
<PAGE>
Item 2 . Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Percentage of Net Sales
Three Months Ended March 31,
1999 1998
---------- --------
Net sales................................... 100.0% 100.0%
Cost of sales............................... 63.0 64.8
------ ------
Gross profit........................ 37.0 35.2
Operating expenses:
Selling expenses......................... 7.7 6.5
General and administrative expenses...... 9.2 7.8
Provision for doubtful accounts (7.8%
in 1999 related to Party City)....... 8.4 1.4
Art and development costs................ 3.5 2.9
------- -------
Total operating expenses............ 28.8 18.6
------ ------
Income from operations.............. 8.2 16.6
Interest expense, net....................... 8.4 9.5
Other expense (income), net................. - (0.1)
--------- --------
(Loss) income before income taxes
and minority interests......... (0.2) 7.2
Income tax (benefit) expense................ (0.1) 3.0
Minority interests.......................... - 0.1
-------- --------
Net (loss) income................... (0.1)% 4.1%
======== =========
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net sales for the three months ended March 31, 1999 were $76.4 million, as
compared to $55.6 million for the three months ended March 31, 1998. Net sales
for the three months ended March 31, 1999 increased by 37.6%, reflecting the
September 1998 acquisition of Anagram International Inc. ("Anagram"), a
manufacturer and distributor of metallic balloons, and strong growth in sales to
both party goods superstores and smaller independent stores. The Company
attributes its sales growth to the growth in party goods superstores, a
realignment of its independent sales force, and its marketing strategy of
continually offering new products, new designs and themes for existing products.
Gross profit for the three months ended March 31, 1999 was $28.3 million,
or 37.0% of net sales, as compared to 35.2% for the three months ended March 31,
1998. The increase in gross profit margin principally reflects the savings
associated with the restructuring of the Company's distribution operations begun
in the second quarter of 1998 as well as initial synergies arising from the
acquisition of Anagram.
Selling expenses of $5.9 million for the three months ended March 31, 1999
were $2.2 million higher than those of the corresponding quarter in 1998.
Selling expenses increased as a percentage of net sales from 6.5% to 7.7%
principally due to the inclusion of the results of Anagram which historically
operates at a higher level of expense as a percentage of sales , additional
catalogues and advertising and the realignment of the independent sales force.
General and administrative expenses of $7.0 million increased by $2.7
million for the three months ended March 31, 1999 as compared to the
corresponding quarter in 1998. General and administrative expenses increased as
a percentage of net sales from 7.8% to 9.2%. The increase primarily results from
the additional amortization of
11
<PAGE>
goodwill and other intangible assets arising from the acquisition of Anagram as
well as the inclusion of Anagram results, which historically operates at a
higher level of expense as a percentage of sales.
During the first quarter of 1999, the Company's largest customer, Party
City Corporation ("Party City") announced that, due to difficulties implementing
new financial reporting and accounting systems, it would not be able to complete
its year end audit and that it would be in default of certain covenants of its
credit facility as of December 31, 1998. The Company understands that Party City
is negotiating with its lenders to amend its credit facility and with its
vendors to amend existing credit terms on certain inventory. The Company also
understands that Party City is considering various alternatives to improve its
current financial condition. Based on Party City's current financial condition,
the Company has established reserves approximating 50% of the $13,200,000
accounts receivable balance due from Party City corporate stores at March 31,
1999, including $5,950,000 charged to the provision for doubtful accounts during
the first quarter of 1999.
Art and development costs of $2.7 million for the three months ended March
31, 1999, increased by $1.0 million compared to the corresponding quarter in
1998. As a percentage of net sales, art and development costs increased from
2.9% to 3.5%, and reflect the Company's investment in additional staff
associated with the development of new product lines.
Interest expense of $6.4 million for the three months ended March 31, 1999
increased by $1.2 million as compared to the corresponding period in 1998
principally due to the Company's increased borrowings in connection with the
acquisition of Anagram (see "Liquidity and Capital Resources").
Income taxes for the three months ended March 31, 1999 and 1998 were based
upon estimated consolidated effective income tax rates of 40.85% and 41.5% for
the years ending December 31, 1999 and 1998, respectively.
Minority interests represent the portion of income of the Amscan Holdings'
subsidiaries attributable to equity ownership not held by Amscan Holdings.
Liquidity and Capital Resources
On December 19, 1997, the Company and Confetti consummated the Merger,
providing for a recapitalization of the Company in which Confetti was merged
with and into the Company with the Company as the surviving corporation. The
Merger was financed with an equity contribution of approximately $67.5 million
(including contributions of Company Common Stock by certain employee
stockholders and issuances of restricted Common Stock), $117 million from a
senior term loan (the "Term Loan") provided under a bank credit agreement (the
"Bank Credit Facilities") and $110 million from the issuance of 9 7/8% senior
subordinated notes (the "Notes") (collectively, the "Merger Financings"). The
Merger has been accounted for as a recapitalization and, accordingly, the
historical basis of the Company's assets and liabilities has not been affected
by the Merger.
The Company is obligated to obtain interest rate protection, pursuant to
interest rate swaps, caps or other similar arrangements satisfactory to GS
Credit Partners, with respect to a notional amount of not less than half of the
aggregate amount outstanding under the Term Loan, which protection must remain
in effect for not less than three years. The interest rate swap contracts
require the Company to settle the difference in interest obligations quarterly.
The Company had two interest rate swap contracts outstanding with a financial
institution and Goldman Sachs Capital Markets, L.P. covering $93,500,000 of its
Term Loan at effective interest rates ranging from 7.18% to 8.36% at March 31,
1999.
In addition to the Term Loan, the Bank Credit Facilities, as amended,
provide for revolving loan borrowings of up to $50 million (the "Revolving
Credit Facility"). The Revolving Credit Facility has a term of five years and
bears interest, at the option of the Company, at the lenders' customary base
rate plus 1.25% per annum or at the lenders' customary reserve adjusted
Eurodollar rate plus 2.25% per annum. Interest on balances outstanding under the
Revolving Credit Facility are subject to adjustment in the future based on the
Company's performance. At
12
<PAGE>
March 31, 1999, the Company had borrowing capacity of approximately $28.0
million under the Revolving Credit Facility.
The Company financed the September 1998 acquisition of Anagram with $40
million of senior term debt, approximately $20 million of additional revolving
credit borrowings, cash on hand, the issuance of 120 shares of the Company's
Redeemable Common Stock valued at $12.6 million and warrants to purchase 10
shares of the Company's Common Stock valued at $0.2 million. In connection with
and upon consummation of the acquisition, the Company amended and restated the
Revolving Credit Facility to provide for, among other things, the additional
senior term debt.
Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the Revolving Credit Facility, will be adequate to meet its
anticipated future requirements for working capital and operating expenses, to
permit potential acquisitions and to service its debt requirements as they
become due. However, the Company's ability to make scheduled payments of
principal of, or to pay interest on, or to refinance its indebtedness and to
satisfy its other obligations will depend upon its future performance, which, to
a certain extent, will be subject to general economic, financial, competitive,
business and other factors beyond its control.
The Merger Financings and the amendments to the Company's credit agreements
may affect the Company's ability to make future capital expenditures. However,
management believes that additions to plant and equipment during the past three
years provide adequate capacity to support its operations for at least the next
12 months. As of March 31, 1999, the Company did not have material commitments
for capital expenditures.
Cash Flow Data - Three Months Ended March 31, 1999 Compared to Three Months
Ended March 31, 1998
During the three months ended March 31, 1999, net cash used in operating
activities totaled $4.7 million as compared to $1.4 million during the same
quarter in 1998. The increase in net cash used in operating activities reflects
growth in the Company's net accounts receivable balance, as a result of
increased sales which have extended terms given to customers in association with
new promotions, partially offset by the changes in other operating assets and
liabilities.
Net cash used in investing activities during the first quarter of 1999 of
$2.1 million increased by $1.0 million from the same period in 1998 and
principally reflects an upgrade of the Company's data processing systems as well
as inclusion of the capital expenditures of Anagram in the first quarter of
1999.
During the first quarter of 1999, net cash provided by financing activities
of $6.7 million consisted principally of proceeds from short-term working
capital borrowings, partially offset by the scheduled maturity of long-term
obligations. During the comparable period in 1998, net cash used in financing
activities of $93.8 million consisted principally of payments to former
shareholders whose investment in Company Common Stock was converted into the
right to receive cash in connection with the Merger in 1997.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The statement requires all derivatives to be
recognized on the balance sheet at fair value and establishes standards for the
recognition of changes in such fair value. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. The Company expects to adopt SFAS No. 133
effective January 1, 2000. Because of the Company's limited use of derivatives,
management does not anticipate the adoption of SFAS No. 133 will have a
significant effect on earnings or the financial position of the Company.
13
<PAGE>
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to the financial statements of the Company.
Impact of Year 2000
Several of the Company's older computer programs have date sensitive
software that will not recognize the year 2000 and, if not addressed, could
cause disruptions to the Company's normal business operations. The Company has
completed an assessment of its software and has begun to upgrade its
date-sensitive software to be Year 2000 compliant. The completed assessment
indicated that most of the Company's significant information technology systems
could be affected, particularly the general ledger, billing, and inventory
systems. That assessment also indicated that the software and hardware (embedded
chips) used in manufacturing and distribution systems do not require any
remediation to be Year 2000 compliant. To date, the Company has not incurred
significant expenses associated with the Year 2000 issue and management expects
that the historical and anticipated remaining costs to upgrade its software will
not be material.
The Company is in the process of querying its significant suppliers and
subcontractors that do not share information systems with the Company (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
The Company is currently working on contingency plans for certain critical
applications. These contingency plans are expected to be completed by June 1999
and involve, among other actions, manual workarounds, increasing inventories,
and adjusting staffing strategies.
To date, the Company is 70% complete, and expects to complete the upgrade
of its principal software by June 30, 1999 and believes that the Year 2000 issue
will not pose significant operational problems for its computer systems.
However, there can be no guarantee that the estimated cost and completion will
be achieved and the actual results could differ materially from those
anticipated.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this report
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, the impact of the Year 2000 issue,
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, including any changes to
operations, goals, expansion and growth of the Company's business and
operations, plans, references to future success and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. Actual
results may differ materially from those discussed. Whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including, but not limited to
(1) the concentration of sales by the Company to party goods superstores where
the reduction of purchases by a small number of customers could materially
reduce the Company's sales and profitability, (2) the concentration of the
Company's credit risk in party goods superstores, several of which are privately
held and have expanded rapidly in recent years, (3) the failure by the Company
to anticipate changes in tastes and preferences of party goods retailers and
consumers, (4) the introduction of new products by the Company's competitors,
(5) the inability of the Company to increase prices to recover fully future
increases in raw material prices, especially increases in paper prices, (6) the
loss of key employees, (7) changes in general business conditions, (8) other
factors which might be described from time to time in the Company's filings with
the Commission, and (9) other factors which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this report
are qualified by these cautionary statements, and the actual results or
developments anticipated by the Company may not be realized or, even if
substantially
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realized, may not have the expected consequences to or effects on the Company or
its business or operations. Although the Company believes that it has the
product offerings and resources needed for continued growth in revenues and
margins, future revenue and margin trends cannot be reliably predicted. Changes
in such trends may cause the Company to adjust its operations in the future.
Because of the foregoing and other factors, recent trends should not be
considered reliable indicators of future financial results. In addition, the
highly leveraged nature of the Company may impair its ability to finance its
future operations and capital needs and its flexibility to respond to changing
business and economic conditions and business opportunities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's earnings are affected by changes in interest rates as a
result of its issuance of variable rate indebtedness. However, the Company
utilizes interest rate swap agreements and other off-balance sheet financial
instruments to manage the market risk associated with fluctuations in interest
rates. If market interest rates for the Company's variable rate indebtedness
averaged 2% more for the three months ended March 31, 1999 above the interest
rates actually paid, the Company's interest expense, after considering the
effects of its interest rate swap agreements, would increase, and income before
taxes would decrease by $0.4 million. This amount is determined by considering
the impact of the hypothetical interest rates on the Company's borrowing cost,
short-term investment balances, and interest rate swap agreements. This analysis
does not consider the effects of the reduced level of overall economic activity
that could exist in such an environment. Further, in the event of a change of
such magnitude, management would likely take actions to further mitigate its
exposure to the change. However, due to the uncertainty of the specific actions
that would be taken and their possible effects, the sensitivity analysis assumes
no changes in the Company's financial structure.
The Company's earnings are also affected by fluctuations in the value of
the U.S. dollar as compared to foreign currencies, predominately in European
countries, as a result of the sales of its products in foreign markets. Foreign
currency forward contracts are used periodically to hedge against the earnings
effects of such fluctuations. A uniform 10% strengthening in the value of the
dollar relative to the currencies in which the Company's foreign sales are
denominated would have resulted in a decrease in gross profit of $0.3 million
for the three months ended March 31, 1999. This calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting sales, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. The Company's 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.
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMSCAN HOLDINGS, INC.
By: /s/ Michael A. Correale
-----------------------
Michael A. Correale
Controller
(on behalf of the registrant and as principal
Date: May 17, 1999 accounting officer)
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