AMSCAN HOLDINGS, INC.
Filed pursuant to Rule 424 (b) (3)
Registration No. 333-45457
Supplement No.4 to Prospectus dated August 4, 1999, as supplemented by
Supplement No.1 dated August 13, 1999
Supplement No.2 dated November 10, 1999
Supplement No.3 dated March 29, 2000
The date of this supplement No. 4 is May 15, 2000.
On May 15, 2000, 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
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] 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, 2000, 1,132.54 shares of Registrants' Common Stock, par value
$0.10, were outstanding.
<PAGE>
AMSCAN HOLDINGS, INC.
FORM 10-Q
March 31, 2000
Table of Contents
Part I Page
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999................................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999....................................... 4
Consolidated Statement of Stockholders' Deficit for the
Three Months Ended March 31, 2000.................................. 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999...................................... 6
Notes to Consolidated Financial Statements......................... 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk......... 13
Part II
Item 6 Exhibits and Reports on Form 8-K................................... 14
Signature.................................................................... 15
2
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 839 $ 849
Accounts receivable, net of allowances............................................. 60,838 56,896
Inventories, net of allowances..................................................... 61,546 59,193
Prepaid expenses and other current assets.......................................... 11,173 11,802
---------- ----------
Total current assets......................................................... 134,396 128,740
Property, plant and equipment, net.................................................... 61,918 61,709
Intangible assets, net................................................................ 62,397 63,331
Other assets, net..................................................................... 9,970 9,707
---------- ----------
Total assets................................................................. $ 268,681 $ 263,487
========== ==========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term obligations............................................................. $ 10,000 $ 4,688
Accounts payable................................................................... 14,840 18,967
Accrued expenses................................................................... 17,416 16,332
Income taxes payable............................................................... 4,402 2,963
Current portion of long-term obligations........................................... 3,613 3,562
--------- ---------
Total current liabilities.................................................... 50,271 46,512
Long-term obligations, excluding current portion...................................... 264,841 266,891
Deferred income tax liabilities....................................................... 12,017 12,001
Other................................................................................. 2,880 3,030
--------- ---------
Total liabilities............................................................ 330,009 328,434
Redeemable Common Stock............................................................... 23,621 23,582
Stockholders' deficit:
Common Stock....................................................................... - -
Additional paid-in capital......................................................... 233 225
Unamortized restricted Common Stock award, net..................................... (392) (405)
Notes receivable from stockholders................................................. (597) (664)
Deficit ........................................................................... (83,127) (86,797)
Accumulated other comprehensive loss............................................... (1,066) (888)
--------- ---------
Total stockholders' deficit.................................................. (84,949) (88,529)
--------- ---------
Total liabilities, redeemable Common Stock and stockholders' deficit......... $ 268,681 $ 263,487
========= =========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the
audited consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales........................................................................... $77,377 $76,440
Cost of sales....................................................................... 47,116 48,120
-------- --------
Gross profit............................................................... 30,261 28,320
Operating expenses:
Selling expenses................................................................. 7,016 5,954
General and administrative expenses (includes a provision for doubtful
accounts of $5,950 in 1999 relating to Party City Corporation)................ 8,396 13,806
Art and development costs........................................................ 2,010 2,216
-------- --------
Total operating expenses................................................... 17,422 21,976
-------- --------
Income from operations................................................... 12,839 6,344
Interest expense, net............................................................... 6,590 6,434
Other expense, net ............................................................... 69 22
-------- --------
Income (loss) before income taxes and
minority interests..................................................... 6,180 (112)
Income tax expense (benefit)........................................................ 2,441 (46)
Minority interests.................................................................. 30 19
-------- --------
Net income (loss)....................................................... $ 3,709 $ (85)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Three Months Ended March 31, 2000
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unamortized
Restricted Notes Accumulated
Additional Common Receivable Other
Common Paid-in Stock Award, from Comprehensive
Stock Capital Net Stockholders Deficit Loss Total
-------- ----------- ------------ ------------ ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999.. $ - $225 $(405) $(664) $(86,797) $ (888) $(88,529)
Net income................. 3,709 3,709
Net change in cumulative
translation adjustment.. (178) (178)
---------
Comprehensive income. 3,531
Payments received on notes
receivable and other.... 8 67 (39) 36
Amortization of restricted
Common Stock award...... 13 13
-------- ---- ----- ----- ------- -------- --------
Balance at March 31, 2000..... $ - $233 $(392) $(597) $(83,127) $ (1,066) $(84,949)
======== ==== ===== ===== ======== ======== ========
</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,
----------------------------
2000 1999
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ 3,709 $ (85)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization.................................................... 3,451 3,219
Amortization of deferred financing costs......................................... 218 217
Amortization of restricted Common Stock award.................................... 13 43
Provision for doubtful accounts.................................................. 467 6,412
Deferred income tax expense (benefit)............................................ 220 (1,891)
Loss on disposal of property and equipment....................................... - 71
Changes in operating assets and liabilities:
Increase in accounts receivable.............................................. (4,407) (14,954)
(Increase) decrease in inventories........................................... (2,353) 1,283
Decrease (increase) in prepaid expenses and other current assets............. 425 (2,746)
(Decrease) increase in accounts payable, accrued expenses and
income taxes payable....................................................... (1,604) 4,746
Other, net....................................................................... (638) (1,005)
------- -------
Net cash used in operating activities......................................... (499) (4,690)
Cash flows from investing activities:
Capital expenditures................................................................ (2,809) (2,205)
Proceeds from sale of property and equipment........................................ 2 100
-------- -------
Net cash used in investing activities......................................... (2,807) (2,105)
Cash flows from financing activities:
Proceeds from short-term obligations................................................ 5,312 7,607
Repayment of loans, notes payable and long-term obligations......................... (1,999) (942)
Other .............................................................................. 75 2
-------- -------
Net cash provided by financing activities..................................... 3,388 6,667
Effect of exchange rate changes on cash and cash equivalents............................ (92) (55)
-------- -------
Net decrease in cash and cash equivalents..................................... (10) (183)
Cash and cash equivalents at beginning of period........................................ 849 1,117
-------- -------
Cash and cash equivalents at end of period.............................................. $ 839 $ 934
======== =======
Supplemental Disclosures:
Interest paid................................................................. $ 3,696 $ 3,553
Income taxes paid, net of refunds............................................. $ 735 $ 292
</TABLE>
Supplemental information on noncash activities:
There were no capital lease obligations incurred during the three months
ended March 31, 2000. Capital lease obligations of $651 were incurred during the
three months ended March 31, 1999.
See accompanying notes to consolidatedfinancial statements.
6
<PAGE>
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. AHI designs, manufactures, contracts for manufacture and
distributes party and novelty goods and gifts principally in North America,
South America, Europe, Asia and Australia.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The results of operations may be affected by seasonal factors such as the
timing of holidays or industry factors that may be specific to a particular
period, such as movement in and the general level of raw material costs. For
further information, see the financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
In connection with the preparation of the accompanying unaudited
consolidated financial statements, the Company has reclassified certain amounts
in prior periods to conform to the current year presentation.
Note 3 - Inventories
Inventories consisted of the following (dollars in thousands):
March 31, December 31,
2000 1999
-------- ------------
Finished goods......................................... $53,565 $50,278
Raw materials.......................................... 6,134 6,706
Work-in-process........................................ 4,029 4,238
------- -------
63,728 61,222
Less: reserve for slow moving and obsolete inventory... (2,182) (2,029)
------- -------
$61,546 $59,193
======= =======
Inventories are valued at the lower of cost, determined on a first-in,
first-out basis, or market.
7
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 4 - Income Taxes
The consolidated income tax expense (benefit) for the three months ended
March 31, 2000 and 1999 were determined based upon estimates of the Company's
consolidated effective income tax rates for the years ending December 31, 2000
and 1999, 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 Income (Loss)
Comprehensive income (loss) consisted of the following (dollars in
thousands):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Net income (loss)................ $3,709 $(85)
Net change in cumulative
translation adjustment......... (178) (6)
------ -----
Comprehensive income (loss)...... $3,531 $(91)
====== =====
Accumulated other comprehensive loss at March 31, 2000 and December 31,
1999 consisted solely of the Company's cumulative translation adjustment.
Note 6 - Capital Stock
At March 31, 2000 and December 31, 1999, 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 1,132.54 and 1,132.41 shares, respectively, were
issued and outstanding.
Note 7 - Segment Information
Industry Segments
The Company principally operates in one operating segment which involves
the design, manufacture, contract for manufacture and distribution of party and
novelty goods and gifts.
Geographic Segments
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in foreign markets. No single foreign operation is significant to the Company's
consolidated operations. Sales between geographic areas are made at cost plus a
share of operating profit.
8
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company's geographic area data is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
Three Months Ended March 31, 2000
<S> <C> <C> <C>
Sales to unaffiliated customers................... $66,659 $10,718 $77,377
Sales between geographic areas.................... 3,484 $(3,484) -
------- ------- ------- --------
Net sales......................................... $70,143 $10,718 $(3,484) $77,377
======= ======= ======= =======
Income from operations............................ $11,770 $1,069 $12,839
======= =======
Interest expense, net............................. 6,590
Other expense, net................................ 69
-------
Income before income taxes and minority
interests..................................... $ 6,180
=======
Long-lived assets, net at March 31, 2000.......... $126,765 $7,520 $134,285
======== ====== ========
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, net at March 31, 1999.......... $125,104 $9,479 $134,583
======== ====== ========
</TABLE>
Note 8 - Provision for Doubtful Accounts
During the first quarter of 1999, the Company's largest customer, Party
City Corporation ("Party City"), announced that it would be in default of
certain covenants of its credit facility and, as a result, the Company charged
$6.0 million to the provision for doubtful accounts during the first quarter of
1999. Reflecting Party City's improved financial condition, the provision was
decreased by $1.9 million and $4.1 million, respectively, during the third and
fourth quarters of 1999. Although the Company believes its relationships with
Party City and its franchisees are good, if they were to significantly reduce
their volume of purchases from the Company, the Company's financial condition
and results of operations could be materially adversely affected.
Note 9 - 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 upon its
financial condition or results of operations.
9
<PAGE>
Item 2 . Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Results of Operations
Percentage of Net Sales
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales............................................ 100.0% 100.0%
Cost of sales........................................ 60.9 63.0
------ ------
Gross profit.................................... 39.1 37.0
Operating expenses:..................................
Selling expenses................................... 9.1 7.8
General and administrative expenses
(includes a provision for doubtful accounts
of 7.8% in 1999 relating to Party City)....... 10.8 18.1
Art and development costs.......................... 2.6 2.9
------ ------
Total operating expenses........................ 22.5 28.8
------ ------
Income from operations............................ 16.6 8.2
Interest expense, net.............................. 8.5 8.4
Other income, net.................................. 0.1 -
------ ------
Income (loss) before income taxes
and minority interests................ 8.0 (0.2)
Income tax expense (benefit)....................... 3.2 (0.1)
Minority interests................................. - -
------ ------
Net income (loss).......................... 4.8% (0.1)%
====== ======
</TABLE>
Net sales of $77.4 million for the first quarter of 2000 were $0.9 million
higher than net sales for the first quarter of 1999. The increase in net sales
principally reflects increased sales of party goods and gift items to
independent party goods and specialty stores, partially offset by reduced sales
of party goods to other distributors. Sales to party goods superstores remained
level with prior year's first quarter results reflecting the stabilization of
superstore growth.
Gross profit for the first quarter of 2000 was 39.1% and was 2.1% higher
than the corresponding quarter of 1999 principally as a result of higher sales
in the current quarter and increased gross profit margin on international sales.
The improvement in gross profit margin on international sales includes the
realization of the full benefit from the closing of the Company's Canadian
warehouse in connection with its distribution restructuring plan.
Selling expenses of $7.0 million for the three months ended March 31, 2000
were $1.1 million higher than those of the corresponding period in 1999 and
increased from 7.8% of net sales to 9.1% of net sales. The increase in selling
expenses reflects the continued development of a specialty sales force designed
to sell gifts and party goods to independent party goods and specialty stores
which began in 1999 and increased marketing initiatives relating to the new
product lines.
General and administrative expenses of $8.4 million decreased by $5.4
million for the first quarter of 2000 as compared to the corresponding period in
1999, reflecting the provision for doubtful accounts of $6.0 million relating to
Party City in 1999, partially offset by depreciation on new data processing
equipment. During the first quarter of 1999, the Company's largest customer,
Party City announced that it would be in default of certain covenants of its
credit facility and, as a result, $6.0 million, or 7.8% of net sales, was
charged to the provision
10
<PAGE>
for doubtful accounts during the first quarter of 1999. The reserve for Party
City was subsequently reversed during the latter half of 1999, reflecting Party
City's improved financial condition.
Art and development costs of $2.0 million for the first quarter of 2000,
decreased by $0.2 million compared to the corresponding period in 1999 primarily
due to the inclusion in the first quarter of 1999's results of start-up costs
associated with the development of new product lines. As a percentage of net
sales, art and development costs were 2.6% for the first quarter of 2000 as
compared to 2.9% for the corresponding period of 1999.
Interest expense of $6.6 million for the first quarter of 2000 increased by
$0.2 million as compared to the corresponding period in 1999, principally as a
result of a higher average interest rate on borrowings (9.2% in 2000 versus 8.9%
in 1999).
Income taxes for the first quarter of 2000 and 1999 were based upon
estimated consolidated effective income tax rates of 39.5% and 40.85% for the
years ending December 31, 2000 and 1999, respectively.
Liquidity and Capital Resources
In connection with the Company's recapitalization in December 1997, the
Company received approximately $67.5 million from contributed capital (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 Term Loan bears
interest, at the option of the Company, at the lenders' customary base rate plus
1.375% per annum or at the lenders' customary reserve adjusted Eurodollar rate
plus 2.375% per annum. The Term Loan matures seven years after funding and
provides for amortization (in quarterly installments) of one percent of the
original principal amount thereof per year for the first five years and 32.3%
and 62.7% of the principal amount thereof in the sixth and seventh years,
respectively. The Notes bear interest at a rate of 9 7/8% per annum and mature
on December 15, 2007. The Company is required to make prepayments on the Bank
Credit Facilities under certain circumstances, including upon certain asset
sales and issuance of debt or equity securities and based on cash flows, as
defined. A prepayment of $1.3 million on the Term Loan was made by the Company
during the quarter ended March 31, 2000 as required based on its cash flows, as
defined.
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, expiring on December 31, 2002,
bears interest, at the option of the Company, at the lenders' customary base
rate plus, based on certain terms, either 0.75% or 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 March 31,
2000, the Company had borrowing capacity of approximately $34.6 million under
the Revolving Credit Facility.
The Company financed the September 1998 acquisition of Anagram
International Inc. 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.
At March 31, 2000, the Company had three interest rate swap contracts
outstanding with a financial institution and Goldman Sachs Capital Markets, L.P.
covering $123.5 million of its Term Loan at effective interest rates ranging
from 7.18% to 8.80%.
11
<PAGE>
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 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 and
potential acquisitions. However, management believes that current asset levels
provide adequate capacity to support its operations for at least the next 12
months. As of March 31, 2000, the Company did not have material commitments for
capital expenditures.
Cash Flow Data - Three Months Ended March 31, 2000 Compared to Three Months
Ended March 31, 1999
During the three months ended March 31, 2000, net cash used in operating
activities totaled $0.5 million as compared to $4.7 million used during the
corresponding period of 1999. The current quarter's improvement over prior
year's comparable results reflects a lowered accounts receivable balance
principally due to Party City's improved financial condition, partially offset
by higher levels of inventory to support the Company's new gift lines and new
sales programs.
Net cash used in investing activities during the first quarter of 2000 of
$2.8 million increased by $0.7 million from the same period in 1999 and
principally reflects increased levels of capital expenditures for manufacturing
machinery and equipment.
During the three months ended March 31, 2000, and 1999, net cash provided
by financing activities of $3.4 million and $6.7 million, respectively,
primarily consisted of the proceeds from short-term working capital borrowings,
partially offset by the repayment of a portion of the Term Loan and other
long-term obligations. Additionally, a prepayment of $1.3 million on the Term
Loan was made by the Company during the quarter ended March 31, 2000 as required
based on its cash flows, as defined.
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 upon its
financial condition or results of operations.
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, 2000. The Company expects to adopt SFAS No. 133
effective January 1, 2001. 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.
12
<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.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this report
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, including any changes to operations, goals, expansion and
growth of the Company's business and operations, plans, references to future
success and other such matters are forward-looking statements. These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. Actual results may differ materially from
those discussed. Whether actual results and developments will conform with the
Company's expectations and predictions is subject to a number of risks and
uncertainties, including, but not limited to (1) the concentration of sales by
the Company to party goods superstores where the reduction of purchases by a
small number of customers could materially reduce the Company's sales and
profitability, (2) the concentration of the Company's credit risk in party goods
superstores, several of which are privately held and have expanded rapidly in
recent years, (3) the failure by the Company to anticipate changes in tastes and
preferences of party goods retailers and consumers, (4) introduction of new
product lines by the Company, (5) the introduction of new products by the
Company's competitors, (6) the inability of the Company to increase prices to
recover fully future increases in raw material prices, especially increases in
paper prices, (7) the loss of key employees, (8) changes in general business
conditions, (9) other factors which might be described from time to time in the
Company's filings with the Commission, and (10) other factors which are beyond
the control of the Company. Consequently, all of the forward-looking statements
made in this report are qualified by these cautionary statements, and the actual
results or developments anticipated by the Company may not be realized or, even
if substantially realized, may not have the expected consequences to or effects
on the Company or its business or operations. Although the Company believes that
it has the product offerings and resources needed for continued growth in
revenues and margins, future revenue and margin trends cannot be reliably
predicted. Changes in such trends may cause the Company to adjust its operations
in the future. Because of the foregoing and other factors, recent trends should
not be considered reliable indicators of future financial results. In addition,
the highly leveraged nature of the Company may impair its ability to finance its
future operations and capital needs and its flexibility to respond to changing
business and economic conditions and business opportunities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 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 than the interest rate actually paid
for the three months ended March 31, 2000 and 1999, the Company's interest
expense, after considering the effects of its interest rate swap agreements,
would have increased, and income before income taxes would have decreased, by
$0.2 million and $0.4 million, respectively. 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.
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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 $0.4 million
and $0.3 million for the three months ended March 31, 2000 and 1999,
respectively. 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 could change the U.S. 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 15, 2000 accounting officer)
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