-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WETGidEAKsVscnQS1RPasE/yedoHVvHKCf7D0yv0MYoabgL+zxkfAC+qAczDLTT8 tq6VRKTs9uxuLNXuFDM/QQ== /in/edgar/work/20000811/0000913355-00-000142/0000913355-00-000142.txt : 20000921 0000913355-00-000142.hdr.sgml : 20000921 ACCESSION NUMBER: 0000913355-00-000142 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSCAN HOLDINGS INC CENTRAL INDEX KEY: 0001024729 STANDARD INDUSTRIAL CLASSIFICATION: [5110 ] IRS NUMBER: 133911462 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-45457 FILM NUMBER: 694985 BUSINESS ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 BUSINESS PHONE: 9143452020 MAIL ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 424B3 1 0001.txt SUPPLEMENT NO. 2 TO PROSPECTUS DATED 5/24/2000 AMSCAN HOLDINGS, INC. Filed pursuant to Rule 424 (b) (3) Registration No. 333-45457 Supplement No.2 to Prospectus dated May 24, 2000, as supplemented by Supplement No. 1 dated May 24, 2000 The date of this supplement No. 2 is August 11, 2000. On August 11, 2000, Amscan Holdings, Inc. filed the attached report on Form 10-Q. 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 June 30, 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 (I.R.S. Employer Identification incorporation 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 August 11, 2000, 1,132.54 shares of Registrants' Common Stock, par value $0.10, were outstanding. AMSCAN HOLDINGS, INC. FORM 10-Q June 30, 2000 Table of Contents Part I Page Item 1 Financial Statements (Unaudited) Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 .......................................... 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2000 and 1999 ................ 4 Consolidated Statement of Stockholders' Deficit for the Six Months Ended June 30, 2000 ..................... 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 ........................ 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 2 Changes in Securities and Use of Proceeds ..................... 16 Item 6 Exhibits and Reports on Form 8-K .............................. 16 Signature ................................................................. 17 2 AMSCAN HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, December 31, 2000 1999 ------------ ------------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents ................................................ $ 1,042 $ 849 Accounts receivable, net of allowances ................................... 55,753 56,896 Inventories, net of allowances ........................................... 65,507 59,193 Prepaid expenses and other current assets ................................ 11,813 11,802 --------- --------- Total current assets ............................................... 134,115 128,740 Property, plant and equipment, net .......................................... 61,467 61,709 Intangible assets, net ...................................................... 61,173 63,331 Other assets, net ........................................................... 10,059 9,707 --------- --------- Total assets ....................................................... $ 266,814 $ 263,487 ========= ========= LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT Current liabilities: Short-term obligations ................................................... $ 7,400 $ 4,688 Accounts payable ......................................................... 18,331 18,967 Accrued expenses ......................................................... 15,660 16,332 Income taxes payable ..................................................... 4,574 2,963 Current portion of long-term obligations ................................. 4,170 3,562 --------- --------- Total current liabilities .......................................... 50,135 46,512 Long-term obligations, excluding current portion ............................ 263,232 266,891 Deferred income tax liabilities ............................................. 12,586 12,001 Other ....................................................................... 2,620 3,030 --------- --------- Total liabilities .................................................. 328,573 328,434 Redeemable Common Stock ..................................................... 23,910 23,582 Stockholders' deficit: Common Stock ............................................................. -- -- Additional paid-in capital ............................................... 233 225 Unamortized restricted Common Stock award, net ........................... (379) (405) Notes receivable from stockholders ....................................... (534) (664) Deficit .................................................................. (82,968) (86,797) Accumulated other comprehensive loss ..................................... (2,021) (888) --------- --------- Total stockholders' deficit ........................................ (85,669) (88,529) --------- --------- Total liabilities, redeemable Common Stock and stockholders' deficit $ 266,814 $ 263,487 ========= =========
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 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net sales ................................ $ 78,758 $ 73,203 $ 156,135 $ 149,643 Cost of sales ............................ 50,560 47,131 97,676 95,251 --------- --------- --------- --------- Gross profit ....................... 28,198 26,072 58,459 54,392 Operating expenses: Selling expenses ...................... 7,040 5,743 14,056 11,697 General and administrative expenses.... 7,827 7,399 15,756 14,793 Provision for doubtful accounts ....... 3,906 709 4,373 7,121 Art and development costs ............. 2,090 2,355 4,100 4,571 --------- --------- --------- --------- Total operating expenses ........... 20,863 16,206 38,285 38,182 --------- --------- --------- --------- Income from operations ............. 7,335 9,866 20,174 16,210 Interest expense, net .................... 6,583 6,604 13,173 13,038 Other expense, net ....................... 4 43 73 65 --------- --------- --------- --------- Income before income taxes and minority interests ............... 748 3,219 6,928 3,107 Income tax expense ....................... 296 1,315 2,737 1,269 Minority interests ....................... 4 (25) 34 (6) --------- --------- --------- --------- Net income ......................... $ 448 $ 1,929 $ 4,157 $ 1,844 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 4 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT Six Months Ended June 30, 2000 (Dollars in thousands) (Unaudited)
Unamortized Restricted Notes Accumulated Additional Common Receivable Other Common Paid-in Stock Award, from Comprehensive Stock Capital Net Stockholders Deficit Loss Total -------- ---------- ------------ ------------ --------- ------------- ---------- Balance at December 31, 1999....... $ -- $ 225 $ (405) $ (664) $(86,797) $ (888) $(88,529) Net income ..................... 4,157 4,157 Net change in cumulative translation adjustment....... (1,133) (1,133) -------- Comprehensive income 3,024 Payments received on notes receivable and other......... 8 130 (328) (190) Amortization of restricted Common Stock award........... 26 26 -------- -------- -------- -------- -------- ------- -------- Balance at June 30, 2000........... $ -- $ 233 $ (379) $ (534) $(82,968) $(2,021) $(85,669) ======== ======== ======== ======== ======== ======= ========
See accompanying notes to consolidated financial statements. 5 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six Months Ended June 30, ------------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income ............................................................ $ 4,157 $ 1,844 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ...................................... 6,942 6,575 Amortization of deferred financing costs ........................... 436 435 Amortization of restricted Common Stock award ...................... 26 85 Provision for doubtful accounts .................................... 4,373 7,121 Deferred income tax (benefit) expense .............................. (476) 164 (Gain) loss on disposal of property and equipment .................. (1) 72 Changes in operating assets and liabilities: Increase in accounts receivable ................................ (3,584) (15,252) Increase in inventories ........................................ (6,314) (2,891) Decrease (increase) in prepaid expenses and other current assets 1,050 (597) Increase in accounts payable, accrued expenses and income taxes payable ......................................... 324 6,167 Other, net ......................................................... (806) (3,893) -------- -------- Net cash provided by (used in) operating activities ............. 6,127 (170) Cash flows from investing activities: Capital expenditures .................................................. (5,032) (6,234) Proceeds from sale of property and equipment .......................... 3 113 -------- -------- Net cash used in investing activities ........................... (5,029) (6,121) Cash flows from financing activities: Proceeds from short-term obligations .................................. 2,712 6,997 Repayment of loans, notes payable and long-term obligations ........... (3,051) (1,286) Other ................................................................. 117 19 -------- -------- Net cash (used in) provided by financing activities ............. (222) 5,730 Effect of exchange rate changes on cash and cash equivalents .............. (683) 210 -------- -------- Net increase (decrease) in cash and cash equivalents ............ 193 (351) Cash and cash equivalents at beginning of period .......................... 849 1,117 -------- -------- Cash and cash equivalents at end of period ................................ $ 1,042 $ 766 ======== ======== Supplemental Disclosures: Interest paid .............................................. $ 12,735 $ 11,946 Income taxes paid, net of refunds ...................... $ 866 $ 266
Supplemental information on noncash activities: There were no capital lease obligations incurred during the six months ended June 30, 2000. Capital lease obligations of $651 were incurred during the six months ended June 30, 1999. See accompanying notes to consolidated financial statements. 6 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 and six months ended June 30, 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 Amscan Holdings' 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):
June 30, December 31, 2000 1999 -------- ------------ Finished goods ........................................ $ 55,149 $ 50,278 Raw materials ......................................... 7,918 6,706 Work-in-process ....................................... 4,393 4,238 -------- -------- 67,460 61,222 Less: reserve for slow moving and obsolete inventory... (1,953) (2,029) -------- -------- $ 65,507 $ 59,193 ======== ========
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or market. 7 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) NOTE 4 - INCOME TAXES The consolidated income tax expense for the three and six months ended June 30, 2000 and 1999 was 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 (LOSS) INCOME Comprehensive (loss) income consisted of the following (dollars in thousands):
Three Months Ended Six Months Ended June 30, June 30, -------------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Net income ....................... $ 448 $ 1,929 $ 4,157 $ 1,844 Net change in cumulative translation adjustment ......... (955) 37 (1,133) 31 ------- ------- ------- ------- Comprehensive (loss) income ...... $ (507) $ 1,966 $ 3,024 $ 1,875 ======= ======= ======= =======
Accumulated other comprehensive loss at June 30, 2000 and December 31, 1999 consisted solely of the Company's cumulative translation adjustment. NOTE 6 - CAPITAL STOCK At June 30, 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 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The Company's geographic area data is as follows (dollars in thousands):
Domestic Foreign Eliminations Consolidated -------- ------- ------------ ------------ Three Months Ended June 30, 2000 Sales to unaffiliated customers .......... $ 68,635 $ 10,123 $ 78,758 Sales between geographic areas ........... 5,242 $ (5,242) -- --------- --------- --------- --------- Net sales ................................ $ 73,877 $ 10,123 $ (5,242) $ 78,758 ========= ========= ========= ========= Income from operations ................... $ 6,686 $ 649 $ 7,335 ========= ========= Interest expense, net .................... 6,583 Other expense, net ....................... 4 --------- Income before income taxes and minority interests ............................ $ 748 ========= Long-lived assets, net at June 30, 2000 .. $ 125,672 $ 7,027 $ 132,699 ========= ========= ========= Three Months Ended June 30, 1999 Sales to unaffiliated customers .......... $ 63,269 $ 9,934 $ 73,203 Sales between geographic areas ........... 5,630 $ (5,630) --------- --------- --------- --------- Net sales ................................ $ 68,899 $ 9,934 $ (5,630) $ 73,203 ========= ========= ========= ========= Income from operations ................... $ 10,096 $ (230) $ 9,866 ========= ========= Interest expense, net .................... 6,604 Other expense, net ....................... 43 --------- Income before income taxes and minority interests ............................ $ 3,219 ========= Long-lived assets, net at June 30, 1999 .. $ 129,250 $ 7,822 $ 137,072 ========= ========= ========= Six Months Ended June 30, 2000 Sales to unaffiliated customers .......... $ 135,294 $ 20,841 $ 156,135 Sales between geographic areas ........... 8,726 $ (8,726) -- --------- --------- --------- --------- Net sales ................................ $ 144,020 $ 20,841 $ (8,726) $ 156,135 ========= ========= ========= ========= Income from operations ................... $ 18,456 $ 1,718 $ 20,174 ========= ========= Interest expense, net .................... 13,173 Other expense, net ....................... 73 --------- Income before income taxes and minority interests ............................ $ 6,928 =========
9 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited)
Domestic Foreign Eliminations Consolidated -------- ------- ------------ ------------ Six Months Ended June 30, 1999 Sales to unaffiliated customers ....... $ 129,803 $ 19,840 $ 149,643 Sales between geographic areas ........ 10,126 471 $ (10,597) -- --------- --------- --------- --------- Net sales ............................. $ 139,929 $ 20,311 $ (10,597) $ 149,643 ========= ========= ========= ========= Income from operations ................ $ 16,135 $ 75 $ 16,210 ========= ========= Interest expense, net ................. 13,038 Other expense, net .................... 65 --------- Income before income taxes and minority interests ......................... $ 3,107 =========
NOTE 8 - PROVISION FOR DOUBTFUL ACCOUNTS During the second quarter of 2000, two of the Company's customers filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. On a combined basis, these two customers accounted for approximately 4.0% and 2.6% of the Company's consolidated net sales for the three and six months ended June 30, 2000, respectively, and at June 30, 2000, the combined accounts receivable balances due to the Company from these customers totaled $3.7 million. As a result, the Company charged $3.4 million to the provision for doubtful accounts during the second quarter of 2000. The Company does not believe the potential loss of these customers will have a material adverse effect on the Company's future results of operations or its financial condition. 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 reversed during the second half of 1999. Sales to Party City's corporate stores accounted for approximately 12.5% and 10.3% of the Company's consolidated net sales for the three and six months ended June 30, 2000, respectively. 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. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 RESULTS OF OPERATIONS PERCENTAGE OF NET SALES
Three Months Ended June 30, 2000 1999 ---- ---- Net sales ................................ 100.0% 100.0% Cost of sales ............................ 64.2 64.4 ----- ----- Gross profit ........................ 35.8 35.6 Operating expenses: Selling expenses ..................... 8.9 7.8 General and administrative expenses 9.9 10.1 Provision for doubtful accounts ...... 5.0 1.0 Art and development costs ............ 2.7 3.2 ----- ----- Total operating expenses ......... 26.5 22.1 ----- ----- Income from operations ........... 9.3 13.5 Interest expense, net .................... 8.3 9.0 Other expense, net ....................... -- 0.1 ----- ----- Income before income taxes and minority interests ....... 1.0 4.4 Income tax expense ....................... 0.4 1.8 Minority interests ....................... -- -- ----- ----- Net income ...................... 0.6% 2.6% ===== =====
Net sales of $78.8 million for the second quarter of 2000 were $5.6 million higher than net sales for the second quarter of 1999. The increase in net sales reflects increased sales of party goods and gift items to independent party goods and specialty stores, as well as increased sales of solid color tableware and gift items to superstores, partially offset by reduced sales of party goods to other distributors. Increased sales to independent party goods and specialty stores are attributable to a realignment of the Company's independent sales force begun in the first quarter of 1999. Gross profit for the second quarter of 2000 of 35.8% was comparable to that of the second quarter of 1999 as the incremental margin achieved as a result of increased sales was offset by a lower margin attributable to product mix. Selling expenses of $7.0 million for the three months ended June 30, 2000 were $1.3 million higher than those of the corresponding period in 1999 and increased to 8.9% of net sales from 7.8% of net sales. The increase in selling expenses reflects the continued development of a specialty sales force and increased marketing initiatives relating to new gift product lines. General and administrative expenses of $7.8 million increased by $0.4 million for the second quarter of 2000 as compared to the corresponding period in 1999, principally due to depreciation and amortization on new data processing equipment and increased expenses associated with the development of e-commerce business opportunities. As a percentage of net sales, general and administrative expenses were 9.9% for the three months ended June 30, 2000, versus 10.1% for the corresponding period of 1999. During the second quarter of 2000, two of the Company's customers filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. On a combined basis, these two customers accounted for approximately 4.0% of the Company's consolidated net sales for the three months ended June 30, 2000, and at June 11 30, 2000, the combined accounts receivable balances due to the Company from these customers totaled $3.7 million. As a result of the filings, the Company charged $3.4 million to the provision for doubtful accounts during the second quarter of 2000. The Company does not believe the potential loss of these customers will have a material adverse effect on the Company's future results of operations or its financial condition. Art and development costs of $2.1 million for the second quarter of 2000, decreased by $0.3 million compared to the corresponding period in 1999. The higher art and development costs for the second quarter of 1999 included certain start-up costs associated with the development of new product lines. As a percentage of net sales, art and development costs were 2.7% for the second quarter of 2000 as compared to 3.2% for the corresponding period of 1999. Interest expense of $6.6 million for the second quarter of 2000 was comparable to the corresponding period in 1999, and reflects a higher average interest rate on lower average borrowings as compared to 1999. Income taxes for the second 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. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 RESULTS OF OPERATIONS PERCENTAGE OF NET SALES
Six Months Ended June 30, 2000 1999 ---- ---- Net sales ................................ 100.0% 100.0% Cost of sales ............................ 62.6 63.7 ----- ----- Gross profit ........................ 37.4 36.3 Operating expenses: Selling expenses ...................... 9.0 7.8 General and administrative expenses ... 10.1 9.9 Provision for doubtful accounts ....... 2.8 4.8 Art and development costs ............. 2.6 3.0 ----- ----- Total operating expenses ........... 24.5 25.5 ----- ----- Income from operations ............. 12.9 10.8 Interest expense, net .................... 8.4 8.7 Other expense, net ....................... -- -- ----- ----- Income before income taxes and minority interests ........ 4.5 2.1 Income tax expense ....................... 1.8 0.9 Minority interests ....................... -- -- ----- ----- Net income ........................ 2.7% 1.2% ===== =====
Net sales of $156.1 million for the six months ended June 30, 2000 were $6.5 million higher than net sales for the corresponding period in 1999. The increase in net sales reflects increased sales of party goods and gift items to independent party goods and specialty stores, as well as increased sales of solid color tableware and gift items to superstores, partially offset by reduced sales of party goods to other distributors. Increased sales to independent party goods and specialty stores are attributable to a realignment of the Company's independent sales force begun in the first quarter of 1999. Gross profit for the six months ended June 30, 2000 was 37.4% and was 1.1% higher than the corresponding period in 1999 principally as a result of the realization of the full benefit from the closing of the Company's Canadian warehouse in March 1999. Additionally, the incremental margin achieved as a result of increased sales was offset by a lower margin attributable to product mix. 12 Selling expenses of $14.1 million for the six months ended June 30, 2000 were $2.4 million higher than those of the corresponding period in 1999 and increased to 9.0% of net sales from 7.8% of net sales. The increase in selling expenses reflects the continued development of a specialty sales force and increased marketing initiatives relating to new gift product lines. General and administrative expenses of $15.8 million increased by $1.0 million for the six months ended June 30, 2000 as compared to the corresponding period in 1999 principally due to depreciation and amortization on new data processing equipment and increased expenses associated with the development of e-commerce business opportunities. As a percentage of net sales, general and administrative expenses were 10.1% for the six months ended June 30, 2000, versus 9.9% for the corresponding period of 1999. During the second quarter of 2000, two of the Company's customers filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. On a combined basis, these two customers accounted for approximately 2.6% of the Company's consolidated net sales for the six months ended June 30, 2000, and at June 30, 2000, the combined accounts receivable balances due to the Company from these customers totaled $3.7 million. As a result of the filings, the Company charged $3.4 million to the provision for doubtful accounts during the second quarter of 2000. The Company does not believe the potential loss of these customers will have a material adverse effect on the Company's future results of operations or its financial condition. During the six months ended June 30, 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, the Company charged $6.0 million to the provision for doubtful accounts relating to the accounts receivable due from Party City. Reflecting Party City's improved financial condition, the provision was reversed during the second half of 1999. Art and development costs of $4.1 million for the six months ended June 30, 2000, decreased by $0.5 million compared to the corresponding period in 1999. The higher art and development costs for the six months ended June 30, 1999 included certain 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 3.0% for the corresponding period of 1999. Interest expense of $13.2 million for the six months ended June 30, 2000 increased by $0.1 million as compared to the corresponding period in 1999, principally as a result of a higher average interest rate, partially offset by the impact of lower average borrowings. Income taxes for the six months ended June 30, 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 At June 30, 2000, the Company had outstanding a senior term loan of $152.0 million (the "Term Loan") provided under a bank credit agreement (the "Bank Credit Facilities"), together with senior subordinated notes of $110.0 million (the "Notes") (collectively, the "Financings"). The Term Loan matures in December 2004 and provides for amortization (in quarterly installments) of one percent of the principal amount thereof per year for the first five years and 32.3% and 62.7% of the principal amount thereof in the sixth and seventh years, respectively. 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. At June 30, 2000, the floating interest rate on the Term Loan was 9.06%. The Notes bear interest at a rate of 9 7/8% per annum and mature in December 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 first quarter of 2000 as required based on its cash flows. 13 In addition to the Term Loan, the Bank Credit Facilities 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 June 30, 2000, the Company had borrowing capacity of approximately $37.3 million under the Revolving Credit Facility. At June 30, 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%. 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 Financings and 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 June 30, 2000, the Company did not have material commitments for capital expenditures. CASH FLOW DATA - SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 During the six months ended June 30, 2000, net cash provided by operating activities totaled $6.1 million, an increase of $6.3 million as compared to the corresponding period in 1999. Net cash flow provided by operating activities before changes in other operating assets and liabilities for the six months ended June 30, 2000 and 1999, was $15.5 million and $16.3 million, respectively. Net cash used as a result of changes in other operating assets and liabilities for the six months ended June 30, 2000 and 1999, was $9.4 million and $16.5 million, respectively. Net cash used in investing activities during the six months ended June 30, 2000 of $5.0 million decreased by $1.1 million from the same period in 1999 primarily due to the investment in new data processing equipment during 1999. During the six months ended June 30, 2000, net cash used in financing activities was $0.2 million and primarily consisted of the repayment of a portion of the Term Loan, including the $1.3 million prepayment noted above, and repayment of other long-term obligations, partially offset by the proceeds from short-term working capital borrowings. During the comparable period in 1999, net cash provided by financing activities of $5.7 million principally consisted of the proceeds from short-term working capital borrowings, partially offset by the scheduled maturity of the Term Loan and the repayment of other long-term obligations. 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. 14 RECENTLY ISSUED ACCOUNTING STANDARDS Pronouncements issued by the Financial Accounting Standards Board 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 June 30, 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. If market interest rates for the Company's variable rate indebtedness averaged 2% more than the interest rate actually paid for the six months ended June 30, 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 $0.4 million and $0.8 million, respectively. These amounts are 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 15 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 and $0.2 million for the three months ended June 30, 2000 and 1999, respectively. 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 $0.7 million and $0.5 million for the six months ended June 30, 2000 and 1999, respectively. These calculations assume that each exchange rates 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS a) Not applicable. b) Not applicable. c) In April 2000, the Company issued 0.132 shares of Common Stock to a former employee upon exercise of a stock option for $8,000 in cash. No underwriting discounts or commissions were paid in connection with such sale. This share was part of an offering to a limited number of accredited investors and employees of the Company. Such sale was exempt under Section 4 (2) of the Securities Act of 1933. d) Not applicable. 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. 16 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 Date: August 11, 2000 and as principal accounting --------------- officer) 17 -----END PRIVACY-ENHANCED MESSAGE-----