Acquisitions and Transactions

12 Months Ended

Dec. 31, 2011

Acquisitions and Transactions [Abstract]

Acquisitions and Transactions

Note 5 — Acquisitions and Transactions

Wholesale Acquisitions

On January 30, 2011, the Company acquired all of the common stock of Riethmüller for $47,069 in cash, in a transaction accounted for as a purchase business combination. Riethmüller is a German distributor of party goods and carnival items with latex balloon manufacturing operations in Malaysia and the ability to manufacture certain party goods in Poland. The results of this newly acquired business are included in the consolidated financial statements since the January 30, 2011 acquisition date and are reported in the operating results of the Company’s Wholesale segment. During 2011, the Company recorded total revenues of $55,479 and net income of $3,037 related to this business.

The following summarizes the fair value of the major classes of assets acquired and liabilities assumed: accounts receivable of $12,519, inventory of $14,033, fixed assets of $14,175, accounts payable of $6,020 and accrued expenses of $9,206. Additionally, the Company recorded $2,607 of amortizable intangible assets, $304 of trade names and $17,816 of goodwill. The allocation of the purchase price is based on our estimate of the fair values of the assets acquired and liabilities assumed. Goodwill arises because the purchase price reflects the strategic fit and expected synergies this business will bring to the Company’s operations. The acquisition expands the Company’s vertical business model into the latex balloon category, allowing the Company to capture the manufacturing and wholesale margin on such sales, and gives the Company an additional significant presence in Germany, Poland and Malaysia. The Company elected to treat the German entities acquired as foreign branches for U.S. tax purposes. As a result, the entire excess of the purchase price over the fair value of the tangible assets and liabilities acquired is deductible for U.S. tax purposes over 15 years. In conjunction with the acquisition, the Company incurred certain restructuring costs. See Note 12 for further detail.

On September 30, 2010, the Company acquired Christy’s By Design Limited and three affiliated companies (the “Christy’s Group”) from Christy Holdings Limited, a United Kingdom (“U.K.”) based company. The Christy’s Group designs and distributes costumes and other garments and accessories through its operations in Asia and the U.K. The fair value of the total consideration paid for the Christy’s Group was $34,342, including $3,974 paid during the year ended December 31, 2011. The results of this acquired business are included in the consolidated financial statements since the September 30, 2010 acquisition date and are reported in the operating results of the Company’s Wholesale segment.

The excess of the purchase price over the fair value of the net assets acquired was assigned to goodwill. The following summarizes the fair value of the assets acquired and liabilities assumed: accounts receivable of $17,159, inventory of $457, trade names of $2,629, fixed assets of $582, other assets of $248 and accounts payable and accrued expenses of $14,514. The remaining $27,781 has been recorded as goodwill. The allocation of the purchase price is based on the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill arises because the purchase price reflects the strategic fit and expected synergies this business will bring to the Company’s operations. The Christy’s Group acquisition provided the Company the opportunity to manufacture Halloween costumes for sale to its U.S. retail segment, allowing the Company to capture the manufacturing and wholesale margins on such sales. The acquisition also allowed the Company to leverage its existing U.K. distribution capacity to expand the Christy’s Group business in Europe. The Company elected to treat the U.K. entities acquired as foreign branches for U.S. tax purposes. As a result, the entire excess of the purchase price over the fair value of the tangible assets and liabilities acquired is deductible for U.S. tax purposes over 15 years.

On December 21, 2009, the Company entered into an Asset Purchase Agreement with American Greetings Corporation (“American Greetings”) under which it acquired certain assets, equipment and processes used in the manufacture and distribution of party goods effective on March 1, 2010 (the “Designware Acquisition”). In connection with the Designware Acquisition, the companies also entered into a Supply and Distribution Agreement and a Licensing Agreement (collectively, the “Agreements”). Under the terms of the Agreements, the Company has exclusive rights to manufacture and distribute products into various channels, including the party store channel. American Greetings will continue to distribute party goods to various channels including to its mass market, drug, grocery, and specialty retail customers. American Greetings will purchase substantially all of its party goods requirements from the Company and the Company will license from American Greetings the “Designware” brand and other character licenses. The results of this business are included in the consolidated financial statements since the March 1, 2010 acquisition date and are reported in the operating results of the Company’s Wholesale segment.

The acquisition-date fair value of the total consideration transferred was $45,881, including cash of $24,881 and a warrant to purchase approximately 2% of the common stock of PCHI, valued at $21,000. The fair value of the warrant was determined based on the agreement between the parties. The warrant was exercised in February 2011.

The Designware Acquisition has been accounted for as a purchase business combination. The excess of the purchase price over the fair value of the net assets acquired was assigned to goodwill. The following summarizes the estimated fair value of the assets acquired: inventory of $4,000, fixed assets of $3,445 and intangible license rights of $10,973, which are being amortized over the remaining license periods, averaging 2.5 years. The remaining $27,463 represents goodwill. Goodwill arises because the purchase price reflects the strategic fit and expected synergies this business will bring to the Company’s operations. The entire excess of the purchase price over the fair value of the tangible assets acquired is deductible for tax purposes over 15 years.

Retail Acquisitions

On July 29, 2011, the Company acquired all of the common stock of Party Packagers for $31,783 in cash in a transaction accounted for as a purchase business combination. Party Packagers is a Canadian retailer of party goods and outdoor toys. The results of this newly acquired business are included in the consolidated financial statements since the July 29, 2011 acquisition date and are reported in the operating results of the Company’s Retail segment. During 2011, the Company recorded total revenues of $30,851 and net income of $1,435 related to this business.

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

During 2011, the Company acquired three franchisee stores located in California, one store located in Iowa and four stores located in Texas for total consideration of $12,798 in cash. The fair value of the assets acquired were $1,805 of inventory and $680 of fixed assets. The remaining $10,313 has been recorded as goodwill.

During 2010, the Company acquired 20 franchisee stores located throughout several states for total consideration of $24,300. Total consideration consisted of $21,500 in cash and the exchange of five corporate stores located in Pennsylvania. Excluding the assets exchanged of $2,800, the fair value of the assets and liabilities acquired for cash were $2,500 of inventory and $1,600 of fixed assets. The remaining $17,400 has been recorded as goodwill.

Goodwill arises from the acquisition of franchisee and independent stores because the purchase price reflects the value of the geographic location of each acquired store, as well as their maturity and historical profitability. The entire excess of the purchase price over the fair value of the net assets acquired is deductible for tax purposes over 15 years.

Supplemental Pro Forma Information

The table below presents unaudited pro forma financial information in connection with the acquisitions of Party Packagers and Riethmüller as if the acquisitions had occurred on January 1, 2010. The unaudited pro forma information, is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisitions had been completed on January 1, 2010. The unaudited pro forma information reflects pro forma adjustments which are based upon currently available information and certain estimates and assumptions. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma financial information. The pro forma adjustments include the shifting of $2,147 of acquisition costs from the year ended December 31, 2011 to the year ended December 31, 2010. The information does not necessarily indicate the future operating results of the Company.

	Year Ended December 31, 2011		Year Ended December 31, 2010
Total Revenues	$	1,893,403	$	1,696,671
Net Income		76,717		46,346

Goodwill Changes by Reporting Segment

For the years ended December 31, 2011 and 2010, goodwill changes, by reporting segment, were as follows:

	2011			2010
Wholesale segment:
Beginning balance	$	336,044		$	283,612
American Greetings acquisition		—			27,463
Christy’s acquisition		2,472			25,309
Riethmüller acquisition		17,816			—
Foreign currency impact		(1,115	)		(340	)
Ending balance		355,217			336,044
Retail segment:
Beginning balance		294,448			275,649
Halloween City earnout		—			1,399
Party Packagers acquisition		23,660			—
Franchisee acquisitions		10,313			17,400
Foreign currency impact		(1,878	)		—
Ending balance		326,543			294,448
Total ending balance, both segments	$	681,760		$	630,492