##### Table of Contents





As filed with the Securities and Exchange
    Commission on July 6, 2011.
 
 Registration No. 333-173690
    UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
 
 Amendment No. 2
 
  Form S-1
 REGISTRATION
    STATEMENT
 UNDER
 THE SECURITIES ACT OF
    1933
 Party City Holdings
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

5900

20-1033029(State or other jurisdiction
    of
    incorporation or organization)

(Primary Standard IndustrialClassification Code Number)(914) 345-2020

(I.R.S. Employer
    Identification No.)  80 Grasslands Road, Elmsford, NY 10523
 (Address, including zip code,
    and telephone number, including area code, of registrants
    principal executive offices)
  Gerald C. Rittenberg
 Chief Executive Officer
 80 Grasslands Road
 Elmsford, NY 10523
 (914) 345-2020
 (Name, address, including zip
    code, and telephone number, including area code, of agent for
    service)
  Copies to:
  Keith F. Higgins, Esq.
    Jane D. Goldstein, Esq.
    Andrew J. Terry, Esq.
    Ropes & Gray LLP
    Prudential Tower, 800 Boylston Street
    Boston, MA
    02199-3600
    Telephone
    (617) 951-7000
    Fax
    (617) 951-7050

Marc D. Jaffe, Esq.
    Latham & Watkins LLP
    885 Third Avenue
    New York, NY 10022-4834
    Telephone (212) 906-1200
    Fax (212) 751-4864   Approximate date of commencement of proposed sale to
    public:
  o
  o
  o
  o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   The Registrant hereby amends this Registration Statement on
    such date or dates as may be necessary to delay its effective
    date until the Registrant shall file a further amendment which
    specifically states that this Registration Statement shall
    thereafter become effective in accordance with Section 8(a)
    of the Securities Act of 1933, as amended, or until the
    Registration Statement shall become effective on such date as
    the Securities and Exchange Commission, acting pursuant to said
    Section 8(a), may determine.




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##### Table of Contents



The
information in this preliminary prospectus is not complete and
may be changed. Neither we nor the selling stockholders may sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.


Subject
    to Completion. Dated July 6, 2011
 
  Party City Holdings
    Inc.
  Shares
  LOGO

LOGO  Common Stock
        See Risk Factors on page 11 to read about
    factors you should consider before buying shares of the common
    stock.
    Neither the Securities and Exchange Commission nor any other
    regulatory body has approved or disapproved of these securities
    or passed upon the accuracy or adequacy of this prospectus. Any
    representation to the contrary is a criminal offense.
    Per Share

TotalInitial public offering price

$



$Underwriting discount

$



$Proceeds before expenses to Party City Holdings

$



$Proceeds before expenses to the selling stockholders

$



$           Goldman, Sachs & Co.

BofA Merrill LynchBarclays Capital

Deutsche Bank Securities     Credit Suisse

Morgan Stanley

Wells Fargo Securities   Baird

William Blair & Company

RBC Capital Markets

Stifel Nicolaus Weisel




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##### 



TABLE OF
    CONTENTS
   
 
 Market, Ranking and Other Industry Data


iiProspectus Summary


1Risk Factors


11Special Note Regarding Forward-Looking
    Statements


24Use of Proceeds


25Dividend Policy


26Capitalization


27Dilution


28Unaudited Pro Forma Consolidated Financial
    Data


29Selected Consolidated Financial Data


35Managements Discussion and Analysis of
    Financial Condition and Results of Operations


38Business


64Management


83Executive Compensation


88Principal and Selling Stockholders


101Certain Relationships and Related Party
    Transactions


105Description of Capital Stock


107Description of Certain Debt


111Shares Eligible For Future Sale


117Material U.S. Federal Income Tax Considerations
    For Non-U.S.
    Holders of Common Stock


119Underwriting (Conflicts of Interest)


123Validity of Common Stock


129Experts


129Where You Can Find Additional Information


129Index to Consolidated Financial Statements of
    Party City Holdings Inc. and Subsidiaries


F-1EX-4.1EX-10.4EX-10.5EX-10.14EX-23.1  
     Through and
    including          ,
    2011 (the 25th day after the date of this prospectus), all
    dealers effecting transactions in these securities, whether or
    not participating in this offering, may be required to deliver a
    prospectus. This is in addition to a dealers obligation to
    deliver a prospectus when acting as an underwriter and with
    respect to an unsold allotment or subscription.




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##### Table of Contents



MARKET,
    RANKING AND OTHER INDUSTRY DATA   ii




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PROSPECTUS
    SUMMARY  This summary highlights information contained elsewhere in
    this prospectus. This summary may not contain all of the
    information that is important to you in considering an
    investment in our common stock. You should read this entire
    prospectus carefully, especially the Risk Factors
    section of this prospectus and our consolidated financial
    statements and related notes appearing at the end of this
    prospectus, before making an investment decision.
 
  When we use the terms we, us,
    our or the Company, we mean Party City
    Holdings Inc., a Delaware corporation, formerly known as
    AAH Holdings Corporation, and its consolidated
    subsidiaries, including Amscan Holdings, Inc. (Amscan
    Holdings or Amscan), taken as a whole, unless
    the context otherwise indicates.
 
  Our
    Company
 
  manufacturing-to-retail
 
    e-commerce
 1




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##### Table of Contents



Evolution
    of Our Business
    
    Enhancing our wholesale platform through targeted acquisitions
    that added key product capabilities while investing in
    state-of-the-art
    distribution facilities and developing a strong Asian-based
    sourcing and sales organization.
    Establishing retail leadership in our industry and our
    vertically integrated model through the acquisitions of Party
    City, Party America Corporation (Party America) and
    Factory Card and Party Outlet (FCPO). Following
    each acquisition, we capitalized on our vertically integrated
    model by increasing the percentage of Amscan products sold at
    our retail stores, allowing us to capture the
    manufacturing-to-retail
    margin on a growing portion of our retail sales.
    Re-launching our
    e-commerce
    platform in 2009 provided us with an additional
    direct-to-consumer
    channel.
    Broadening our product offering and channel reach by acquiring
    valuable character licenses and costume capabilities in addition
    to improving our access to grocery and mass merchant retailers.
    Growing our international presence by building relationships
    with local retailers to develop party supply store-in-store
    concepts as well as targeted acquisitions that extended our
    geographic reach.    Competitive
    Strengths
    Leading Market Position with Industry Defining
    Brands.
  Unique Vertically Integrated Operating
    Model. manufacturing-to-retail
  Broad and Innovative Product Offering.
  Category Defining Retail Concept.
 2




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Highly Efficient Global Sourcing and Distribution
    Capabilities. state-of-the-art best-in-class
 
  World-Class Management Team with a Proven Track
    Record.
 
    Growth
    Strategy
    Growing Market Share and Earnings.
  Expand Our Retail Store Base. cash-on-cash
  Drive Additional Growth and Productivity From Existing Retail
    Stores.
  Increase International Presence.
 
  Grow Our E-commerce Platform. e-commerce direct-to-consumer e-commerce
 3




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##### Table of Contents



Pursue Accretive Acquisitions.
  Industry
    Overview
   
  Recent
    Developments
 
 
   
 
  
    Consolidated revenue will be between
    $      million and
    $      million, compared to
    $357.2 million for the quarter ended June 30, 2010; 
 
  
    Party City same-store sales will increase
    between     %
    and     % as compared to the quarter
    ended June 30, 2010; 
 
  
    Consolidated operating income will be between
    $      million and
    $      million, compared to
    $35.4 million for the quarter ended June 30,
    2010; and 
 
  
    Total debt outstanding, the balance outstanding under our
    secured revolving credit facility and cash on hand were
    $     , $     
    and $     , respectively. 
 
   
  Risks
    That We Face
    
    we operate in a competitive industry, and our failure to compete
    effectively could cause us to lose our market share, revenues
    and growth prospects;
    our business may be adversely affected by fluctuations in
    commodity prices;
    our failure to appropriately respond to changing merchandise
    trends and consumer preferences could significantly harm our
    customer relationships and financial performance;
    we may not be able to successfully implement our store growth
    strategy;
 4




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
    a decrease in our Halloween sales could have a material adverse
    effect on our operating results for the year;
    our substantial indebtedness and lease obligations could
    adversely affect our financial flexibility and our competitive
    position; and 
  
    investment funds affiliated with Advent International
    Corporation (Advent), Berkshire Partners LLC
    (Berkshire Partners) and Weston Presidio (together
    with Advent and Berkshire Partners, the Sponsors)
    will have the ability to control the outcome of matters
    submitted for stockholder approval and may have interests that
    differ from those of our other stockholders. Our third amended
    and restated certificate of incorporation (the third
    amended and restated certificate of incorporation)
    provides that we renounce any interest or expectancy in, or in
    being offered an opportunity to participate in, any business
    opportunity that may from time to time be presented to our
    directors who are not our employees or employees of our
    subsidiaries and the Sponsors or any of their officers,
    directors, agents, stockholders, members, partners, affiliates
    and subsidiaries (other than us and our subsidiaries). In
    addition, our third amended and restated certificate of
    incorporation includes a provision that relieves these directors
    and the Sponsors representatives from any breach of
    fiduciary duty to us if these investment funds pursue for their
    benefit opportunities such as acquisitions that might otherwise
    be appropriate for us. 
  The
    Sponsors
 
   
  Corporate
    Information
  (914) 345-2020.
  ® ® ® ® ® ® ®
 5




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THE
    OFFERING
  Common stock offered by us
    
    sharesCommon stock to be offered by selling stockholders
    
    sharesCommon stock to be outstanding after this offering
    
    sharesOption to purchase additional shares offered to underwriters
    
    We, along with some of our stockholders, have granted the
    underwriters an option to purchase up
    to          
    additional shares. If this option is exercised in full, we will
    issue and
    sell          
    shares and the selling stockholders will
    sell          
    shares.Use of proceeds
    
    Assuming an initial public offering price of
    $      , which is the midpoint of the
    range listed on the cover page of this prospectus, we estimate
    that the net proceeds to us from this offering will be
    approximately $      million. We
    intend to use the net proceeds from this offering to repay
    indebtedness, to terminate the management agreement with the
    Sponsors and for working capital and other general corporate
    purposes. See Use of Proceeds.We will not receive any proceeds from the shares sold by the
    selling stockholders. 
  Risk factors
    
    You should read the Risk Factors section of this
    prospectus beginning on page 11 for a discussion of factors
    to consider carefully before deciding whether to purchase shares
    of our common stock. 
  Conflicts of interest
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated and
    certain of its affiliates act as Joint Bookrunner, Joint Lead
    Arranger, Syndication Agent, Issuing Bank and Lender under our
    new senior secured asset-based revolving credit facility;
    certain affiliates of Wells Fargo Securities, LLC act as
    Administrative Agent, Collateral Agent, Joint Bookrunner, Joint
    Lead Arranger, Swingline Lender and Lender under our new senior
    secured asset-based revolving credit facility; and an affiliate
    of Credit Suisse Securities (USA) LLC is a Lender under our new
    senior secured asset-based revolving credit facility. Because of
    these relationships and the manner in which the proceeds of this
    offering may be used, Merrill Lynch, Pierce, Fenner &
    Smith Incorporated, Wells Fargo Securities, LLC and Credit
    Suisse Securities (USA) LLC may receive proceeds from this
    offering in addition to their underwriting compensation. None of
    Merrill Lynch, Pierce, Fenner & Smith Incorporated,
    Wells Fargo Securities, LLC, or Credit Suisse Securities (USA)
    LLC will receive 5% or more of the net proceeds from this
    offering. See Underwriting  Conflicts of
    Interest.Proposed New York Stock Exchange symbol
    
    PRTY 
   
 
  
    3,798.27 shares of Class A common stock issuable upon
    the exercise of stock options issued under our 2004 Equity
    Incentive Plan with a weighted average exercise price of
    $17,052.00 per share; 
  
    additional
    shares of Class A common stock reserved for future issuance
    under our 2004 Equity Incentive Plan; and
 6




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
    additional
    shares of common stock reserved for future issuance under our
    2011 Equity Incentive Plan.    
    A          
    -for-one stock split on our Class A common stock and
    Class B common stock effected as a stock dividend
    on     , 2011;
    The conversion of all outstanding shares of our Class B common
    stock into shares of our Class A common stock on a
    one-for-one
    basis, which will occur automatically upon the closing of this
    offering pursuant to our current certificate of incorporation
    (the existing certificate of incorporation), and
    renaming the Class A common stock as Common
    Stock, which will occur upon the filing of our third
    amended and restated certificate of incorporation upon the
    closing of this offering (the Common Stock
    Conversion);
    The adoption of our third amended and restated certificate of
    incorporation and our amended and restated bylaws
    (bylaws), to be effective upon the closing of this
    offering; and
    No exercise by the underwriters of their option to purchase up
    to          
    additional shares of our common stock from us and the selling
    stockholders in this offering.
 7




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SUMMARY
    FINANCIAL DATA
    Pro Forma,As Adjusted(1)ThreeFiscal Year


MonthsFiscal Year Ended


Three Months Ended


Ended


EndedDecember 31,


March 31,


December 31,


March 31,2008


2009


2010


2010


2011


2010


2011(dollars in thousands, except per share data)Income Statement Data:Revenues:Net sales

$
1,537,641


$
1,467,324


$
1,579,677


$
304,379


$
352,501Royalties and franchise fees


22,020



19,494



19,417



3,844



3,681Total revenues


1,559,661



1,486,818



1,599,094



308,223



356,182Cost of sales


966,426



899,041



943,058



199,900



225,014Operating expenses


479,317



445,904



528,600



100,035



114,560Income from operations


113,918



141,873



127,436



8,288



16,608Interest expense, net


50,915



41,481



40,850



9,301



20,368Other (income) expense, net


(818
)


(32
)


4,208



(69
)


62Income (loss) before income taxes


63,821



100,424



82,378



(944
)


(3,822
)Income tax (benefit) expense


24,188



37,673



32,945



(575
)


(1,330
)Net income (loss)


39,633



62,751



49,433



(369
)


(2,492
)Less: net (loss) income attributable to noncontrolling interests


(877
)


198



114



43



71Net income (loss) attributable to Party City Holdings Inc.

$
40,510


$
62,553


$
49,319


$
(412
)

$
(2,563
)Per Share Data:Net income (loss) per shareBasicDilutedPro forma basic(2)Pro forma diluted(2)Weighted AverageOutstanding basicDilutedPro forma outstanding basic(2)Pro forma diluted(2)Statement of Cash Flow Data:Net cash provided by (used in):Operating activities

$
79,929


$
123,942


$
61,168


$
(17,541
)

$
(12,907
)Investing activities


(51,199
)


(54,358
)


(102,766
)


(10,455
)


(67,396
)Financing activities


(23,033
)


(70,157
)


46,515



30,432



75,340Other Financial Data:Net revenues by segment:Wholesale (after intercompany eliminations)

$
438,505


$
411,359


$
470,892


$
105,923


$
132,395Retail


1,121,156



1,075,459



1,128,202



202,300



223,787Consolidated


1,559,661



1,486,818



1,599,094



308,223



356,182
 8




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##### Table of Contents



Pro Forma,As Adjusted(1)ThreeFiscal Year


MonthsFiscal Year Ended


Three Months Ended


Ended


EndedDecember 31,


March 31,


December 31,


March 31,2008


2009


2010


2010


2011


2010


2011(dollars in thousands, except per share data)EBITDA(3)


162,014



186,287



172,646



19,931



29,795Adjusted EBITDA(3)


186,040



190,479



226,114



22,787



31,004Number of company-owned and franchised retail stores (at end of
    period)(4)


916



851



828



825



814Number of Party City superstores


385



382



439



383



457Party City comparable store sales growth(5)


0.5
%


(3.3
)%


1.4
%


0.6
%


4.5
%Capital expenditures including assets under capital leases
    (excluding acquisitions)


53,701



26,254



50,242



6,924



10,977Working capital (excluding cash)


63,846



146,823



169,539



156,470



150,052Ratio of debt to Adjusted EBITDA(3)


3.9x



3.4x



4.4x



3.6x



4.6xBalance Sheet Data (at period end):Cash and cash equivalents

$
13,058


$
15,420


$
20,454


$
17,054


$
18,221Working capital


76,904



162,243



189,993



173,524



168,273Total assets


1,507,977



1,480,501



1,653,151



1,503,152



1,709,328Total debt


721,635



651,433



1,000,256



681,865



1,075,783Total equity


412,117



479,122



256,422



499,898



258,451  
   
  (1)
    
    The pro forma as adjusted income statement and other financial
    data for the fiscal year ended December 31, 2010 and the
    three months ended March 31, 2011 gives effect to:
    (i) this offering and the use of proceeds therefrom; and
    (ii) the refinancing of Amscan Holdings revolving and
    term debt credit facilities in 2010, assuming in each case such
    event occurred on January 1, 2010. The pro forma as
    adjusted balance sheet data at March 31, 2011 gives effect
    to this offering and the use of proceeds therefrom, assuming
    such events occurred on March 31, 2011. The pro forma as
    adjusted financial data do not necessarily represent what our
    financial position and results of operations would have been if
    the transactions had actually been completed on the dates
    indicated, and are not intended to project our financial
    position or results of operations for any future period. See
    Use of Proceeds and Unaudited Pro Forma
    Consolidated Financial Data. 
  (2)
    
    The pro forma earnings per share calculations give effect to the
    issuance and sale of a number of shares the proceeds of which
    would be used to pay the amount of the 2010 cash dividend that
    exceeded our 2010 earnings.(3)
    
    We present Adjusted EBITDA as a supplemental measure of our
    performance. We define Adjusted EBITDA, per the terms of the
    credit agreement for our revolving and term debt, as net income
    (loss) plus (i) interest expense, (ii) provision for
    taxes and (iii) depreciation and amortization, as further
    adjusted to eliminate the impact of certain items that we do not
    consider indicative of our ongoing operating performance. These
    further adjustments are itemized below. You are encouraged to
    evaluate these adjustments and the reasons we consider them
    appropriate for supplemental analysis. In evaluating Adjusted
    EBITDA, you should be aware that in the future we may incur
    expenses that are the same as or similar to some of the
    adjustments in this presentation. Our presentation of Adjusted
    EBITDA should not be construed as an inference that our future
    results will be unaffected by unusual or non-recurring items.
    The reconciliation from net income to EBITDA and Adjusted EBITDA
    for the periods presented is as follows:
 9




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##### Table of Contents



Fiscal Year Ended


Three Months EndedDecember 31,


March 31,2008


2009


2010


2010


2011(dollars in thousands)Net Income (Loss)

$
39,633


$
62,751


$
49,433


$
(369
)

$
(2,492
)Interest expense, net


50,915



41,481



40,850



9,301



20,368Income tax


24,188



37,673



32,945



(575
)


(1,330
)Depreciation and amortization


47,278



44,382



49,418



11,574



13,249EBITDA


162,014



186,287



172,646



19,931



29,795Equity based compensation and other charges


4,546



882



6,019



94



149Non-cash purchase accounting adjustments


2,329



(344
)


2,533



1,447



115Management fee


1,248



1,248



1,248



312



312Gain from joint venture


(538
)


(632
)


(678
)


(288
)


(316
)Impairment charges


17,376
(a)






27,997
(a)






Restructuring, retention and severance






2,670



1,780







Payment in lieu of dividend










9,395
(b)


960



174Refinancing charges










2,448







Acquisition related expenses






270



1,660



5



892Other


(935
)


98



1,066



326



(117
)Adjusted EBITDA

$
186,040


$
190,479


$
226,114


$
22,787


$
31,004    (a)
    
    During 2008 and 2010, we implemented plans to convert and
    rebrand our company-owned and franchised Party America stores
    and our FCPO stores to Party City stores, respectively. As a
    result, we recorded charges for the impairment of the Party
    America trade name and the FCPO trade name of $17.4 million
    and $27.4 million in the fourth quarters of 2008 and 2010,
    respectively.(b)
    
    Represents payment to holders of vested time-based options in
    connection with a one-time cash dividend paid in 2010. This
    payment is included as stock-based compensation expense in
    general and administrative expenses in 2010.      
    Adjusted EBITDA does not reflect our cash expenditures, or
    future requirements, for capital expenditures or contractual
    commitments;
    Adjusted EBITDA does not reflect changes in, or cash
    requirements for, our working capital needs;
    Adjusted EBITDA does not reflect the significant interest
    expense, or the cash requirements necessary to service interest
    or principal payments, on our indebtedness;
    although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be
    replaced in the future, and Adjusted EBITDA does not reflect any
    cash requirements for such replacements;
    non-cash compensation is and will remain a key element of our
    overall long-term incentive compensation package, although we
    exclude it as an expense when evaluating our ongoing operating
    performance for a particular period;
    Adjusted EBITDA does not reflect the impact of certain cash
    charges resulting from matters we consider not to be indicative
    of our ongoing operations; and
    other companies in our industry may calculate Adjusted EBITDA
    differently than we do, limiting its usefulness as a comparative
    measure.    (4)
    
    Excludes temporary locations under our Halloween City banner and
    includes Party City superstores.(5)
    
    Party City comparable store sales exclude FCPO store
    conversions, as presented here.
 10




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##### Table of Contents



RISK
    FACTORS  Investing in our common stock involves a certain degree of
    risk. You should carefully consider the following risk factors,
    as well as the other information in this prospectus, before
    deciding to invest in our common stock. The occurrence of any of
    the following risks could harm our business, financial
    condition, results of operations or prospects. In that case, the
    trading price of our common stock could decline, and you may
    lose all or part of your investment. Certain statements in
    Risk Factors are forward-looking
    statements. See Special Note Regarding
    Forward-Looking Statements elsewhere in this
    prospectus.
  Risks
    Related to Our Business
  We
    operate in a competitive industry, and our failure to compete
    effectively could cause us to lose our market share, revenues
    and growth prospects.
        Our
    business may be adversely affected by fluctuations in commodity
    prices.
      Our
    failure to appropriately respond to changing merchandise trends
    and consumer preferences could significantly harm our customer
    relationships and financial performance.
   11




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##### Table of Contents



We may
    not be able to successfully implement our store growth
    strategy.
      
    identify suitable store locations, including temporary lease
    space for our Halloween City locations, the availability of
    which is largely outside of our control;
    negotiate and secure acceptable lease terms, desired tenant
    allowances and assurances from operators and developers that
    they can complete the project, which depend in part on the
    financial resources of the operators and developers;
    obtain or maintain adequate capital resources on acceptable
    terms, including the availability of cash for rent outlays under
    new leases;
    manufacture and source sufficient levels of inventory at
    acceptable costs;
    hire, train and retain an expanded workforce of store managers
    and other personnel;
    successfully integrate new stores into our existing control
    structure and operations, including information system
    integration;
    maintain adequate manufacturing and distribution facilities,
    information system and other operational system capabilities;
    identify and satisfy the merchandise and other preferences of
    our customers in new geographic areas and markets; and
    address competitive, merchandising, marketing, distribution and
    other challenges encountered in connection with expansion into
    new geographic areas and markets, including geographic
    restrictions on the opening of new stores based on certain
    agreements with our franchisees and other business partners.   12




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##### Table of Contents



A
    decrease in our Halloween sales could have a material adverse
    effect on our operating results for the year.
  e-commerce
  Disruption
    to the transportation system or increases in transportation
    costs may negatively affect our operating results.
    Product
    recalls and/or product liability may adversely impact our
    business, merchandise offerings, reputation, results of
    operations, cash flow and financial performance.
    Our
    business is sensitive to consumer spending and general economic
    conditions, and an economic slowdown could adversely affect our
    financial performance.
   13




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##### Table of Contents



Our
    business may be adversely affected by the loss or actions of our
    third-party vendors, and the loss of the right to use licensed
    material could harm our business and our results of
    operations.
      Because
    we rely heavily on our own manufacturing operations, disruptions
    at our manufacturing facilities could adversely affect our
    business, results of operations, cash flows and financial
    performance.
    Our
    business and results of operations may be harmed if our
    suppliers or third-party manufacturers fail to follow acceptable
    labor practices or to comply with other applicable laws and
    guidelines.
   14




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Our
    international operations subject us to additional risks, which
    risks and costs may differ in each country in which we do
    business and may cause our profitability to
    decline.
    
    recessionary or expansive trends in international markets;
    changes in foreign currency exchange rates, principally
    fluctuations in the Euro, British pound sterling, Mexican peso,
    Canadian dollar and Chinese renminbi;
    hyperinflation or deflation in the foreign countries in which we
    operate;
    work stoppages or other employee rights issues;
    the imposition of restrictions on currency conversion or the
    transfer of funds;
    transportation delays and interruptions;
    increases in the taxes we pay and other changes in applicable
    tax laws;
    legal and regulatory changes and the burdens and costs of our
    compliance with a variety of laws, including trade restrictions
    and tariffs; and
    political and economic instability.  We may
    face risks associated with litigation and claims.
    We may
    require additional capital to fund our business, which may not
    be available to us on satisfactory terms or at
    all.
 
   
 15




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Our
    success depends on key personnel whom we may not be able to
    retain or hire.
        We are
    subject to risks associated with leasing substantial amounts of
    space.
    Our
    business could be harmed if our existing franchisees do not
    conduct their business in accordance with the standards that we
    have agreed to.
    Our
    information systems, order fulfillment and distribution
    facilities may prove inadequate or may be
    disrupted.
   16




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e-commerce
  We may
    fail to adequately maintain the security of our electronic and
    other confidential information.
  e-commerce
  e-commerce
 
  Our
    intellectual property rights may be inadequate to protect our
    business.
 
  and/or and/or and/or ® ® ® ® ® ® ®
   17




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##### Table of Contents



Risks
    Related to Our Indebtedness
  Our
    substantial indebtedness and lease obligations could adversely
    affect our financial flexibility and our competitive
    position.
 
   
  
    increase our vulnerability to adverse changes in general
    economic, industry and competitive conditions;
    require us to dedicate a substantial portion of our cash flow
    from operations to make payments for our indebtedness and
    leases, thereby reducing the availability of our cash flow to
    fund working capital, capital expenditures and other general
    corporate purposes;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate;
    restrict us from exploiting business opportunities;
    make it more difficult to satisfy our financial obligations,
    including payments on our indebtedness;
    place us at a disadvantage compared to our competitors that have
    less debt and lease obligations; and
    limit our ability to borrow additional funds for working
    capital, capital expenditures, acquisitions, debt service
    requirements, execution of our business strategy or other
    general corporate purposes.  Restrictions
    under our existing and future indebtedness may prevent us from
    taking actions that we believe would be in the best interest of
    our business.
    
    incurring additional indebtedness or issuing disqualified stock;
    paying dividends or distributions on, redeeming, repurchasing or
    retiring our capital stock; 
  
    making payments on, or redeeming, repurchasing or retiring
    indebtedness; 
  
    making investments, loans, advances or acquisitions;
    entering into sale and leaseback transactions; 18




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
    engaging in transactions with affiliates;
    creating liens;
    transferring or selling assets;
    guaranteeing indebtedness;
    creating restrictions on the payment of dividends or other
    amounts to us from our subsidiaries; and
    consolidating, merging or transferring all or substantially all
    of our assets and the assets of our subsidiaries. 
   
  Significant
    interest rate changes could affect our profitability and
    financial performance.
 
   
  Risks
    Related to This Offering
  An
    active public market for our common stock may not develop
    following this offering.
    The
    Sponsors will have the ability to control the outcome of matters
    submitted for stockholder approval and may have interests that
    differ from those of our other stockholders.
 
   
 19




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Our
    third amended and restated certificate of incorporation contains
    a provision renouncing our interest and expectancy in certain
    corporate opportunities, which could adversely affect our
    business or future prospects.
 
 
   
 
   
  Our
    stock price may be volatile or may decline regardless of our
    operating performance, and you may not be able to resell your
    shares at a price at or above the initial public offering
    price.
    
    actual or anticipated fluctuations in our results of operations;
    variance in our financial performance from the expectations of
    equity research analysts;
    changes in consumer preferences or merchandise trends;
    announcements of new products or significant price reductions by
    our competitors;
    additions or changes to key personnel;
    the timing of releases of new merchandise or promotional events;
    the level of customer service that we provide in our stores; 20




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##### Table of Contents




    our ability to source and distribute products effectively;
    weather conditions (particularly during the holiday season);
    the number of stores we open, close or convert in any period;
    the commencement or outcome of litigation;
    changes in market valuation or earnings of our competitors;
    the trading volume of our common stock;
    future sale of our equity securities; and
    economic, legal and regulatory factors unrelated to our
    performance.      We do
    not expect to pay any cash dividends for the foreseeable future
    and, consequently, your only opportunity to achieve a return on
    your investment is if the price of our common stock
    appreciates.
 
   
  Future
    sales of our common stock, or the perception in the public
    markets that these sales may occur, may depress our stock
    price.
   21




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Upon
    expiration of
    lock-up
    agreements between the underwriters and our officers, directors,
    the selling stockholders and certain other holders of our common
    stock, a substantial number of shares of our common stock could
    be sold into the public market shortly after this offering,
    which could depress our stock price.
  lock-up lock-up lock-up
  If you
    purchase shares of common stock in this offering, you will incur
    immediate and substantial dilution.
    We may
    undertake acquisitions to expand our business, which may pose
    risks to our business and dilute the ownership of our existing
    shareholders.
       22




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##### Table of Contents



Our
    management will have broad discretion over the use of the
    proceeds we receive in this offering and might not apply the
    proceeds in ways that increase the value of your
    investment.
    If
    securities or industry analysts do not publish research or
    reports or publish unfavorable research or reports about our
    business, our stock price and trading volume could
    decline.
    Anti-takeover
    provisions in our charter documents and Delaware law might
    discourage, delay or prevent a change in control of our
    company.
    
    the division of our board of directors into three classes and
    the election of each class for three-year terms;
    advance notice requirements for stockholder proposals and
    director nominations;
    the sole ability of the board of directors to fill a vacancy
    created by the expansion of the board of directors;
    the required approval of holders of at least a majority of our
    outstanding shares of capital stock entitled to vote generally
    at an election of the directors to remove directors only for
    cause;
    the required approval of holders of at least
    662/3%
    of our outstanding shares of capital stock entitled to vote at
    an election of directors to adopt, amend or repeal our bylaws,
    or amend or repeal certain provisions of our third amended and
    restated certificate of incorporation once the Sponsors cease to
    collectively own at least 50% of our outstanding common stock;
    limitations on the ability of stockholders to call special
    meetings and, when the Sponsors cease to collectively own 50% of
    our outstanding common stock, to take action by written
    consent; and
    provisions that reproduce much of the provisions that limit the
    ability of interested stockholders (other than the
    Sponsors and certain of their transferees) from engaging in
    specified business combinations with us absent prior approval of
    the board of directors or holders of
    662/3%
    of our voting stock.   23




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SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS         24




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USE OF
    PROCEEDS   
   
 
   
     25




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DIVIDEND
    POLICY     26




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##### Table of Contents



CAPITALIZATION    
    on an actual basis; and
    on an as adjusted basis to give effect to the issuance and sale
    by us
    of          
    shares of our common stock in the offering at an assumed initial
    public offering price of $      per
    share, the mid-point of the range set forth on the cover of this
    prospectus, after deducting underwriting discounts and
    commissions and estimated offering expenses payable by us and
    the application of the net proceeds from this offering as
    described in Use of Proceeds.    
 March 31, 2011Actual


As Adjusted(dollars in thousands)Cash and cash equivalents

$
18,221Debt:Revolving credit facilities(1)

$
227,632Term loan due 2017


665,205Mortgage obligation


4,274Capital lease obligations


3,6728.75% senior subordinated notes


175,000Total debt


1,075,783Stockholders Equity:Class A common stock, $0.01 par value,
    80,000,000 shares
    authorized,          shares
    issued and outstanding,
    actual;          shares
    authorized,
    and          shares
    issued and outstanding, as adjusted(2)Class B common stock, $0.01 par value,
    30,400,000 shares
    authorized,          shares
    issued and outstanding, actual; no shares authorized, and
    no          shares
    issued and outstanding, as adjusted(2)Preferred stock, $0.01 par value, 10,000 shares
    authorized, no shares issued and outstanding,
    actual;          shares
    authorized, and no shares issued and outstanding, as adjustedAdditional paid-in capital


287,751Retained (deficit) earnings


(30,119
)Accumulated other comprehensive loss


(1,613
)Party City Holdings Inc. stockholders equity(3)


256,019Noncontrolling interest


2,432Total equity


258,451Total capitalization

$
1,334,234  
    (1)
    
    At March 31, 2011, there were $227.6 million of
    outstanding borrowings under the secured revolving credit
    facilities, a total of $15.3 million of outstanding letters
    of credit and excess availability of $82.1 million.(2)
    
    The Class B common stock will convert into Class A
    common stock upon completion of the offering. At that time, the
    Class A common stock will be renamed Common
    Stock.(3)
    
    A $1.00 increase (decrease) in the assumed initial public
    offering price of $      per share
    would (decrease) increase our total long-term obligations and
    would increase (decrease) equity by
    $      and
    $     , respectively, assuming the
    number of shares offered by us, as set forth on the cover page
    of this prospectus, remains the same and after deducting the
    estimated underwriting discounts and commissions and estimated
    expenses payable by us. To the extent we raise more proceeds in
    this offering, we may repay additional indebtedness. To the
    extent we raise less proceeds in this offering, we may reduce
    the amount of indebtedness that will be repaid. 27




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##### Table of Contents



DILUTION   
   
  Assumed initial public offering price per share





$Net tangible book value per share as of March 31, 2011

$Increase in net tangible book value per share attributable to
    this offering

$As adjusted net tangible book value per share after this offering





$Dilution in net tangible book value per share to new stockholders





$     AverageShares Issued


Total Consideration


Price perNumber


Percentage


Amount


Percentage


ShareExisting stockholders







%







%

$New stockholders in this offeringTotal






100
%






100
%

$      28




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##### Table of Contents



UNAUDITED
    PRO FORMA CONSOLIDATED FINANCIAL DATA   
 
   
 
  
    Refinancing.  On August 13, 2010, we
    entered into the New ABL Facility for an aggregate principal
    amount of up to $325 million. The proceeds from the New ABL
    Facility were used to refinance Amscan Holdings prior
    senior secured asset-based revolving credit facility and the
    Party City Franchise Group (PCFG) revolving credit
    facility and term loan agreement, in an aggregate amount equal
    to $157 million. In addition, on December 2, 2010, we
    entered into the $675 million New Term Loan Credit
    Agreement. The proceeds from the New Term Loan Credit Agreement
    were used to terminate our previously existing $342 million
    term loan guaranty credit agreement and to pay a one time cash
    dividend to common stockholders and a cash payment in lieu of a
    dividend to certain option and warrant holders aggregating
    $311.2 million. 
 
  
    Initial Public Offering.  The issuance
    of           shares
    of common stock by us in this offering (the IPO) at
    a price equal to $      per share, the
    midpoint of the price range set forth on the cover of this
    prospectus, and the impact of using the proceeds to us, net of
    transaction fees and expenses, to (1) repurchase or redeem
    all of our senior subordinated notes, (2) terminate the
    management agreement with the Sponsors and (3) repay a
    portion of our borrowings under the New ABL Facility. 
 
   
   
   
 29




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##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  UNAUDITED
    PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
 FOR THE
    YEAR ENDED DECEMBER 31, 2010
 
  
 Pro Forma Adjustments


ProHistorical


Refinancing


IPO


Forma(dollars in thousands, except per share amounts)Revenues:Net sales

$
1,579,677


$



$



$Royalties and franchise fees


19,417Total revenues


1,599,094Expenses:Cost of sales


943,058Selling expenses


42,725Retail operating expenses


296,891Franchise expenses


12,269General and administrative expenses


134,392



(9,370
)(a)



(e)Art and development costs


14,923Impairment of trade name


27,400Income from operations


127,436



9,370Interest expense, net


40,850



33,054
(b)



(f)Other expense, net


4,208



(2,448
)(c)Income before income taxes


82,378



(21,236
)Income tax expense


32,945



(7,965
)(d)



(d)Net income


49,433



(13,271
)Less: net income attributable to noncontrolling interests


114Net income attributable to Party City Holdings Inc.

$
49,319


$
(13,271
)

$



$Net income per shareBasicDilutedWeighted AverageOutstanding basicDiluted  
 30




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##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  UNAUDITED
    PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
 FOR THE
    THREE MONTHS ENDED MARCH 31, 2011
 
 
  
 
 Pro FormaIPO


ProHistorical


Adjustments


Forma(dollars in thousands, except per share amounts)Revenues:Net sales

$
352,501


$



$Royalties and franchise fees


3,681Total revenues


356,182Expenses:Cost of sales


225,014Selling expenses


13,852Retail operating expenses


61,848Franchise expenses


3,365General and administrative expenses


31,545




(g)Art and development costs


3,950Income from operations


16,608Interest expense, net


20,368




(h)Other expense, net


62Loss before income taxes


(3,822
)Income tax benefit


(1,330
)



(i)Net loss


(2,492
)Less: net income attributable to noncontrolling interests


71Net loss attributable to Party City Holdings Inc.

$
(2,563
)

$



$Net loss per shareBasicDilutedWeighted AverageOutstanding basicDiluted  
 31




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##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  UNAUDITED
    PRO FORMA CONSOLIDATED BALANCE SHEET
 AT MARCH
    31, 2011
 
 
 Pro Forma


ProHistorical


Adjustments


Forma(dollars in thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
18,221


$



$Accounts receivable, net of allowances


113,889Inventories, net of allowances


437,059Prepaid expenses and other current assets


65,037Total current assets


634,206Property, plant and equipment, net


202,757Goodwill


660,366Trade names


129,954Other intangible assets, net


52,795Other assets, net


29,250




(j)Total assets

$
1,709,328


$



$LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
227,632


$

(k)

$Accounts payable


91,848Accrued expenses


107,803




(k)Income taxes payable


29,550




(l)Redeemable warrants


Current portion of long-term obligations


9,100Total current liabilities


465,933Long-term obligations, excluding current portion


839,051




(k)Deferred income tax liabilities


95,091Deferred rent and other long-term liabilities


17,623Total liabilities


1,417,698Redeemable common securities (including 1,142.27 common shares
    issued and outstanding at March 31, 2011)


33,179Commitments and contingenciesStockholders equity:Class A common stock, $0.01 par value, 80,000,000
    shares authorized, 19,051.31 shares issued and outstanding
    at March 31,
    2011;          shares
    issued and outstanding pro forma


Class B common stock, $0.01 par value, convertible
    into Class A common stock, 30,400,000 shares authorized,
    11,918.71 shares issued and outstanding at March 31,
    2011; no shares issued and outstanding pro forma


Preferred stock, $0.01 per value, 10,000 shares authorized, no
    shares issued and outstanding at March 31, 2011; no shares
    issued and outstanding pro forma


Additional paid-in capital


287,751




(m)Retained deficit


(30,119
)



(n)Accumulated other comprehensive loss


(1,613
)Party City Holdings Inc. stockholders equity


256,019Noncontrolling interests


2,432Total stockholders equity


258,451Total liabilities, redeemable common securities and
    stockholders equity

$
1,709,328


$



$  
 32




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##### Table of Contents



NOTES TO
    UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
    (dollars in thousands except share and per share data)
 
 
  Unaudited
    Pro Forma Consolidated Statement of Income for the Year ended
    December 31, 2010
 
 
  one-time
 
 
   
 
   
 
  one-time
 
 
   
 
 
 
   
 
   
 
   
 
  3 4
 
 
  Unaudited
    Pro Forma Consolidated Statement of Operations for the Three
    Months ended March 31, 2011
 
 
   
 
  3 4
 
 
   
 
  Unaudited
    Pro Forma Consolidated Balance Sheet as of March 31,
    2011
 
 
  3 4
 
 33




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##### Table of Contents



3 4
 
 
  3 4 3 4
 
 
   
 
  3 4
 
 34




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##### Table of Contents



SELECTED
    CONSOLIDATED FINANCIAL DATA      
 Year Ended December 31,


Three Months Ended March 31,2006(1)


2007(2)


2008


2009


2010(3)


2010


2011(dollars in thousands)Income Statement Data:Revenues:Net sales

$
993,342


$
1,221,516


$
1,537,641


$
1,467,324


$
1,579,677


$
304,379


$
352,501Royalties and franchise fees


21,746



25,888



22,020



19,494



19,417



3,844



3,681Total revenues


1,015,088



1,247,404



1,559,661



1,486,818



1,599,094



308,223



356,182Expenses:Cost of sales


676,527



777,586



966,426



899,041



943,058



199,900



225,014Selling expenses


39,449



41,899



41,894



39,786



42,725



10,390



13,852Retail operating expenses


126,224



191,423



273,627



261,691



296,891



52,960



61,848Franchise expenses


13,009



12,883



13,686



11,991



12,269



3,124



3,365General and administrative expenses


84,836



105,707



120,272



119,193



134,392



29,925



31,545Art and development costs


10,338



12,149



12,462



13,243



14,923



3,636



3,950Impairment of trade name(4)










17,376







27,400







Income from operations


64,705



105,757



113,918



141,873



127,436



8,288



16,608Interest expense, net


54,887



54,590



50,915



41,481



40,850



9,301



20,368Other (income) expense, net(5)


(1,000
)


18,214



(818
)


(32
)


4,208



(69
)


62Income (loss) before income taxes


10,818



32,953



63,821



100,424



82,378



(944
)


(3,822
)Income tax expense (benefit)


4,295



13,246



24,188



37,673



32,945



(575
)


(1,330
)Net income (loss)


6,523



19,707



39,633



62,751



49,433



(369
)


(2,492
)Less: net income (loss) attributable to noncontrolling interests


83



446



(877
)


198



114



43



71Net income attributable to Party City Holdings Inc.

$
6,440


$
19,261


$
40,510


$
62,553


$
49,319


$
(412
)

$
(2,563
)Per Share DataNet income (loss) per shareBasicDilutedPro forma basic(6)Pro forma diluted(6)Weighted averageOutstanding basicDilutedPro forma outstanding basic(6)Pro forma diluted(6)Cash dividends, per share(7)


















9,400







Statement of cash flow dataNet cash provided by (used in)Operating activities

$
31,005


$
9,644


$
79,928


$
123,942


$
61,168


$
(17,541
)

$
(12,907
)Investing activities


(40,119
)


(133,406
)


(51,199
)


(54,358
)


(102,766
)


(10,455
)


(67,396
)Financing activities


3,542



134,576



(23,033
)


(70,157
)


46,515



30,432



75,340 
 35




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##### Table of Contents



Year Ended December 31,


Three Months Ended March 31,2006(1)


2007(2)


2008


2009


2010(3)


2010


2011(dollars in thousands)Other Financial Data:Net revenues by segment:Wholesale (after intercompany eliminations)

$
432,534


$
453,333


$
438,505


$
411,359


$
470,892


$
105,923


$
132,395Retail


582,554



794,071



1,121,156



1,075,459



1,128,202



202,300



223,787Consolidated


1,015,088



1,247,404



1,559,661



1,486,818



1,599,094



308,223



356,182EBITDA(8)


104,324



125,636



162,014



186,287



172,646



19,931



29,795Adjusted EBITDA(8)


121,926



152,045



186,040



190,479



226,114



22,787



31,004Number of company-owned and franchised retail superstores (at
    end of period)(9)


768



955



916



851



828



825



814Number of Party City superstores


339



392



385



382



439



383



457Party City comparable store sales growth(10)


6.5
%


5.8
%


0.5
%


(3.3
)%


1.4
%


0.6
%


4.5
%Capital expenditures including assets under capital leases
    (excluding acquisitions)


40,904



36,648



53,701



26,254



50,242



6,924



10,977Working capital (excluding cash)


162,595



91,100



63,846



146,823



169,539



156,470



150,052Ratio of debt to Adjusted EBITDA(8)


4.7
x


4.9
x


3.9
x


3.4
x


4.4
x


3.6
x


4.6
x  
  Year Ended December 31,


Three Months Ended March 31,2006(1)


2007(2)


2008


2009


2010(3)


2010


2011(dollars in thousands)Balance Sheet Data (at period end):Cash

$
4,966


$
17,274


$
13,058


$
15,420


$
20,454


$
17,054


$
18,221Working capital


167,561



108,374



76,904



162,243



189,993



173,524



168,273Total assets


1,217,371



1,498,845



1,507,977



1,480,501



1,653,151



1,503,152



1,709,328Total debt


567,005



746,126



721,635



651,433



1,000,256



681,865



1,075,783Total equity


361,891



378,074



412,117



479,122



256,422



499,898



258,451     (1)
    
    Party America is included in the balance sheet data beginning
    with December 31, 2006, and the income statement and other
    financial data from its acquisition date (September 29,
    2006).(2)
    
    FCPO and PCFG are included in the balance sheet data as of
    December 31, 2007, and the income statement and other
    financial data from their respective acquisition dates (PCFG-
    November 2, 2007 and FCPO-November 16, 2007). 
  (3)
    
    The acquisitions of Designware and the Christys Group are
    included in the balance sheet data as of December 31, 2010,
    and the income statement and other financial data from their
    respective acquisition dates (March 1, 2010 and
    September 30, 2010). 
  (4)
    
    During 2008 and 2010, we implemented plans to convert and
    rebrand our company-owned and franchised Party America stores
    and our FCPO stores to Party City stores, respectively. As a
    result, we recorded charges for the impairment of the Party
    America trade name and the FCPO trade name of $17.4 million
    and $27.4 million in the fourth quarters of 2008 and 2010,
    respectively.(5)
    
    In connection with the refinancing of debt in May 2007, we
    recorded non-recurring expenses of $16.2 million, including
    $6.2 million of debt retirement costs, $6.3 million
    write off of deferred finance costs, and a $3.7 million
    write-off of original issue discount associated with the
    repayment of debt. In connection with the refinancing of the
    Company and its subsidiaries revolving and term debt
    credit facilities in August and December 2010, we wrote off
    $2.4 million of deferred finance charges.(6)
    
    The pro forma earnings per share calculations give effect to the
    issuance and sale of a number of shares the proceeds of which
    would be used to pay the amount of the 2010 cash dividend that
    exceeded our 2010 earnings. 
  (7)
    
    For a discussion of our dividend payment in 2010 and our
    dividend policy generally, please refer to Dividend
    Policy. 
 36




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##### Table of Contents



(8)
    
    For a discussion of our use of Adjusted EBITDA, please refer to
    Prospectus Summary  Summary Financial
    Data. The reconciliation from net income to EBITDA and
    Adjusted EBITDA for the period presented is as follows: 
  Three Months Ended March 31,2006


2007


2008


2009


2010


2010


2011(dollars in thousands)Net Income (Loss)

$
6,523


$
19,707


$
39,633


$
62,751


$
49,433


$
(369
)

$
(2,492
)Interest expense, net


54,887



54,590



50,915



41,481



40,850



9,301



20,368Income taxes


4,295



13,246



24,188



37,673



32,945



(575
)


(1,330
)Depreciation and amortization


38,619



38,093



47,278



44,382



49,418



11,574



13,249EBITDA


104,324



125,636



162,014



186,287



172,646



19,931



29,795Equity based compensation and other charges


1,208



1,928



4,546



882



6,019



94



149Non-cash purchase accounting adjustments


2,509



1,332



2,329



(344
)


2,533



1,447



115Management fee


1,248



1,248



1,248



1,248



1,248



312



312Gain from joint venture






(628
)


(538
)


(632
)


(678
)


(288
)


(316
)Impairment charges






2,115



17,376
(a)






27,997
(a)






Restructuring, retention and severance


2,114



2,504







2,670



1,780







Payment in lieu of dividend


















9,395
(b)


960



174Refinancing charges






16,360











2,448







Acquisition related expenses














270



1,660



5



892Intercompany gross profit elimination(c)


10,901























Other


(378
)


1,550



(935
)


98



1,066



326



(117
)Adjusted EBITDA

$
121,926


$
152,045


$
186,040


$
190,479


$
226,114


$
22,787


$
31,004     (a)
    
    During 2008 and 2010, we implemented plans to convert and
    rebrand our company-owned and franchised Party America stores
    and our FCPO stores to Party City stores, respectively. As a
    result, we recorded charges for impairment of the Party America
    trade and the FCPO trade name of $17.4 million and
    $27.4 million in the fourth quarters of 2008 and 2010,
    respectively.(b)
    
    Represents payment to holders of vested time-based options in
    connection with a one-time cash dividend payment in 2010. This
    payment is included as
    stock-based
    compensation expense in general and administrative expenses in
    2010.(c)
    
    Prior to our May 2007 refinancing, the definition of Adjusted
    EBITDA under our credit agreement provided for the add-back of
    intercompany gross profit on sales from our wholesale operations
    to our retail stores. 
  (9)
    
    Excludes temporary locations under our Halloween City banner and
    includes Party City superstores. 
 
  (10)
    
    Party City comparable store sales exclude FCPO store
    conversions, as presented here. 
 37




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##### Table of Contents



MANAGEMENTS
    DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS  The following discussion of our financial condition and
    results of operations should be read in conjunction with our
    consolidated financial statements and the notes to those
    consolidated financial statements appearing elsewhere in this
    prospectus. This discussion contains forward-looking statements
    that involve significant risks and uncertainties. As a result of
    many factors, such as those set forth under Risk
    Factors and elsewhere in this prospectus, our actual
    results may differ materially from those anticipated in these
    forward-looking statements.
  Business
    Overview
  Our
    Company
 
  manufacturing-to-retail
 
  How We
    Assess the Performance of Our Company
    Segments
 
   
  e-commerce
   38




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##### Table of Contents



Financial
    Measures
  Revenues. e-commerce
  Comparable Retail Same-Store Sales.
 
  Cost of Sales. e-commerce
 
    Selling Expenses.
  Retail Operating Expenses.
 39




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##### Table of Contents



Franchise Expenses.
  General and Administrative Expenses.
  Art and Development Costs.
  EBITDA and Adjusted EBITDA.
  Executive
    Overview
  wholesale-to-retail
    company-owned
 40




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##### Table of Contents



e-commerce
  Other
    Factors Affecting Our Results
    Christys Group.
 
  Riethmüller GmbH. 150-year-old
 
 
  Refinancing.
 
      Public Company Costs.
 
  Termination of Management Agreement.
 
 41




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##### Table of Contents



Equity Based Compensation.
  Results
    of Operations
  Three
    Months Ended March 31, 2011 Compared To Three Months Ended
    March 31, 2010
    Three Months Ended March 31,2011


2010(dollars in thousands)Revenues:Net sales

$
352,501



99.0
%

$
304,379



98.8
%Royalties and franchise fees


3,681



1.0



3,844



1.2Total revenues


356,182



100.0



308,223



100.0Expenses:Cost of sales


225,014



63.2



199,900



64.9Wholesale selling expenses


13,852



3.9



10,390



3.4Retail operating expenses


61,848



17.4



52,960



17.2Franchise expenses


3,365



0.9



3,124



1.0General and administrative expenses


31,545



8.9



29,925



9.7Art and development costs


3,950



1.1



3,636



1.1Total expenses


339,574



95.3



299,935



97.3Income from operations


16,608



4.7



8,288



2.7Interest expense, net


20,368



5.7



9,301



3.0Other expense (income), net


62



0.0



(69
)


0.0Loss before income taxes


(3,822
)


(1.1
)


(944
)


(0.3
)Income tax benefit


(1,330
)


(0.4
)


(575
)


(0.2
)Net loss


(2,492
)


(0.7
)


(369
)


(0.1
)Less net income attributable to noncontrolling interests


71



0.0



43



(0.0
)Net loss attributable to Party City Holdings Inc.

$
(2,563
)


(0.7
)%

$
(412
)


(0.1
)%  42




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##### Table of Contents



Revenues
    Three Months Ended March 31,2011


2010Dollars in


Percentage of


Dollars in


Percentage ofThousands


Total Revenue


Thousands


Total RevenueRevenuesSalesWholesale

$
199,576



56.1
%

$
160,959



52.2
%Eliminations


(67,181
)


(18.9
)%


(55,036
)


(17.9
)%Net wholesale


132,395



37.2
%


105,923



34.4
%Retail


220,106



61.8
%


198,456



64.4
%Total net sales


352,501



99.0
%


304,379



98.8
%Franchise related


3,681



1.0
%


3,844



1.2
%Total revenues

$
356,182



100.0
%

$
308,223



100.0
%   Wholesale
 
   
    Retail
   43




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##### Table of Contents



e-commerce
  Royalties
    and franchise fees
    Gross
    Profit
    Three Months Ended March 31,2011


2010Dollars in


Percentage of


Dollars in


Percentage ofThousands


Total Revenue


Thousands


Total RevenueWholesale

$
44,171



33.4
%

$
37,875



35.8
%Retail


83,315



37.9
%


66,604



33.6
%Total

$
127,486



36.2
%

$
104,479



34.3
%       Operating
    expenses
 
   
 44




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##### Table of Contents



e-commerce E-commerce
 
   
    Interest
    expense, net
 
   
  Other
    expense (income), net
    Income
    tax benefit
     45




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##### Table of Contents



Years
    Ended December 31, 2010, 2009 and 2008
 
    Year Ended December 31,2010


2009


2008(dollars in thousands)Revenues:Net sales

$
1,579,677



98.8
%

$
1,467,324



98.7
%

$
1,537,641



98.6
%Royalties and franchise fees


19,417



1.2



19,494



1.3



22,020



1.4Total revenues


1,599,094



100.0



1,486,818



100.0



1,559,661



100.0Expenses:Cost of sales


943,058



59.0



899,041



60.5



966,426



62.0Selling expenses


42,725



2.7



39,786



2.7



41,894



2.7Retail operating expenses


296,891



18.6



261,691



17.6



273,627



17.5Franchise expenses


12,269



0.8



11,991



0.8



13,686



0.9General and administrative expenses


134,392



8.4



119,193



8.0



120,272



7.7Art and development costs


14,923



0.9



13,243



0.9



12,462



0.8Impairment of trade name


27,400



1.7







0.0



17,376



1.1Total expenses


1,471,658



92.0



1,344,945



90.5



1,445,743



92.7Income from operations


127,436



8.0



141,873



9.5



113,918



7.3Interest expense, net


40,850



2.6



41,481



2.8



50,915



3.3Other expense (income), net


4,208



0.3



(32
)


0.0



(818
)


(0.1
)Income before income taxes


82,378



5.2



100,424



6.7



63,821



4.1Income tax expense


32,945



2.1



37,673



2.5



24,188



1.6Net income


49,433



3.1



62,751



4.2



39,633



2.5Less: net income (loss) attributable to noncontrolling interest


114







198







(877
)


(0.1
)Net income attributable to Party City Holdings Inc.

$
49,319



3.1
%

$
62,553



4.2
%

$
40,510



2.6
%   Year
    Ended December 31, 2010 Compared to Year Ended
    December 31, 2009
  Revenues
    Year Ended December 31,2010


2009Dollars in


Percentage of


Dollars in


Percentage ofThousands


Total Revenue


Thousands


Total RevenueRevenues:Sales:Wholesale

$
769,247



48.1
%

$
633,006



42.6
%Eliminations


(298,355
)


(18.7
)


(221,647
)


(14.9
)Net wholesale


470,892



29.4



411,359



27.7Retail


1,108,785



69.3



1,055,965



71.0Total net sales


1,579,677



98.8



1,467,324



98.7Royalties and franchise fees


19,417



1.2



19,494



1.3Total revenues

$
1,599,094



100.0
%

$
1,486,818



100.0
%  46




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##### Table of Contents



Wholesale
 
   
    Retail
  e-commerce
  Royalties
    and franchise fees
   47




---



##### Table of Contents



Gross
    profit
    Year Ended December 31,2010


2009Dollars in


Percentage of


Dollars in


Percentage ofThousands


Associated Sales


Thousands


Associated SalesNet Wholesale

$
174,507



37.1
%

$
148,424



36.1
%Retail


462,112



41.7
%


419,859



39.8
%Total

$
636,619



40.3
%

$
568,283



38.7
%       Operating
    expenses
 
   
  e-commerce E-commerce
 
   
     48




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##### Table of Contents



Interest
    expense, net
 
   
  Other
    expense, net
    Income
    tax expense
    Year
    Ended December 31, 2009 Compared to Year Ended
    December 31, 2008
  Revenues
    Year Ended December 31,2009


2008Dollars in


Percentage of


Dollars in


Percentage ofThousands


Total Revenue


Thousands


Total RevenueRevenues:Sales:Wholesale

$
633,006



42.6
%

$
653,403



41.9
%Eliminations


(221,647
)


(14.9
)


(214,898
)


(13.8
)Net wholesale


411,359



27.7



438,505



28.1Retail


1,055,965



71.0



1,099,136



70.5Total net sales


1,467,324



98.7



1,537,641



98.6Royalties and franchise fees


19,494



1.3



22,020



1.4Total revenues

$
1,486,818



100.0
%

$
1,559,661



100.0
%   Wholesale
   49




---



##### Table of Contents



Retail
  e-commerce e-commerce
  Royalties
    and franchise fees
    Gross
    profit
    Year Ended December 31,2009


2008Dollars in


Percentage of


Dollars in


Percentage ofThousands


Associated Net Sales


Thousands


Associated Net SalesNet Wholesale

$
148,424



36.1
%

$
142,438



32.5
%Retail


419,859



39.8
%


428,777



39.0
%Total Gross Profit

$
568,283



38.7
%

$
571,215



37.1
%    50




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##### Table of Contents



Operating
    expenses
 
   
   
   
    Interest
    expense, net
    Other
    income, net
    Income
    tax expense
    Liquidity
    and Capital Resources
  Capital
    Structure
 
   
 51




---



##### Table of Contents



New
    ABL Facility
     
  1 2
 
   
   
   
   
 
   
 52




---



##### Table of Contents




    incur additional indebtedness; 
  
    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of Amscan Holdings, us or any
    restricted subsidiary or make payments on, or redeem, repurchase
    or retire any indebtedness; 
  
    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens;
    transfer or sell assets;
    guarantee debt; 
  
    create restrictions on liens or the payment of dividends or
    other amounts to us from our restricted subsidiaries; 
  
    consolidate, merge or transfer all or substantially all of our
    assets and the assets of our subsidiaries; and
    engage in unrelated businesses. 
   
 
   
 
   
 
   
  New
    Term Loan Credit Agreement
   53




---



##### Table of Contents




    incur additional indebtedness;
    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of Amscan Holdings, us, or
    any restricted subsidiary or make payments on, or redeem,
    repurchase or retire any subordinated indebtedness;
    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens;
    transfer or sell assets;
    guarantee debt; 
  
    create restrictions on liens or the payment of dividends or
    other amounts to us from our restricted subsidiaries; 
 54




---



##### Table of Contents




    consolidate, merge or transfer all or substantially all of our
    assets and the assets of our subsidiaries; and
    engage in unrelated businesses. 
   
 
   
  Other
    Credit Agreements
      8.75% Senior
    Subordinated Notes due 2014
 
   
 
   
  
    incur additional indebtedness or issue preferred stock; 
  
    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of Amscan Holdings or any
    restricted subsidiary or make payments on, or redeem, repurchase
    or retire any indebtedness subordinated to the senior
    subordinated notes; 
  
    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens; 
  
    guarantee debt; 
  
    create restrictions on the payment of dividends or other amounts
    to us from our restricted subsidiaries; 55




---



##### Table of Contents




    consolidate, merge or transfer all or substantially all of our
    assets and the assets of our subsidiaries; and
    engage in unrelated businesses. 
   
 
   
  Year

Percentage2011


101.458
%2012 and thereafter


100.000
%  
   
     
  Other
 
    Restructuring
    costs
 
   
   56




---



##### Table of Contents



Liquidity
 
   
  Cash
    Flow Data  Three Months Ended March 31, 2011
    Compared To Three Months Ended March 31, 2010
          Cash
    Flow Data  Year Ended December 31, 2010 Compared
    to Year Ended December 31, 2009
       57




---



##### Table of Contents



Cash
    Flow Data  Year Ended December 31, 2009 Compared
    to Year Ended December 31, 2008
        Tabular
    Disclosure of Contractual Obligations
    
 Total


2011


2012


2013


2014


2015


ThereafterLong-term debt obligations(a)

$
846,183


$
6,810


$
6,835


$
6,860


$
181,982


$
5,737


$
637,959Capital lease obligations(a)


3,975



2,236



1,446



147



131



15



Operating lease obligations(b)


425,164



112,172



95,026



67,314



45,510



33,369



71,773Merchandise purchase commitments(c)


45,000



9,000



9,000



9,000



9,000



9,000



Minimum product royalty obligations


19,765



8,271



7,320



1,724



800



550



1,100Total contractual obligations

$
1,340,087


$
138,489


$
119,627


$
85,045


$
237,423


$
48,671


$
710,832  
    (a)
    
    See Note 8 to our audited consolidated financial statements
    which are included elsewhere in this prospectus. 
  (b)
    
    We are also an assignor with continuing lease liability for
    sixteen stores sold to franchisees that expire through 2016. The
    assigned lease obligations continue until the applicable leases
    expire. The maximum amount of the assigned lease obligations may
    vary, but is limited to the sum of the total amount due under
    the lease. At December 31, 2010, the maximum amount of the
    assigned lease obligations was approximately $7.4 million
    and is not included in the table above. 
  The operating lease obligations included above do not include
    contingent rent based upon sales volume (which represented less
    than 1% of minimum lease obligations in 2010), or other variable
    costs such as 58




---



##### Table of Contents



maintenance, insurance and taxes. See Note 17 to our
    audited consolidated financial statements which are included
    elsewhere in this prospectus. 
  (c)
    
    We have a product purchase agreement with a vendor requiring
    minimum purchase commitments through 2015. 
   
   
   
 
 
   
  Off-Balance
    Sheet Arrangements
    Effects
    of Inflation
    Critical
    Accounting Policies and Estimates
      Revenue
    Recognition
   59




---



##### Table of Contents



Store
    Closure Costs
    Product
    Royalty Agreements
    Doubtful
    Accounts
    Inventories
    store-by-store
  Long-Lived
    and Intangible Assets
   60




---



##### Table of Contents



store-by-store
      Insurance
    Accruals
    Income
    Taxes
     61




---



##### Table of Contents



Stock-Based
    Compensation
    Recently
    Issued Accounting Pronouncements
  2010-20, 2010-20
  2010-29,
  2011-01, No. 2010-20. 2011-01 2010-20
  Quarterly
    Results
   62




---



##### Table of Contents



For the Three Months Ended,March 31,


June 30,


September 30,


December 31,(Dollars in thousands)2010Revenues:Net sales

$
304,379


$
352,705


$
358,772


$
563,821Royalties and franchise fees


3,844



4,453



4,035



7,085Gross profit


104,479



141,840



132,437



257,863Income from operations


8,288



35,367



17,963



65,818
(a)Net (loss) income attributable to Party City Holdings Inc.


(412
)


16,460



4,603



28,668
(a)2009Revenues:Net sales

$
309,046


$
337,536


$
336,944


$
483,798Royalties and franchise fees


3,694



4,536



4,164



7,100Gross profit


103,629



128,425



121,453



214,776Income from operations


12,201



27,818



14,937



86,917Net income attributable to Party City Holdings Inc.


2,403



10,952



3,079



46,119     (a)
    
    During the fourth quarter of 2010, we recorded a pre-tax charge
    of $27,400 to write off the FCPO trade name.  Quantitative
    and Qualitative Disclosures about Market Risk
     63




---



##### Table of Contents



BUSINESS  Our
    Company
 
  manufacturing-to-retail
 
  state-of-the-art
 
  e-commerce manufacturing-to-retail
 
  e-commerce,
 64




---



##### Table of Contents



Evolution
    of Our Business
    Enhancing
    Our Wholesale Platform
  
    We believe that the acquisition of Anagram International in 1998
    and the subsequent acquisition of M&D Balloons in 2002
    positioned us as the largest manufacturer and distributor of
    metallic balloons in the world.
    In 2001, we opened a new distribution center in Chester, New
    York, which was significantly expanded in 2005, for an aggregate
    investment of approximately $60 million. This
    state-of-the-art,
    approximately 900,000 square foot facility enables us to
    deliver industry-leading service levels to our third-party
    customers and network of company-owned stores.
    In 2003, we opened a Hong Kong office to support our Asian-based
    sourcing and sales organization that has grown to over 40
    employees.  Establishing
    Retail Leadership and Our Vertically Integrated Model
  
    Through the acquisitions of Party City in 2005, Party America in
    2006 and FCPO in 2007, we have become the largest party goods
    specialty retailer in the United States.
    Subsequent to our acquisition of Party City and other party
    store banners, we focused on rebranding acquired businesses and
    remerchandising our stores. Following each acquisition, we
    capitalized on our vertically integrated model by increasing the
    percentage of Amscan products available for sale at our retail
    stores, allowing us to capture the
    manufacturing-to-retail
    margin on a significant portion of our retail sales.
    Between 2007 and 2010, we converted all of the Party America
    company-operated stores to the Party City banner. In 2010 we
    began converting the FCPO stores to the Party City format; we
    converted 40 in 2010 and expect to have the remaining 93 FCPO
    stores converted to the Party City banner by the end of 2013.
    In 2007, we acquired Gags & Games Inc., the parent
    company of Halloween USA, which operated 94 locations, enabling
    us to enter the growing temporary Halloween business. Since the
    acquisition, we have grown to over 400 locations and changed the
    banner to Halloween City.  Re-Launching
    Our
    E-commerce
    Platform
 
  
    In August 2009, we re-launched PartyCity.com with
    e-commerce
    capabilities, providing us with an additional
    direct-to-consumer
    sales channel. Since the re-launch, we have grown our
    e-commerce
    revenues to over $40 million in 2010 as we continue to
    capitalize on our competitive advantages, which include a
    nationwide store base, strong brand recognition and vertical
    business model. The average basket size on our e-commerce site
    is approximately three times larger than it is in our Party City
    stores. We expect our
    e-commerce
    platform to continue to generate significant revenue growth as
    we execute our planned initiatives to drive traffic and increase
    customer interactions through social networking interfaces as
    well as through the three million email addresses that we have
    captured through our stores and website. 
  Broadening
    Products and Channel Reach
  
    Our March 2010 acquisition of the Designware party goods
    division from American Greetings strengthened our juvenile
    licensed character portfolio and enhanced our reach into the
    grocery retailers and mass merchant channels. In connection with
    this acquisition, American Greetings granted us rights to
    manufacture and distribute Designware-branded and licensed
    character-based products into select 65




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##### Table of Contents



retail venues, including the party supply store channel. We also
    agreed to supply substantially all of American Greetings
    party supply requirements, allowing us to grow our distribution
    with American Greetings, specifically in the mass market, drug
    and grocery retail channels.  
    Our September 2010 acquisition of the Christys Group, a
    U.K.-based costume company, provided costume design and
    additional sourcing capabilities as well as additional resources
    in the U.K. and European markets. The Christys Group
    accelerates our entry into the costume wholesale business and
    enables us to further increase the percentage of our own
    products sold at Party City, Halloween City and PartyCity.com.  Growing
    International Presence
  
    In the past five years, we have grown our international
    operations, which now represent 6.9% of total revenues. We
    believe international sales are likely to grow to 10% to 15% of
    our total revenues over the next three to five years through
    organic and acquisition-generated growth.
    Our January 2011 acquisition of Riethmüller, which included
    the Malaysian operations of latex balloon manufacturer Everts
    Balloon, expanded our reach in Europe while also enabling us to
    directly supply a significant portion of our latex balloon
    requirements previously sourced from third-party vendors.    Competitive
    Strengths
    Leading Market Position with Industry Defining
    Brands.
  Unique Vertically Integrated Operating
    Model.
  
    enhance our profitability as we realize the
    manufacturing-to-retail
    margin on a significant portion of our retail sales;
    leverage our global sourcing network and scale to reinforce our
    position as the low-cost provider of quality party supplies;
    effectively respond to changes in consumer trends through our
    in-house design and innovation team;
    sustain high standards of product quality and safety;
    maintain greater control of the design, production, cost and
    introduction of new products across our multiple
    channels; and
    monitor sell-through at retail in real-time to limit markdowns
    and excessive promotions. 66




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##### Table of Contents



Broad and Innovative Product Offering.
  Category Defining Retail Concept.
  Highly Efficient Global Sourcing and Distribution
    Capabilities. 20-year state-of-the-art best-in-class
  World-Class Management Team with a Proven Track
    Record.
   67




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##### Table of Contents



Growth
    Strategy
    Growing Market Share and Earnings.
  Expand Our Retail Store Base. cash-on-cash
  Drive Additional Growth and Productivity From Existing Retail
    Stores.
  Increase International Presence.
  Grow Our
    E-commerce
    Platform. e-commerce direct-to-consumer e-commerce e-commerce
 68




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##### Table of Contents



e-commerce
 
 
  Pursue Accretive Acquisitions.
 
  Industry
    Overview
        Business
    Overview
 
   
 69




---



##### Table of Contents



Financial
    Information about Geographic Areas
    Wholesale
    Operations
  Overview
 
   
      
 Channel

Sales(dollars in millions)Party City  owned stores

$
298Party City  franchised stores


133Other retailers


149Domestic and international balloon distributors


96International


93Total wholesale sales

$
769  
   70




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##### Table of Contents



Product
    Lines
 
   
  Wholesale
    Sales by Product for the Year Ended 
    December 31, 2010
  Category

Items

% of SalesTableware

Plastic Plates, Paper Plates, Plastic Cups, Paper Cups, Paper
    Napkins, Plastic Cutlery, Tablecovers


33
%Favors, Stationery & Other

Party Favors, Gift Bags, Gift Wrap, Invitations, Bows, Stationery


27
%Decorations

Latex balloons, Piñatas, Crepes, Flags & Banners,
    Decorative Tissues, Stickers and Confetti, Scene Setters,
    Garland, Centerpieces


16
%Metallic Balloons

Bouquets, Standard 18 Inch Sing-A-Tune, SuperShapes, Weights


14
%Costumes & Accessories

Costumes, Other Wearables, Wigs


10
%     Current
    Product Offering
  Everyday

SeasonalBirthdays

New YearsAnniversaries

Valentines DayBar Mitzvahs

St. Patricks DayBridal/Baby Showers

EasterChristenings

PassoverConfirmations

Fourth of JulyFirst Communions

HalloweenGraduations

FallTheme-oriented*

ThanksgivingWeddings

Hanukkah     *
    
    Our theme-oriented ensembles enhance every celebration and
    include Bachelorette, Card Party, Casino, Chinese New Year,
    Cocktail Party, Disco, Fiesta, Fifties
    Rock-and-Roll,
    Hawaiian Luau, Hollywood, Mardi Gras, Masquerade, Patriotic,
    Retirement, Sports, Summer Barbeque and Western.  Product
    Development and Design Capabilities
   71




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Sales
    and Marketing
        Manufacturing
    and Sourcing
  State-of-the-art
    ApproximateLocation

Principal Products

Square FeetEast Providence, Rhode Island

Plastic plates, cups and bowls

229,230(1)Louisville, Kentucky

Paper plates

189,175Eden Prairie, Minnesota

Metallic balloons and accessories

115,600Tijuana, Mexico

Piñatas and other party products

100,000Melaka, Malaysia

Latex balloons

100,000Harriman, New York

Paper napkins

74,400Newburgh, New York

Paper napkins and paper cups

52,400     (1)
    
    This figure represents an industrial park, which includes a
    48,455 square foot office and warehouse. 72




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##### Table of Contents



20-year
 
    Product
    Safety and Quality Assurance
    Distribution
    and Systems
    state-of-the-art pick-by-light
      e-commerce
  Retail
    Operations
  Overview
 
  company-owned
 
 73




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##### Table of Contents



manufacturing-to-retail direct-to-consumer
 
   
      # of Stores as


# of Stores as of


Average Size ofFormat

of December 31, 2008


March 31, 2011


Stores (sq. ft.)


Strategy/FocusParty City


385



457



10,000-12,000


Grow the store base opening 25-35 new stores per yearFactory Card & Party Outlet (FCPO)


166



77



10,000-12,000


Convert the remaining FCPO stores to Party City banner by the
    end of 2013The Paper Factory and other outlets


92



51



3,500-5,000


Product liquidation channelHalloween City


149*



404
*


5,000-20,000


Grow locations and improve profitability     *
    
    Represents Halloween City locations opened and operated during
    the preceding Halloween season. These locations operate only
    during the Halloween selling season typically from the day after
    Labor Day through November 1 of each year.   74




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##### Table of Contents



As ofMarch 31,2011


2010


2009


2008Stores open at beginning of period


439



382



385



392Stores opened


2



13



6



9FCPO stores converted to Party City


16



40







Stores acquired from franchisees


3



20



3



5Stores closed


(3
)


(10
)


(9
)


(10
)Stores sold






(6
)


(3
)


(11
)Stores open at end of period


457



439



382



385  
  25-35 cash-on-cash
 
  Merchandising
   
  
    Broad Assortment of Merchandise We believe we
    offer a greater assortment of products than our national
    competitors including mass merchants. Our products span a wide
    range of lifestyle events from birthdays to themed parties and
    sporting events, as well as holidays such as Halloween and New
    Years. A typical retail store offers a wide selection of
    Amscan and other merchandise consisting of an average of 25,000
    SKUs at any one time to satisfy a broad range of styles and
    tastes. 
  
    Deep Merchandise Selection We maintain high
    in-stock positions of core products and related items, so we are
    able to address party needs of any size. These high in-stock
    positions are enabled by our vertical integration model, which
    results in a high percentage of Amscan merchandise in our
    company-owned stores and quick turnaround times.
    Compelling Value Our pricing strategy is to
    provide the best value to our customers. Our vertically
    integrated business model enables us to provide our customers
    with leading prices for most of our product categories. We
    negotiate pricing with suppliers on behalf of all stores in our
    network (company-owned and franchised) and believe that our
    buying power enables us to receive favorable pricing terms and
    enhances our ability to obtain high demand merchandise. We
    reinforce our value message through our advertising and
    marketing campaigns with the Nobody Has More Party for
    Less slogan.   75




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E-commerce
 
  e-commerce direct-to-consumer
 
     
  e-commerce e-commerce pay-per-click
 
 76




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##### Table of Contents



Advertising
    and Marketing
    Franchise
    Operations
    As ofMarch 31,2011


2010


2009


2008Stores open at beginning of period


232



250



273



283Stores opened/acquired by existing franchisees






7



5



20Stores sold to the Company


(3
)


(20
)


(3
)


(5
)Stores closed or converted to independent






(5
)


(25
)


(25
)Stores open at end of period


229



232



250



273    
   
  three- four-mile ® ®
  Information
    Systems
   77




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Competition
      Employees
    Copyrights
    and Trademarks
  and/or
  ® ® ® ® ® ® ®
 78




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##### Table of Contents



Government
    Regulation
       
   
    Properties
    Owned or LeasedApproximate

(WithPrincipal

Square

ExpirationLocation

Activity

Feet

Date)Elmsford, New York

Executive and other corporate offices, show rooms, design and
    art production for party products

119,469 square feet

Leased (expiration date: December 31, 2014)Rockaway, New Jersey

Party City corporate offices

106,000 square feet

Leased (expiration date: July 31, 2017)East Providence, Rhode Island

Manufacture and distribution of plastic plates, cups and bowls

229,230(1) square feet

Leased (expiration date: April 26, 2016)Louisville, Kentucky

Manufacture and distribution of paper plates

189,175 square feet

Leased (expiration date: March 31, 2013)Eden Prairie, Minnesota

Manufacture of metallic balloons and accessories

115,600 square feet

Owned 79




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##### Table of Contents



Owned or LeasedApproximate

(WithPrincipal

Square

ExpirationLocation

Activity

Feet

Date)Tijuana, Mexico

Manufacture and distribution of party products

100,000 square feet

Leased(2)Melaka, Malaysia

Manufacture and distribution of latex balloons

100,000 square feet

Leased (expiration date: May 30, 2072)Harriman, New York

Manufacture of paper napkins

74,400 square feet

Leased (expiration date: March 31, 2016)Newburgh, New York

Manufacture of paper napkins and cups

52,400 square feet

Leased (expiration date: May 31, 2012)Skoczow, Poland

Manufacture and distribution of party goods

44,400 square feet

Leased (expiration date: December 31, 2012)Eden Prairie, Minnesota

Manufacture of retail, trade show and showroom fixtures

15,324 square feet

Leased (expiration date: July 31, 2012)Chester, New York(3)

Distribution of party and gift products

896,000 square feet

OwnedNaperville, Illinois

Distribution of party goods for e-commerce sales

440,343 square feet

Leased (expiration date: December 31, 2018)San Bernadino, California

Distribution of party goods for Halloween City

100,000 square feet

Leased (expiration date: March 31, 2012)Kircheim unter Teck, Germany

Distribution of party goods

215,000 square feet

OwnedMilton Keynes, Buckinghamshire, England

Distribution of party products throughout Europe

130,858 square feet

Leased (expiration date: June 30, 2017)Edina, Minnesota

Distribution of metallic balloons and accessories

122,312 square feet

Leased (expiration date: December 31, 2015)Blackstown, Australia

Distribution of party goods

27,631 square feet

Leased (expiration date: November 12, 2014)Dorval, Canada

Distribution of party and gift products

19,330 square feet

Leased (expiration date: March 31, 2012)Livonia, Michigan

Office and distribution of party goods for Halloween City

89,780 square feet

Leased (expiration date: May 31, 2014)Atlanta, Georgia

Office and storage facilities

15,012 square feet

Leased (expiration date: April 30, 2013)Pleasanton, California

Office for e-commerce sales

11,278 square feet

Leased (expiration date: June 18, 2015)     (1)
    
    This figure represents an industrial park, which includes a
    48,455 square foot office and warehouse.(2)
    
    Property is comprised of three buildings with lease expiration
    dates of May 1, 2012, August 15, 2012 and
    September 30, 2012.(3)
    
    Property is subject to a lien mortgage note in the original
    principal amount of $10.0 million with the New York State
    Job Development Authority. The lien mortgage note was amended on
    December 24, 2009. The amended mortgage note for
    $5.6 million was extended for a period of 60 months
    and requires fixed 80




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##### Table of Contents



monthly payments of principal and interest. At December 31,
    2010, the lien mortgage note has a balance of $4.5 million.      State

Company-owned


Franchise


Chain-wideAlabama


2



8



10Arizona


1



20



21Arkansas


1



3



4California


86



18



104Colorado


14



1



15Connecticut


4



2



6Delaware


1



1



2Florida


54



10



64Georgia


26



1



27Hawaii


0



2



2Illinois


61



0



61Indiana


27



0



27Iowa


9



1



10Kansas


3



4



7Kentucky


7



0



7Louisiana


3



8



11Maryland


14



12



26Michigan


31



0



31Minnesota


0



21



21Mississippi


1



3



4Missouri


19



3



22Montana


0



1



1Nebraska


5



0



5Nevada


6



0



6New Hampshire


1



0



1New Jersey


26



2



28New Mexico


0



3



3New York


45



14



59North Carolina


2



19



21North Dakota


0



3



3Ohio


31



0



31Oklahoma


2



0



2Oregon


2



5



7Pennsylvania


17



14



31Puerto Rico


0



5



5South Carolina


2



6



8Tennessee


7



10



17Texas


41



21



62Virginia


10



9



19Washington


15



2



17West Virginia


2



0



2Wisconsin


18



0



18Total


596



232



828  81




---



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82




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##### Table of Contents



MANAGEMENT   
  
 Name

Age

PositionGerald C. Rittenberg


59


Chief Executive Officer and DirectorJames M. Harrison


59


President, Chief Operating Officer and DirectorMichael A. Correale


53


Chief Financial OfficerGregg A. Melnick


41


President, Party City Retail GroupRobert J. Small


45


Chairman of the Board of DirectorsSteven J. Collins


42


DirectorMichael F. Cronin


57


DirectorKevin M. Hayes


42


DirectorJordan A. Kahn


69


DirectorWilliam Kussell


52


DirectorRichard K. Lubin


65


DirectorCarol M. Meyrowitz


57


DirectorDavid M. Mussafer


48


Director  
    Gerald C. Rittenberg 20-year
  James M. Harrison 14-year
  Michael A. Correale
  Gregg A. Melnick
 
  Robert J. Small
 
  Steven J. Collins
 83




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##### Table of Contents



Michael F. Cronin
  Kevin M. Hayes
  Jordan A. Kahn
  William Kussell
 
  Richard K. Lubin
 
  Carol M. Meyrowitz
  David M. Mussafer
 84




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Composition
    of our Board of Directors
    
    Class I directors, whose terms will expire at the annual
    meeting of stockholders to be held in 2012;
    Class II directors, whose terms will expire at the annual
    meeting of stockholders to be held in 2013; and
    Class III directors, whose terms will expire at the annual
    meeting of stockholders to be held in 2014.      Board
    Structure and Committee Composition
    Audit
    Committee
    
    appoint, compensate, retain and oversee the work of any
    registered public accounting firm engaged for the purpose of
    preparing or issuing an audit report or performing other audit,
    review or attest services and review and appraise the audit
    efforts of our independent accountants;
    establish procedures for the receipt, retention and treatment of
    complaints regarding accounting, internal accounting controls or
    auditing matters;
    engage independent counsel and other advisers, as necessary;
    determine funding of various services provided by accountants or
    advisers retained by the committee;
    serve as an independent and objective party to oversee our
    internal controls and procedures system; and 85




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##### Table of Contents




    provide an open avenue of communication among the independent
    accountants, financial and senior management and the board of
    directors.    Compensation
    Committee
        
    reviewing and approving corporate and individual goals and
    objectives relevant to executive officer compensation and
    evaluating the performance of executive officers in light of the
    goals and objectives;
    reviewing and approving executive officer compensation;
    reviewing and approving the chief executive officers
    compensation based upon the Compensation Committees
    evaluation of the chief executive officers performance;
    making recommendations to the board of directors regarding the
    adoption of new incentive compensation and equity-based plans,
    and administering our existing incentive compensation and
    equity-based plans;
    making recommendations to the board of directors regarding
    compensation of the board members and its committee members;
    reviewing and discussing with management the compensation
    discussion and analysis to be included in our filings with the
    SEC and preparing an annual compensation committee report for
    inclusion in our annual proxy statement;
    reviewing and approving generally any significant non-executive
    compensation and benefits plans;
    reviewing our significant policies, practices and procedures
    concerning human resource-related matters; and
    overseeing any other such matters as the board of directors
    shall deem appropriate from time to time.  Nominating
    and Governance Committee
      
    recruiting and retention of qualified persons to serve on our
    board of directors;
    proposing such individuals to the board of directors for
    nomination for election as directors; 86




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
    evaluating the performance, size and composition of our board of
    directors; and
    compliance activities.    Code
    of Business Conduct and Ethics
   87




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##### Table of Contents



EXECUTIVE
    COMPENSATION  Compensation
    Discussion and Analysis
    Compensation
    Committee
      Compensation
    Philosophy
    
    linking pay to performance to create incentives to perform;
    ensuring compensation levels and components are actively
    managed; and
    using equity compensation to align employees long-term
    interests with those of our stockholders.  Compensation
     88




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Components
    of Compensation
      Base
    Salary
    Annual
    Cash Bonus Plan
   89




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##### Table of Contents



Stock-based
    Incentive Program
 
   
 
   
   
 
 
   
 90




---



##### Table of Contents



Special
    stock option distribution
    Other
    Compensation
  length-of-service
   91




---



##### Table of Contents



Tax
    Treatment
    Summary
    Compensation Table
  Option

Non-Equity

All OtherName and





Awards

Incentive Plan

CompensationPrincipal Position

Year

Salary

(a)

Compensation

(b)

TotalGerald C. Rittenberg


2010


$
1,102,500


$



$
1,448,900


$
2,611,042


$
5,162,442Chief Executive


2009



1,050,000







1,017,000



371,400



2,438,400Officer


2008



1,000,000



595,300



716,000



371,400



2,682,700James M. Harrison


2010


$
937,125


$



$
1,231,600


$
1,787,814


$
3,956,539President and


2009



892,500







864,500



270,600



2,027,600Chief Operating Officer


2008



850,000



446,500



608,600



269,800



2,174,900Michael A. Correale


2010


$
345,000


$



$
226,700


$
258,804


$
830,504Chief Financial


2009



333,125







129,100



40,400



502,625Officer


2008



325,000







93,100



37,400



455,500Gregg A. Melnick


2010


$
525,000


$
232,530


$
344,991


$
262,600


$
1,365,121President, Party City Retail Group     (a)
    
    The dollar values shown reflect the aggregate grant date fair
    value of equity awards granted within the year in accordance
    with the Financial Accounting Standards Board (FASB)
    Accounting Standards Codification Topic 718 for stock-based
    compensation. These amounts reflect the total grant date expense
    for these awards and do not correspond to the actual cash value
    that will be recognized by each individual when received. The
    assumptions used in determining the fair values are disclosed in
    Note 15 to our audited consolidated financial statements
    that appear elsewhere in this prospectus.(b)
    
    Includes for 2010 the special distribution of $9,400 per vested
    time-based option, as described above, to the following named
    executive officers: Mr. Rittenberg ($2,232,442);
    Mr. Harrison ($1,517,714); Mr. Correale ($217,704);
    and Mr. Melnick ($253,800) and an annual accrual for
    deferred bonuses for Messrs. Rittenberg and Harrison of
    $350,000 and $250,000, respectively, that are payable under
    their employment agreements described below. In addition, each
    of the named executive officers received a car allowance in the
    following amounts: Mr. Rittenberg ($16,233);
    Mr. Harrison ($7,800); Mr. Correale ($28,800); and
    Mr. Melnick ($8,000). Also included are amounts related to
    matching 401(k) contributions, contributions to our
    profit-sharing plan and life insurance contributions. 92




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##### Table of Contents



Grants of
    Plan Based Awards
  All OtherAll Other

OptionStock

Awards:



Grant DateEstimated Future Payouts

Awards:

Number of

Exercise

Fair ValueUnder Non-Equity Incentive

Number

Securities

Price of

of StockGrant

Plan Awards

of Shares

Underlying

Option

and OptionName

Date

Threshold

Target

Maximum

of Stocks

Options

Awards

AwardsGerald C. Rittenberg


1/1/2010







1,102,500



1,448,905















James M. Harrison


1/1/2010







937,125



1,231,569















Gregg A. Melnick(1)


3/10/2010



















30


$
28,350


$
232,5303/10/2010



















16



28,350




(2)1/1/2010







262,500



393,750















Michael A. Correale


1/1/2010







172,500



226,699















     (1)
    
    For more information on Mr. Melnicks grants, please see
     Stock-based Incentive Program.(2)
    
    There is no value assigned to performance grants, as such grants
    do not vest until the performance conditions are met.  Outstanding
    Equity Awards
    Option Awards

Equity Incentive Plan Awards

Exercise

ExpirationName

Exercisable

Unexercisable

Exercisable

Unexercisable

Price ($/Share)

Date(1)Gerald C. Rittenberg














100.00



22,340



3/6/201842.40











127.20



12,000



4/1/2016154.51











162.86



10,000



4/1/201540.58















2,500



4/30/2014James M. Harrison














75.00



22,340



3/6/201838.16











114.48



12,000



4/1/2016103.01











108.58



10,000



4/1/201520.29















2,500



4/30/2014Michael A. Correale


12.72











25.44



12,000



4/1/201610.44











17.40



10,000



4/1/2015Gregg A. Melnick






30.00







16.00



28,350



3/10/20202.00



3.00







10.00



22,340



2/25/201825.00











50.00



12,000



4/1/2016     (1)
    
    Option awards that expire on April 30, 2014 were fully
    vested at issuance. Option awards that expire on April 1,
    2015 vested 20% on April 30, 2005 and 20% per year
    thereafter. Option awards that expire on April 1, 2016
    vested 20% on December 23, 2006 and 20% per year
    thereafter. All other option awards shown vest annually 20% per
    year beginning on the first anniversary of the grant date.  Options
    Exercised
    Potential
    Payments upon Change in Control
   93




---



##### Table of Contents



Without Cause or

Death and

Change-in-Name

Benefit

for Good Reason

Disability

Control(5)Gerald C. Rittenberg

Severance(1)

$
3,307,500


$



$
3,307,500Bonus(2)


1,448,900



1,448,900



1,448,900Deferred Bonus(3)


1,050,000



1,050,000



1,050,000James M. Harrison

Severance(1)

$
2,811,375


$



$
2,811,375Bonus(2)


1,231,600



1,231,600



1,231,600Deferred Bonus(3)


750,000



750,000



750,000Michael A. Correale

Severance(4)

$
517,500


$



$
     (1)
    
    Represents payment under the employment contracts based on a
    severance multiplier of 3.0 times the executive officers
    base salary for the year of termination. The employee contracts
    permit us in our sole discretion to select a multiplier of 1.0,
    2.0 or 3.0 equal to the number of years post-employment the
    executives activities would be subject to restrictions.(2)
    
    Represents actual payments for bonus for the year of termination.(3)
    
    Represents accrued but unpaid deferred bonus earned by the
    executive officer through the date of termination.(4)
    
    Represents payment under the severance agreement based on the
    officers base salary and 50% bonus for the year of
    termination.(5)
    
    If Mr. Rittenberg and Mr. Harrison are not offered
    employment on substantially similar terms by us or one of our
    affiliates following a change in control, they would be eligible
    for severance payments as if terminated without cause. See
    (1) above for the calculation of termination benefits.  Employment
    Arrangements
 
  Employment Agreement with Gerald C.
    Rittenberg.
 
 94




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non-competition non-solicitation
 
 
  Employment Agreement with James M.
    Harrison.
 
 
  Prior Employment Agreements with Mr. Rittenberg and
    Mr. Harrison.
 
 95




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##### Table of Contents



Equity
    Incentive Plans
 
 
  2004
    Equity Incentive Plan
 
 
   
 
  Plan Administration.
 
 
  Authorized Shares.
 
 
  Eligibility.
 
 
  Types of Awards; Vesting.
 
 
  Termination of Employment.
 
 
  Corporate Transactions.
 
 96




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##### Table of Contents



Amendment and Termination.
 
 
 
 
  2011
    Omnibus Incentive Plan
 
 
   
 
  Plan Administration.
 
 
  Authorized Shares.
 
 
  Individual Limits.
 
 
  Eligibility.
 
 
  Types of Awards; Vesting.
 
 
  Termination of Employment.
 
 
  Performance Criteria.
 
 97




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##### Table of Contents



and/or and/or
 
 
   
 
  Corporate Transactions.
 
 
  Adjustment.
 
 
  Amendment and Termination.
 
 98




---



##### Table of Contents



Party
    City Holdings Inc. Executive Annual Incentive Plan
 
 
   
 
  Administration.
 
 
  Eligibility.
 
 
  Awards.
 
 
  Performance Criteria. and/or and/or
 
 
   
 99




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##### Table of Contents



Payment.
 
 
  Payment Limits.
 
 
  Amendment and Termination.
 
  Director
    Compensation
  Annual
    Compensation
      Fees Earned or

OptionName

Paid in Cash

Awards(a)

TotalJordan A. Kahn

$
26,000


$



$
26,000William Kussell


19,500



13,214



33,500Carol M. Meyrowitz


26,000







26,000    (a)
    
    Amount shown represents the grant date fair market value
    computed in accordance with ASC Topic 718 for the two
    time-based
    stock options Mr. Kussell received for joining the board of
    directors. There were no other options held by Mr. Kussell at
    December 31, 2010.  Compensation
    Committee Interlocks and Insider Participation
   100




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##### Table of Contents



PRINCIPAL
    AND SELLING STOCKHOLDERS   
  
    each person whom we know beneficially owns more than five
    percent of our common stock;
    each of our directors;
    each of our named executive officers;
    all of our directors and executive officers as a group; and
    each other selling stockholder.   
   
  c/o Party
  
 Number of Shares of





Number of Shares ofCommon Stock


Number


Common StockBeneficially Owner Prior


of


Beneficially Ownerto the Offering


Shares


After the OfferingName of Beneficial Owner

Number


Percentage


Offered


Number


PercentageFunds managed by Advent International Corporation(1)


11,918.71



37.10
%











%Berkshire Partners LLC(2)


11,609.45



36.14
%











%Weston Presidio(3)


5,605.16



17.45
%











%Steven J. Collins(4)


11,918.71



37.10
%











%Michael A. Correale(5)


36.66



*












%Michael F. Cronin(6)


5,605.16



17.45
%











%James M. Harrison(7)


262.30



*












%Kevin M. Hayes(6)


5,605.16



17.45
%











%Jordan A. Kahn(9)


59.33



*












%William Kussell(13)


0.40



*












%Richard K. Lubin(10)


11,609.45



36.14
%











%Gregg A. Melnick(8)


74.00



*












%Carol M. Meyrowitz(11)


27.95



*












%David M. Mussafer(4)


11,918.71



37.10
%











%Gerald C. Rittenberg(12)


432.02



1.33
%











%Robert J. Small(10)


11,609.45



36.14
%











%All directors and executive officers as a group (13 persons)


30,025.98



91.99
%











%Selling Stockholders







%











%  
 101




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##### Table of Contents



(1)
    
    The funds managed by Advent International Corporation own 100%
    of
    Advent-Amscan
    Acquisition Limited Partnership, which in turn owns 37.10% of
    Party City Holdings Inc., for a 37.10% indirect ownership for
    the funds managed by Advent International Corporation. This
    37.10% indirect ownership consists of 5,506 shares of
    Class B Common Shares purchased by Advent International
    Global Private Equity VI Limited Partnership, 3,042 shares
    of Class B Common Shares purchased by Advent International
    Global Private Equity VI-A Limited Partnership, 279 shares
    of Class B Common Shares purchased by Advent International
    Global Private Equity VI-B Limited Partnership, 284 shares
    of Class B Common Shares purchased by Advent International
    Global Private Equity VI-C Limited Partnership, 213 shares
    of Class B Common Shares purchased by Advent International
    Global Private Equity VI-D Limited Partnership, 685 shares
    of Class B Common Shares purchased by Advent International
    Global Private Equity VI-E Limited Partnership,
    1,036 shares of Class B Common Shares purchased by
    Advent International Global Private Equity VI-F Limited
    Partnership, 653 shares of Class B Common Shares
    purchased by Advent International Global Private Equity VI-G
    Limited Partnership, 201 shares of Class B Common
    Shares purchased by Advent Partners GPE VI 2008 Limited
    Partnership, 19 shares of Class B Common Shares
    purchased by Advent Partners GPE VI-A Limited Partnership.
    Advent International Corporation is the manager of Advent
    International LLC, which in turn is the general partner of GPE
    VI GP Limited Partnership and GPE VI GP (Delaware) Limited
    Partnership. GPE VI GP Limited Partnership is the general
    partner of Advent International GPE VI Limited Partnership,
    Advent International GPE VI-A Limited Partnership, Advent
    International GPE VI-B Limited Partnership, Advent International
    GPE VI-F Limited Partnership and Advent International GPE VI-G
    Limited Partnership. GPE VI GP (Delaware) is the general partner
    of Advent International GPF VI-C Limited Partnership, Advent
    International GPE VI-D Limited Partnership and Advent
    International GPE VI-E Limited Partnership. Advent International
    Corporation is the manager of Advent International LLC, which in
    turn is the general partner of Advent Partners GPE VI 2008
    Limited Partnership and Advent Partners GPE VI-A Limited
    Partnership. Limited partners of Advent Partners GPE VI 2008
    Limited Partnership and Advent Partners GPE VI-A Limited
    Partnership are individuals affiliated with Advent. Advent
    International Corporation exercises voting and investment power
    over the shares held by each of these entities and may be deemed
    to have beneficial ownership of these shares. With respect to
    the common shares of Party City Holdings Inc. held by the funds
    managed by Advent International Corporation, a group of
    individuals currently composed of Ernest G. Bachrach, Steven J.
    Collins, David M. Mussafer and Steven M. Tadler exercises
    voting and investment power over the shares beneficially owned
    by Advent International Corporation. Each of Mr. Bachrach,
    Mr. Collins, Mr. Mussafer and Mr. Tadler
    disclaims beneficial ownership of the shares held by the funds
    managed by Advent International Corporation, except to the
    extent of their respective pecuniary interest therein. The
    address of Advent International Corporation and each of the
    funds listed above is
    c/o Advent
    International Corporation, 75 State Street, Boston, MA 02109. 
 
  (2)
    
    Consists of: (i) 2,553.36 shares of common stock owned
    by Berkshire Fund V, Limited Partnership; (Berkshire
    Fund V), (ii) 8,290.22 shares of common stock
    owned by Berkshire Fund VI, Limited Partnership
    (Berkshire Fund VI)
    (iii) 347.23 shares of common stock owned by Berkshire
    Investors LLC (Berkshire Investors); and
    (iv) 19.51 shares of common stock owned by Berkshire
    Investors III LLC (Berkshire Investors III). In
    addition, Berkshire Fund IV, Limited Partnership and
    Berkshire Investors, through GB Holdings I LLC, own
    399.134 shares of common stock and share voting and
    investment power over those shares. Fifth Berkshire Associates
    LLC, a Massachusetts limited liability company
    (5BA), is the general partner of Berkshire
    Fund V and the managing members of 5BA are Bradley M.
    Bloom, Jane Brock-Wilson, Kevin T. Callaghan, Carl
    Ferenbach, Ross M. Jones, Richard K. Lubin,
    David R. Peeler and Robert J. Small (the
    Berkshire V Principals). The Berkshire V Principals
    often make acquisitions in, and dispose of, securities of an
    issuer on the same terms and conditions and at the same time.
    Berkshire Partners is the investment advisor to Berkshire
    Fund V. Sixth Berkshire Associates LLC, a Massachusetts
    limited liability company (6BA), is the general
    partner of Berkshire Fund VI and the managing members of
    6BA are Michael C. Ascione, Bradley M. Bloom, Jane Brock-Wilson,
    Kevin T. 
 102




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##### Table of Contents



Callaghan, Carl Ferenbach, Christopher J. Hadley,
    Lawrence S. Hamelsky, Ross M. Jones, Richard K. Lubin,
    Joshua A. Lutzker, David R. Peeler and Robert J. Small (the
    Berkshire VI Principals). The Berkshire VI
    Principals often make acquisitions in, and dispose of,
    securities of an issuer on the same terms and conditions and at
    the same time. Berkshire Partners is the investment advisor to
    Berkshire Fund VI. The managing members of Berkshire
    Investors are Michael C. Ascione, Bradley M. Bloom, Jane
    Brock-Wilson, Kevin T. Callaghan, Carl Ferenbach, Christopher J.
    Hadley, Lawrence S. Hamelsky, Sharlyn C. Heslam, Elizabeth L.
    Hoffman, Ross M. Jones, Richard K. Lubin, Joshua A. Lutzker,
    David R. Peeler and Robert J. Small (the Investors
    Principals). The managing members of Berkshire
    Investors III are Michael C. Ascione, Bradley M. Bloom,
    Jane Brock-Wilson, Kevin T. Callaghan, Carl Ferenbach,
    Christopher J. Hadley, Lawrence S. Hamelsky, Sharlyn C. Heslam,
    Elizabeth L. Hoffman, Ross M. Jones, Richard K. Lubin, Joshua A.
    Lutzker, David R. Peeler and Robert J. Small (the
    Investors III Principals). Mr. Lubin and
    Mr. Small are directors of the Company. By virtue of their
    positions as managing members of 5BA, 6BA, Berkshire Investors,
    Berkshire Investors III, the Berkshire V Principals, the
    Berkshire VI Principals, the Investors Principals and the
    Investors III Principals, respectively, may be deemed to
    possess indirect beneficial ownership of the shares of common
    stock beneficially owned by Berkshire Fund V, Berkshire
    Fund VI, Berkshire Investors and Berkshire
    Investors III, respectively. However, none of the managing
    members, acting alone, has voting or investment power with
    respect to shares beneficially owned by Berkshire Fund V,
    Berkshire Fund VI, Berkshire Investors and Berkshire
    Investors III and, as a result, each managing member,
    including Mr. Lubin and Mr. Small, disclaims
    beneficial ownership of the shares held by Berkshire
    Fund V, Berkshire Fund VI, Berkshire Investors and
    Berkshire Investors III. The entities and individuals named
    in this footnote may be deemed to constitute a group
    for purposes of section 13(d) of the Exchange Act, although
    they do not admit to being part of a group, nor have they agreed
    to act as part of a group. The address of all the entities and
    the managing members mentioned above is 200 Clarendon Street,
    35th Floor, Boston, Massachusetts
    02116-5021. 
  (3)
    
    Consists of: (i) 5,517.82 shares of common stock owned
    by Weston Presidio Capital IV, L.P.; and
    (ii) 87.34 shares owned by WPC Entrepreneur
    Fund II, L.P.(4)
    
    Mr. Collins and Mr. Mussafer are members of a group of
    persons who exercise voting and investment power over the shares
    beneficially owned by the funds managed Advent International
    Corporation and may be deemed to beneficially own the shares
    held by the Advent Funds, except to the extent of their
    respective pecuniary interest therein. Mr. Collins and
    Mr. Mussafer each disclaim beneficial ownership of the
    shares held by the Funds managed by Advent International. Their
    addresses are
    c/o Advent
    International Corporation, 75 State Street, Boston,
    Massachusetts 02109.(5)
    
    Includes 23.16 shares which could be acquired by
    Mr. Correale within 60 days upon exercise of options.(6)
    
    Consists of: (i) 5,517.82 shares of common stock owned
    by Weston Presidio Capital IV, L.P.; and
    (ii) 87.34 shares owned by WPC Entrepreneur
    Fund II, L.P. Mr. Cronin is a Managing Partner of
    Weston Presidio, and Mr. Hayes is a Partner of Weston
    Presidio. Mr. Cronin and Mr. Hayes each disclaims
    beneficial ownership of the shares held by Weston Presidio,
    except to the extent of his pecuniary interest therein. Their
    addresses are 200 Clarendon Street, 50th Floor, Boston,
    Massachusetts 02116. 
  (7)
    
    Includes 262.30 shares which could be acquired by
    Mr. Harrison within 60 days upon exercise of options.
    Also includes 75.84 shares held by a family trust for which
    Mr. Harrisons wife serves as the trustee. 
  (8)
    
    Includes 34.00 shares which could be acquired by
    Mr. Melnick within 60 days upon exercise of options.(9)
    
    Includes 2.5 shares which could be acquired by
    Mr. Kahn within 60 days upon exercise of options. 
  (10)
    
    Mr. Lubin and Mr. Small are managing members of
    Berkshire Investors, Berkshire Investors III, 5BA and 6BA.
    In their capacity as managing members of the aforementioned
    entities, Mr. Lubin and Mr. Small may be deemed to
    have shared investment and voting power over shares beneficially
    owned 
 103




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##### Table of Contents



by Berkshire Investors, Berkshire Investors III, Berkshire
    Fund V and Berkshire Fund VI. Mr. Lubin and
    Mr. Small each disclaims beneficial ownership of the shares
    held by these entities. Their address is 200 Clarendon
    Street, 35th Floor, Boston, Massachusetts
    02116-5021. 
 
  (11)
    
    Includes 2.12 shares which could be acquired by
    Ms. Meyrowitz within 60 days upon exercise of options.
    Also includes 25.83 shares held indirectly through a trust. 
 
  (12)
    
    Includes 432.02 shares which could be acquired by
    Mr. Rittenberg within 60 days upon exercise of
    options. Also includes 52.2 shares held indirectly in a limited
    liability company. 
 
  (13)
    
    Includes 0.40 shares which could be acquired by Mr. Kussell
    within 60 days upon exercise of options. 
 104




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##### Table of Contents



CERTAIN
    RELATIONSHIPS AND RELATED PARTY TRANSACTIONS  Related
    Person Transactions Policy
        
    the benefits to the Company;
    the impact on a directors independence in the event the
    related person is a director, an immediate family member of a
    director or an entity in which a director has a position or
    relationship;
    the availability of other sources for comparable products or
    services;
    the terms of the transaction; and
    the terms available to unrelated third parties or to employees
    generally.    Agreements
    with Management
    Management
    Agreement
   105




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##### Table of Contents



Stockholders
    Agreement
  (
      Registration
    and Information Rights Agreement
   106




---



##### Table of Contents



DESCRIPTION
    OF CAPITAL STOCK    General
    Common
    Stock
        Preferred
    Stock
    Anti-takeover
    Effects of the Delaware General Corporation Law and our Third
    Amended and Restated Certificate of Incorporation and
    Bylaws
    Classified
    Board of Directors
   107




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Action
    by Written Consent
    Special
    Meeting of Stockholders and Advance Notice Requirements for
    Stockholder Proposals
        Amendment
    to Third Amended and Restated Certificate of Incorporation and
    Bylaws
   108




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Renouncement
    of Corporate Opportunity
 
 
   
  Exclusive
    Jurisdiction of Certain Actions
    Business
    Combinations
    
    prior to such time, our board of directors approved either the
    business combination or the transaction which resulted in the
    stockholder becoming an interested stockholder;
    upon consummation of the transaction that resulted in the
    stockholder becoming an interested stockholder, the interested
    stockholder owned at least 85% of our voting stock outstanding
    at the time the transaction commenced, excluding certain
    shares; or
    at or subsequent to that time, the business combination is
    approved by our board of directors and by the affirmative vote
    of holders of at least
    662/3%
    of the outstanding voting stock that is not owned by the
    interested stockholder.     109




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##### Table of Contents



Transfer
    Agent and Registrar
 
   
  Listing
   110




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##### Table of Contents



DESCRIPTION
    OF CERTAIN DEBT  New ABL
    Facility
 
  General
 
   
 
   
 
   
 
   
 
   
 
   
  Interest
    Rate and Fees
 
   
 111




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##### Table of Contents



forty-five forty-five
 
 
   
  Guarantees
    and Security
 
   
  Covenants
    and Other Matters
 
   
  
    incur additional indebtedness; 
  
    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of the Company, Amscan
    Holdings, or any of its restricted subsidiaries or make payments
    on, or redeem, repurchase or retire any indebtedness; 
 112




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##### Table of Contents




    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens;
    transfer or sell assets;
    guarantee debt; 
  
    create restrictions on liens or the payment of dividends or
    other amounts to us from our restricted subsidiaries; 
  
    consolidate, merge or transfer all or substantially all of our
    assets and the assets of our subsidiaries; and
    engage in unrelated businesses. 
   
 
   
 
  New Term
    Loan Credit Agreement
 
  General
 
   
 
   
 
   
  Amortization
    and Maturity
 
   
 113




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##### Table of Contents



Interest
    Rate and Fees
 
   
 
   
  Prepayments
 
   
 
   
 
   
  Guarantees
    and Security
 
   
  Covenants
    and Other Matters
 
   
  
    incur additional indebtedness; 114




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##### Table of Contents




    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of Amscan Holdings, us, or
    any restricted subsidiary or make payments on, or redeem,
    repurchase or retire any subordinated indebtedness;
    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens;
    transfer or sell assets;
    guarantee debt; 
  
    create restrictions on liens or the payment of dividends or
    other amounts to us from our restricted subsidiaries; 
  
    consolidate, merge or transfer all or substantially all of our
    assets and the assets of our subsidiaries; and
    engage in unrelated businesses. 
   
  Notes
  General
 
   
  Covenants
 
   
  
    incur additional indebtedness or issue preferred stock; 
  
    pay dividends or distributions on capital stock or redeem,
    repurchase or retire capital stock of Amscan Holdings or any
    restricted subsidiary or make payments on, or redeem, repurchase
    or retire any indebtedness subordinated to the senior
    subordinated notes; 
  
    make certain investments, loans, advances and acquisitions;
    enter into sale and leaseback transactions;
    engage in transactions with affiliates;
    create liens; 
  
    guarantee debt; 
  
    create restrictions on the payment of dividends or other amounts
    to Amscan Holdings from its restricted subsidiaries;
    consolidate, merge or transfer all or substantially all of
    Amscan Holdings assets and the assets of its
    subsidiaries; and 115




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##### Table of Contents




    engage in unrelated businesses. 
   
  Prepayments
    Year

Percentage2010


102.917
%2011


101.458
%2012 and thereafter


100.000
%       Asset
    Sales
    Other
    Indebtedness
     116




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SHARES ELIGIBLE
    FOR FUTURE SALE      lock-up
  Number of Shares

Date of Availability for SaleOn the date of this prospectus180 days after the date of this prospectus and various
    times thereafter   Lock-Up
    Agreements
    Rule 144
      
    1% of the number of shares of our common stock then outstanding,
    which will equal
    approximately           shares
    immediately after this offering; and
    the average weekly trading volume in our common stock
    on      during the four calendar weeks
    preceding the date of filing of a Notice of Proposed Sale of
    Securities Pursuant to Rule 144 with respect to the sale. 117




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Rule 701
    Stock
    Plans
  Form S-8 lock-up
  Registration
    Rights
  lock-up
 118




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##### Table of Contents



MATERIAL
    U.S. FEDERAL INCOME TAX CONSIDERATIONS FORNON-U.S.
    HOLDERS OF COMMON STOCK  Non-U.S. Holders Non-U.S. Holders
  Non-U.S. Holders non-U.S. jurisdiction.
  Non-U.S. Holder
  
    an individual who is a citizen or resident of the United States;
    a corporation or any other organization taxable as a corporation
    for U.S. federal income tax purposes, created or organized
    in or under the laws of the United States, any state thereof or
    the District of Columbia;
    an estate, the income of which is included in gross income for
    U.S. federal income tax purposes regardless of its
    source; or
    a trust if (1) a U.S. court is able to exercise
    primary supervision over the trusts administration and one
    or more U.S. persons have the authority to control all of
    the trusts substantial decisions or (2) the trust has
    a valid election in effect under applicable U.S. Treasury
    regulations to be treated as a U.S. person.    Non-U.S. Holder
  THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT
    INTENDED TO BE TAX ADVICE.
    NON-U.S. HOLDERS
    ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
    U.S. FEDERAL INCOME AND ESTATE TAXATION, STATE, LOCAL AND
    NON-U.S. TAXATION
    AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
    AND DISPOSITION OF OUR COMMON STOCK.
 119




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##### Table of Contents



Distributions
    on Our Common Stock
    Non-U.S. Holder Non-U.S. Holder Form W-8,
  
    IRS
    Form W-8BEN
    (or successor form) certifying, under penalties of perjury, a
    reduction in withholding under an applicable income tax
    treaty, or
    IRS
    Form W-8ECI
    (or successor form) certifying that a dividend paid on common
    stock is not subject to withholding tax because it is
    effectively connected with a trade or business in the United
    States of the
    Non-U.S. Holder
    (in which case such dividend generally will be subject to
    regular graduated U.S. tax rates as described below).  Non-U.S. Holder Non-U.S. Holders
  Non-U.S. Holder
  Non-U.S. Holder Non-U.S. Holder, Non-U.S. Holder Non-U.S. Holder
  Non-U.S. Holders
  Gain on
    Sale, Exchange or Other Taxable Disposition of Our Common
    Stock
  Non-U.S. Holder Non-U.S. Holder Non-U.S. Holders
 120




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##### Table of Contents



Non-U.S. Holder Non-U.S. Holder
  Non-U.S. Holder Non-U.S. Holders Non-U.S. Holder Non-U.S. Holder
  Non-U.S. Holder Non-U.S. Holder
  Additional
    Withholding Requirements
    Backup
    Withholding and Information Reporting
  Non-U.S. Holder Non-U.S. Holders Non-U.S. Holders
 121




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##### Table of Contents



Non-U.S. Holder Non-U.S. Holder Non-U.S. Holder non-U.S. office non-U.S. office
  Non-U.S. Holder Non-U.S. Holder
  Non-U.S. Holder Non-U.S. Holders
  Federal
    Estate Tax
   122




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##### Table of Contents



UNDERWRITING    
 Underwriters

Number of SharesGoldman, Sachs & Co.Merrill Lynch, Pierce, Fenner & SmithIncorporatedBarclays Capital Inc.Deutsche Bank Securities Inc.Credit Suisse Securities (USA) LLCMorgan Stanley & Co. LLCWells Fargo Securities, LLCRobert W. Baird & Co. IncorporatedWilliam Blair & Company, L.L.C.RBC Capital Markets, LLCStifel, Nicolaus & Company, IncorporatedTotal  
        Paid
    by the Company
  No Exercise

Full ExercisePer Share

$



$Total

$



$   Paid
    by the Selling Stockholders
  No Exercise

Full ExercisePer Share

$



$Total

$



$    123




---



##### Table of Contents



180-day 180-day 180-day 15-day 180-day 18-day
          over-the-counter
   124




---



##### Table of Contents



e-mail.
          and/or and/or and/or
  Conflicts
    of Interest
      European
    Economic Area
   125




---



##### Table of Contents



(2)
    to fewer than 100 or, if the Relevant Member State has
    implemented the relevant provision of the 2010 PD Amending
    Directive, 150 natural or legal persons (other than qualified
    investors as defined in the Prospectus Directive), as permitted
    under the Prospectus Directive, subject to obtaining the prior
    consent of the relevant underwriter or underwriters nominated by
    the Issuer for any such offer; or(3)
    in any other circumstances which do not require the publication
    by the Issuer of a prospectus pursuant to Article 3(2) of
    the Prospectus Directive;      United
    Kingdom
        Hong
    Kong
   126




---



##### Table of Contents



Singapore
      Japan
    Switzerland
     127




---



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Dubai
    International Financial Centre
  and/or
 128




---



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VALIDITY
    OF COMMON STOCK   EXPERTS   WHERE YOU
    CAN FIND ADDITIONAL INFORMATION  Form S-1
 
  1-800-SEC-0330. (http://www.sec.gov) Form 10-K, Form 10-Q, Form 8-K
 
 129




---



##### 



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    AND FINANCIAL STATEMENT SCHEDULE
   
 
 Condensed Consolidated Financial Statements as of and for the
    Three Months Ended March 31, 2011Condensed Consolidated Balance Sheets at
    March 31, 2011 and December 31, 2010


F-2Condensed Consolidated Statements of Operations
    for the Three Months Ended March 31, 2011 and 2010


F-3Condensed Consolidated Statement of
    Stockholders Equity for the Three Months Ended
    March 31, 2011


F-4Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2011 and 2010


F-5Notes to Condensed Consolidated Financial
    Statements


F-6Consolidated Financial Statements as of and for the Three
    Years Ended December 31, 2010Report of Independent Registered Public
    Accounting Firm


F-18Consolidated Balance Sheets at December 31,
    2010 and 2009


F-19Consolidated Statements of Income for the Years
    Ended December 31, 2010, 2009 and 2008


F-20Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2010, 2009 and
    2008


F-21Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2010, 2009 and 2008


F-22Notes to Consolidated Financial Statements


F-23Financial Statement Schedule for the Years Ended
    December 31, 2010, 2009 and 2008:Schedule II  Valuation and
    Qualifying Accounts


F-66  
    F-1




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##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  CONDENSED CONSOLIDATED BALANCE
    SHEETS
  March 31,


December 31,2011


2010(Unaudited)


(Note 3)(Amounts in thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
18,221


$
20,454Accounts receivable, net of allowances


113,889



107,331Inventories, net of allowances


437,059



424,317Prepaid expenses and other current assets


65,037



65,672Total current assets


634,206



617,774Property, plant and equipment, net


202,757



190,729Goodwill


660,366



630,492Trade names


129,954



129,954Other intangible assets, net


52,795



55,362Other assets, net


29,250



28,840Total assets

$
1,709,328


$
1,653,151LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
227,632


$
150,098Accounts payable


91,848



108,172Accrued expenses


107,803



111,054Income taxes payable


29,550



34,325Redeemable warrants






15,086Current portion of long-term obligations


9,100



9,046Total current liabilities


465,933



427,781Long-term obligations, excluding current portion


839,051



841,112Deferred income tax liabilities


95,091



94,981Deferred rent and other long-term liabilities


17,623



14,766Total liabilities


1,417,698



1,378,640Redeemable common securities (including 1,142.27 and 597.52
    common shares issued and outstanding at March 31, 2011 and
    December 31, 2010, respectively)


33,179



18,089Commitments and contingenciesStockholders equity:Class A common stock, $0.01 par value, 19,051.31 and
    18,905.31 shares issued and outstanding at March 31,
    2011 and December 31, 2010, respectively






Class B common stock, $0.01 par value, convertible
    into Class A common stock, 11,918.71 shares issued and
    outstanding at March 31, 2011 and December 31, 2010






Additional paid-in capital


287,751



287,583Retained deficit


(30,119
)


(27,558
)Accumulated other comprehensive loss


(1,613
)


(5,915
)Party City Holdings Inc. stockholders equity


256,019



254,110Noncontrolling interests


2,432



2,312Total stockholders equity


258,451



256,422Total liabilities, redeemable common securities and
    stockholders equity

$
1,709,328


$
1,653,151    F-2




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended March 31,2011


2010(Unaudited)(Amounts in thousands)Revenues:Net sales

$
352,501


$
304,379Royalties and franchise fees


3,681



3,844Total revenues


356,182



308,223Expenses:Cost of sales


225,014



199,900Wholesale selling expenses


13,852



10,390Retail operating expenses


61,848



52,960Franchise expenses


3,365



3,124General and administrative expenses


31,545



29,925Art and development costs


3,950



3,636Total expenses


339,574



299,935Income from operations


16,608



8,288Interest expense, net


20,368



9,301Other expense (income), net


62



(69
)Loss before income taxes


(3,822
)


(944
)Income tax benefit


(1,330
)


(575
)Net loss


(2,492
)


(369
)Less: net income attributable to noncontrolling interest


71



43Net loss attributable to Party City Holdings Inc.

$
(2,563
)

$
(412
)Net loss per common share-basic

$



$Net loss per common share-diluted

$



$Weighted-average number of common shares-basicWeighted-average number of common shares-diluted    F-3




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  CONDENSED CONSOLIDATED STATEMENT OF
    STOCKHOLDERS EQUITY
 Three Months Ended March 31,
    2011
 
  
 Accumulated


Party CityClass A and Class B


Additional





Other


Holdings Inc.Common


Common


Paid-in


Retained


Comprehensive


Stockholders


Noncontrolling


TotalShares


Stock


Capital


Deficit


Loss


Equity


Interests


Equity(Unaudited)(Amounts in thousands)Balance at December 31, 2010


30,226.50


$



$
287,583


$
(27,558
)

$
(5,915
)

$
254,110


$
2,312


$
256,422Net loss














(2,563
)






(2,563
)


71



(2,492
)Net change in cumulative translation adjustment


















3,794



3,794



49



3,843Change in fair value of interest rate swap contracts, net of
    income taxes


















708



708







708Change in fair value of foreign exchange contracts, net of
    income taxes


















(200
)


(200
)






(200
)Comprehensive income






















1,739



120



1,859Exercise of redeemable warrants










(3
)










(3
)






(3
)Exercise of non-redeemable warrant


740.74



























Exercise of non-redeemable common stock options


2.78







28











28







28Equity based compensation expense










143











143







143Distribution in lieu of dividend














2







2







2Balance at March 31, 2011


30,970.02


$



$
287,751


$
(30,119
)

$
(1,613
)

$
256,019


$
2,432


$
258,451  
   F-4




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH
    FLOWS
  Three Months Ended March 31,2011


2010(Unaudited)(Amounts in thousands)Cash flows used in operating activities:Net loss

$
(2,492
)

$
(369
)Less: net income attributable to noncontrolling interest


71



43Net loss attributable to Party City Holdings Inc.


(2,563
)


(412
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization expense


13,249



11,574Amortization of deferred financing costs


1,197



221Provision for doubtful accounts


361



304Deferred income tax provision


261



377Deferred rent


2,023



437Undistributed income in unconsolidated joint venture


(313
)


(288
)Loss on disposal of equipment


5



303Equity based compensation


143



93Changes in operating assets and liabilities:Decrease (increase) in accounts receivable


1,660



(4,469
)Decrease in inventories


2,721



2,752Decrease (increase) in prepaid expenses and other current assets


3,392



(4,140
)Decrease in accounts payable, accrued expenses and income taxes
    payable


(35,043
)


(24,293
)Net cash used in operating activities


(12,907
)


(17,541
)Cash flows used in investing activities:Cash paid in connection with acquisitions


(56,420
)


(3,585
)Capital expenditures


(10,977
)


(6,924
)Proceeds from disposal of property and equipment


1



54Net cash used in investing activities


(67,396
)


(10,455
)Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations


(2,506
)


(3,383
)Borrowings under revolving credit facilities


77,816



33,815Distribution in lieu of dividend


2



Proceeds from exercise of stock options


28



Net cash provided by financing activities


75,340



30,432Effect of exchange rate changes on cash and cash equivalents


2,730



(802
)Net (decrease) increase in cash and cash equivalents


(2,233
)


1,634Cash and cash equivalents at beginning of period


20,454



15,420Cash and cash equivalents at end of period

$
18,221


$
17,054Supplemental disclosure of cash flow information:Cash paid during the periodInterest

$
14,032


$
4,751Income taxes

$
3,081


$
3,516    F-5




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
    (Amounts in thousands, except share amounts) Note 1 
    Description
    of Business    Note 2 
    Acquisitions         F-6




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     
   
      Note 3 
    Basis of
    Presentation   F-7




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
  Note 4 
    Inventories    March 31,


December 31,2011


2010Finished goods

$
426,912


$
416,831Raw Materials


13,670



11,879Work in Process


7,048



6,112447,630



434,822Reserve for slow-moving and obsolete inventory


(10,571
)


(10,505
)$
437,059


$
424,317   first-in, first-in,
  Note 5 
    Income
    Taxes      Note 6 
    Restructuring   F-8




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7 
    Comprehensive
    Income (Loss)    Three Months Ended March 31,2011


2010Net loss

$
(2,563
)

$
(412
)Net change in cumulative translation adjustment


3,794



(1,032
)Change in fair value of interest rate swap contracts, net of
    income tax expense of $416 and $290


708



494Change in fair value of foreign exchange contracts, net of
    income tax (benefit) expense of $(117) and $313


(200
)


532Comprehensive income (loss)

$
1,739


$
(418
)   Note 8 
    Capital
    Stock   
   
  one-for-one
   
   
 F-9




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 9 
    Segment
    Information  Industry
    Segments
      Wholesale


Retail


ConsolidatedThree Months Ended March 31, 2011Revenues:Net sales

$
199,576


$
220,106


$
419,682Royalties and franchise fees






3,681



3,681Total revenues


199,576



223,787



423,363Eliminations


(67,181
)






(67,181
)Net Revenues

$
132,395


$
223,787


$
356,182Income (loss) from operations

$
17,286


$
(678
)

$
16,608Interest expense, net










20,368Other expense, net










62Loss before income tax benefit









$
(3,822
)Depreciation and amortization

$
5,134


$
8,115


$
13,249Total assets

$
1,036,646


$
672,682


$
1,709,328   F-10




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Wholesale


Retail


ConsolidatedThree Months Ended March 31, 2010Revenues:Net sales

$
160,959


$
198,456


$
359,415Royalties and franchise fees






3,844



3,844Total revenues


160,959



202,300



363,259Eliminations


(55,036
)






(55,036
)Net Revenues

$
105,923


$
202,300


$
308,223Income (loss) from operations

$
17,410


$
(9,122
)

$
8,288Interest expense, net










9,301Other income, net










(69
)Loss before income tax benefit









$
(944
)Depreciation and amortization

$
4,391


$
7,183


$
11,574Total assets

$
811,933


$
691,219


$
1,503,152   Geographic
    Segments
    Note 10 
    Legal
    Proceedings    Note 11 
    Stock
    Option Plan   
   
    Note 12 
    Hedging
    Transactions, Derivative Financial Instruments and Fair
    Value   F-11




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Rate Risk Management
      Foreign
    Exchange Risk Management
      Fair
    Value Measurement
   F-12




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    Level 1  Quoted prices in active markets for
    identical assets or liabilities.
    Level 2  Observable inputs other than quoted
    prices included in Level 1, such as quoted prices for
    similar assets and liabilities in active markets; quoted prices
    for identical or similar assets and liabilities in markets that
    are not active; or other inputs that are observable or can be
    corroborated by observable market data.
    Level 3  Unobservable inputs that are supported
    by little or no market activity and that are significant to the
    fair value of the assets or liabilities. This includes certain
    pricing models, discounted cash flow methodologies and similar
    techniques that use significant unobservable inputs.    Quoted Prices in


SignificantActive Markets for


Other


UnobservableIdentical Assets or


Observable


Inputs


Total as ofLiabilities (Level 1)


Inputs (Level 2)


(Level 3)


March 31, 2011Derivative assets





$
33






$
33Derivative liabilities






(1,274
)






(1,274
)   SignificantQuoted Prices in


OtherActive Markets for


Observable


UnobservableIdentical Assets or


Inputs


Inputs


Total as ofLiabilities (Level 1)


(Level 2)


(Level 3)


December 31, 2010Derivative assets





$
241






$
241Derivative liabilities






(2,288
)






(2,288
)      
   
  
 March 31, 2011


December 31, 2010Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueTerm Loans

$
665,205


$
671,857


$
666,644


$
674,060Senior Subordinated Notes


175,000



176,750



175,000



176,750  
   F-13




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivative Assets


Derivative LiabilitiesMarch 31,


December 31,


March 31,


December 31,2011


2010


2011


2010Notional Amounts


Balance





Balance





Balance





BalanceMarch 31,


December 31,


Sheet


Fair


Sheet


Fair


Sheet


Fair


Sheet


FairDerivative Instrument

2011


2010


Line


Value


Line


Value


Line


Value


Line


ValueInterest Rate Hedge

$
135,374


$
135,374






$







$





(b) AE

$
(1,120
)



(b) AE

$
(2,244
)Foreign Exchange Contracts


14,774



13,468




(a) PP


33




(a) PP


241




(b) AE


(154
)



(b) AE


(44
)Total Hedges

$
150,148


$
148,842






$
33






$
241






$
(1,274
)





$
(2,288
)         Note 13 
    Recently
    Issued Accounting Pronouncements  2011-01, No. 2010-20. 2011-01 2010-20
  Note 14 
    Condensed
    Consolidating Financial Information 
   
  
    Amscan Inc.
    Am-Source, LLC
    Anagram Eden Prairie Property Holdings LLC
    Anagram International, Inc.
    Anagram International Holdings, Inc.
    Anagram International, LLC
    Gags & Games, Inc.
    JCS Packaging Inc.
    M&D Industries, Inc.
    Party City Corporation
    PA Acquisition Corporation
    SSY Realty Corp. 
   
  
    Amscan (Asia-Pacific) Pty. Ltd. F-14




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Amscan de Mexico, S.A. de C.V.
    Amscan Distributors (Canada) Ltd.
    Anagram Espana, S.A.
    Anagram France S.C.S.
    Amscan Holdings Limited
    Anagram International (Japan) Co., Ltd.
    Amscan Partyartikel GmbH
    Christys Asia, Ltd.
    Christys By Design, Ltd.
    Christys Dress Up, Ltd.
    Christys Garments & Accessories Ltd.
    JCS Hong Kong Ltd.
    Riethmüller GmbH   F-15




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEET
    March 31, 2011
  Amscan Holdings,Inc. and Combined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Amounts in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
9,608


$
8,613


$



$
18,221Accounts receivable, net of allowances


75,137



38,752







113,889Inventories, net of allowances


399,394



38,744



(1,079
)


437,059Prepaid expenses and other current assets


58,881



6,156







65,037Total current assets


543,020



92,265



(1,079
)


634,206Property, plant and equipment, net


188,554



14,203







202,757Goodwill


608,302



52,064







660,366Trade names


129,954











129,954Other intangible assets, net


52,795











52,795Investment in and advances to unconsolidated subsidiaries


113,253







(113,253
)


Due from affiliates


73,843



59,788



(133,631
)


Other assets, net


28,349



901







29,250Total assets

$
1,738,070


$
219,221


$
(247,963
)

$
1,709,328LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable


227,632











227,632Accounts payable


80,469



11,379







91,848Accrued expenses


92,208



15,595







107,803Income taxes payable


29,932



(333
)


(49
)


29,550Due to affiliates


58,282



75,349



(133,631
)


Current portion of long-term obligations


9,059



41







9,100Total current liabilities


497,582



102,031



(133,680
)


465,933Long-term obligations, excluding current portion


838,972



79







839,051Deferred income tax liabilities


94,370



721







95,091Other


16,918



705







17,623Total liabilities


1,447,842



103,536



(133,680
)


1,417,698Redeemable common securities


33,179











33,179Commitments and contingenciesStockholders equity:Class A and Class B Common Stock






336



(336
)


Additional paid-in capital


287,751



78,094



(78,094
)


287,751Retained earnings


(29,089
)


36,065



(37,095
)


(30,119
)Accumulated other comprehensive income (loss)


(1,613
)


(1,242
)


1,242



(1,613
)Party City Holdings Inc. stockholders equity


257,049



113,253



(114,283
)


256,019Noncontrolling interests






2,432







2,432Total stockholders equity


257,049



115,685



(114,283
)


258,451Total liabilities, redeemable common securities and
    stockholders equity

$
1,738,070


$
219,221


$
(247,963
)

$
1,709,328  F-16




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEETDecember 31, 2010
  Amscan Holdings,Inc. and Combined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Amounts in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
14,198


$
6,256


$



$
20,454Accounts receivable , net


76,699



30,632







107,331Inventories, net


405,452



19,883



(1,018
)


424,317Prepaid expenses and other current assets


61,211



4,461







65,672Total current assets


557,560



61,232



(1,018
)


617,774Property, plant and equipment, net


187,574



3,155







190,729Goodwill


600,014



30,478







630,492Trade names


129,954











129,954Other intangible assets, net


55,362











55,362Investment in and advances to unconsolidated subsidiaries


64,485







(64,485
)


Due from affiliates


22,148



12,998



(35,146
)


Other assets, net


28,057



783







28,840Total assets

$
1,645,154


$
108,646


$
(100,649
)

$
1,653,151LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable


150,098











150,098Accounts payable


97,510



10,662







108,172Accrued expenses


102,749



8,305







111,054Income taxes payable


35,706



(1,355
)


(26
)


34,325Due to affiliates


11,593



23,553



(35,146
)


Redeemable warrants


15,086











15,086Current portion of long-term obligations


9,005



41







9,046Total current liabilities


421,747



41,206



(35,172
)


427,781Long-term obligations, excluding current portion


841,023



89







841,112Deferred income tax liabilities


94,427



554







94,981Other


14,766











14,766Total liabilities


1,371,963



41,849



(35,172
)


1,378,640Redeemable common securities


18,089











18,089Commitments and contingenciesStockholders equity:Class A and Class B Common Stock






336



(336
)


Additional paid-in capital


287,583



31,025



(31,025
)


287,583Retained (deficit)earnings


(26,566
)


37,535



(38,527
)


(27,558
)Accumulated other comprehensive (loss) income


(5,915
)


(4,411
)


4,411



(5,915
)Party City Holdings Inc. stockholders equity


255,102



64,485



(65,477
)


254,110Noncontrolling interests






2,312







2,312Total stockholders equity


255,102



66,797



(65,477
)


256,422Total liabilities, redeemable common securities and
    stockholders equity

$
1,645,154


$
108,646


$
(100,649
)

$
1,653,151  F-17




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   
   
  
 F-18




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
  December 31,2010


2009(Dollars in thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
20,454


$
15,420Accounts receivable, net of allowances


107,331



82,781Inventories, net of allowances


424,317



335,950Prepaid expenses and other current assets


65,672



58,719Total current assets


617,774



492,870Property, plant and equipment, net


190,729



174,994Goodwill


630,492



559,261Trade names


129,954



157,283Other intangible assets, net


55,362



54,669Other assets, net


28,840



41,424Total assets

$
1,653,151


$
1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
150,098


$
77,635Accounts payable


108,172



76,901Accrued expenses


111,054



93,680Income taxes payable


34,325



32,061Redeemable warrants


15,086



15,444Current portion of long-term obligations


9,046



34,906Total current liabilities


427,781



330,627Long-term obligations, excluding current portion


841,112



538,892Deferred income tax liabilities


94,981



101,570Deferred rent and other long-term liabilities


14,766



11,901Total liabilities


1,378,640



982,990Redeemable common securities (including 597.52 and 592.84 common
    shares issued and outstanding at December 31, 2010 and
    December 31, 2009 )


18,089



18,389Commitments and contingenciesStockholders equity:Class A common stock, $0.01 par value,
    18,307.79 and 18,308.33 shares issued and outstanding at
    December 31, 2010 and December 31, 2009, respectively






Class B common stock, $0.01 par value, convertible
    into Class A common stock, 11,918.17 shares issued and
    outstanding at December 31, 2010 and December 31, 2009






Additional paid-in capital


287,583



335,823Retained (deficit) earnings


(27,558
)


149,557Accumulated other comprehensive loss


(5,915
)


(8,395
)Party City Holdings Inc. stockholders equity


254,110



476,985Noncontrolling interests


2,312



2,137Total stockholders equity


256,422



479,122Total liabilities, redeemable common securities and
    stockholders equity

$
1,653,151


$
1,480,501    F-19




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31,2010


2009


2008(Dollars in thousands)Revenues:Net sales

$
1,579,677


$
1,467,324


$
1,537,641Royalties and franchise fees


19,417



19,494



22,020Total revenues


1,599,094



1,486,818



1,559,661Expenses:Cost of sales


943,058



899,041



966,426Selling expenses


42,725



39,786



41,894Retail operating expenses


296,891



261,691



273,627Franchise expenses


12,269



11,991



13,686General and administrative expenses


134,392



119,193



120,272Art and development costs


14,923



13,243



12,462Impairment of trade name


27,400







17,376Total expenses


1,471,658



1,344,945



1,445,743Income from operations


127,436



141,873



113,918Interest expense, net


40,850



41,481



50,915Other expense (income), net


4,208



(32
)


(818
)Income before income taxes


82,378



100,424



63,821Income tax expense


32,945



37,673



24,188Net income


49,433



62,751



39,633Less: net income (loss) attributable to noncontrolling interest


114



198



(877
)Net income attributable to Party City Holdings Inc.

$
49,319


$
62,553


$
40,510Net income per common share  basic

$



$



$Net income per common share  diluted

$



$



$Weighted-average number of common shares  basicWeighted-average number of common shares  diluted    F-20




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY
    For the Years Ended December 31, 2008, 2009 and 2010
  Accumulated


Party CityClass A and Class B


Additional


Retained


Other


Holdings Inc.


Non-Common


Common


Paid-in


(Deficit)


Comprehensive


Stockholders


controllingShares


Stock


Capital


Earnings


Income (Loss)


Equity


Interests


Total(Dollars in thousands)Balance at December 31, 2007


29,543.16


$



$
326,741


$
46,494


$
2,351


$
375,586


$
2,488


$
378,074Net income














40,510







40,510



(877
)


39,633Net change in cumulative translation adjustment


















(11,338
)


(11,338
)


(231
)


(11,569
)Change in fair value of interest rate swap contracts, net of
    income tax benefit


















(4,855
)


(4,855
)






(4,855
)Change in fair value of foreign exchange contracts, net of
    income taxes


















1,990



1,990







1,990Comprehensive income






















26,307



(1,108
)


25,199Purchase and revaluation of redeemable common securities


308.64







2,155











2,155







2,155Tax benefit on exercised options


397.30







1,823











1,823







1,823Equity based compensation expense










4,357











4,357







4,357Acquisition of PCFG minority interest


























509



509Other


(22.60
)


























Balance at December 31, 2008


30,226.50


$



$
335,076


$
87,004


$
(11,852
)

$
410,228



1,889


$
412,117Net income














62,553







62,553



198



62,751Net change in cumulative translation adjustment


















4,007



4,007



50



4,057Change in fair value of interest rate swap contracts, net of
    income taxes


















1,317



1,317







1,317Change in fair value of foreign exchange contracts, net of
    income tax benefit


















(1,867
)


(1,867
)






(1,867
)Comprehensive income






















66,010



248



66,258Purchase of redeemable common securities










(129
)










(129
)






(129
)Equity based compensation expense










876











876







876Balance at December 31, 2009


30,226.50


$



$
335,823


$
149,557


$
(8,395
)

$
476,985


$
2,137


$
479,122Net income














49,319







49,319



114



49,433Net change in cumulative translation adjustment


















(376
)


(376
)


61



(315
)Change in fair value of interest rate swap contracts, net of
    income taxes


















2,563



2,563







2,563Change in fair value of foreign exchange contracts, net of
    income tax benefit


















293



293







293Comprehensive income






















51,799



175



51,974Revaluation of redeemable common securities










(5,305
)










(5,305
)






(5,305
)Issuance of non-redeemable warrants










21,000











21,000







21,000Dividend distribution










(64,658
)


(226,434
)






(291,092
)






(291,092
)Equity based compensation expense










723











723







723Balance at December 31, 2010


30,226.50


$



$
287,583


$
(27,558
)

$
(5,915
)

$
254,110


$
2,312


$
256,422    F-21




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2010


2009


2008(Dollars in thousands)Cash flows provided by operating activities:Net income

$
49,433


$
62,751


$
39,633Less: net income (loss) attributable to noncontrolling interest


114



198



(877
)Net income attributable to Party City Holdings Inc.


49,319



62,553



40,510Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


49,418



44,382



47,278Amortization of deferred financing costs


2,475



2,163



2,221Provision for doubtful accounts


637



3,982



1,092Deferred income tax (benefit) expense


(8,942
)


8,803



(7,885
)Deferred rent


4,500



1,763



1,202Undistributed income in unconsolidated joint venture


(678
)


(632
)


(538
)Impairment of trade names


27,400







17,376Impairment of fixed assets


597



156



Loss (gain) on disposal of equipment


191



122



(1,195
)Equity based compensation


6,018



876



4,357Tax benefit on exercised options










(1,823
)Debt retirement costs


2,448







Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


(6,507
)


6,337



8,237(Increase) decrease in inventories


(85,767
)


30,933



(52,347
)(Increase) decrease in prepaid expenses and other current assets


(22,993
)


(21,173
)


31,240Increase (decrease) in accounts payable, accrued expenses and
    income taxes payable


43,052



(16,323
)


(9,796
)Net cash provided by operating activities


61,168



123,942



79,929Cash flows used in investing activities:Cash paid in connection with acquisitions


(53,348
)


(3,378
)


(1,616
)Cash held in escrow in connection with acquisitions






(24,881
)


Capital expenditures


(49,623
)


(26,195
)


(53,001
)Proceeds from disposal of property and equipment


205



96



3,418Net cash used in investing activities


(102,766
)


(54,358
)


(51,199
)Cash flows provided by (used in) financing activities:Repayment of loans, notes payable and long-term obligations


(393,289
)


(70,247
)


(26,842
)Proceeds from loans, notes payable and long-term obligations,
    net of debt issuance costs


742,153







Tax benefit on exercised options










1,823Sale of additional interest to minority shareholder










2,500Payments related to redeemable common stock and rollover options


(572
)






(514
)Dividend distribution


(301,829
)






Proceeds from issuance of common stock and exercise of options,
    net of retirements


52



90



Net cash provided by (used in) financing activities


46,515



(70,157
)


(23,033
)Effect of exchange rate changes on cash and cash equivalents


117



2,935



(9,913
)Net increase (decrease) in cash and cash equivalents


5,034



2,362



(4,216
)Cash and cash equivalents at beginning of period


15,420



13,058



17,274Cash and cash equivalents at end of period

$
20,454


$
15,420


$
13,058Supplemental disclosure of cash flow information:Cash paid during the periodInterest

$
38,363


$
40,207


$
52,511Income Tax

$
39,743


$
22,297


$
14,832        F-22




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (Dollars
    in thousands, except share and per share amounts)
  Note 1 
    Organization
    and Description of Business    Note 2 
    Summary
    of Significant Accounting Policies  Consolidated
    Financial Statements
   
   
    Use of
    Estimates
      Reclassification
    of prior year amounts
    Cash
    Equivalents
   F-23




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories
  first-in,
  store-by-store
  Allowance
    for Doubtful Accounts
    Long-Lived
    and Intangible Assets
         F-24




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Deferred
    Financing Costs
    Deferred
    Rent and Rental Expenses
 
   
  Investments
    Insurance
    Accruals
    Revenue
    Recognition
     
   
 
  e-commerce
 
 F-25




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  e-commerce e-commerce
  Cost
    of Sales
 
  e-commerce
 
 
  Retail
    Operating Expenses
 
 
   
  Shipping
    and Handling
    Store
    Closure Costs
    Product
    Royalty Agreements
    Catalogue
    Costs
    Advertising
   F-26




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Art
    and Development Costs
    Derivative
    Financial Instruments
    i.e i.e
  Income
    Taxes
    Stock-Based
    Compensation
     F-27




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Earnings
    Per Share
      December 31,2010


2009


2008Net income available for common stockholders

$
49,319


$
62,553


$
40,510Weighted average shares of Class A Common StockWeighted average shares of Class B Common StockShares used in net income per common share  basicEffect of dilutive securities:Stock options and warrantsDilutive potential common sharesShares used in net income per common share  dilutedNet income per common share  basic

$



$



$Net income per common share  diluted

$



$



$   a  -for-1
  Accumulated
    Other Comprehensive Loss
    Foreign
    Currency Transactions and Translation
    Recently
    Issued Accounting Pronouncements
  2010-20, 2010-20
 F-28




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2010-29,
  Note 3 
    Inventories    December 31,2010


2009Finished goods

$
416,831


$
325,421Raw materials


11,879



12,650Work in process


6,112



6,431434,822



344,502Less: reserve for slow moving and obsolete inventory


(10,505
)


(8,552
)$
424,317


$
335,950   Note 4 
    Property,
    Plant and Equipment, Net    December 31,2010


2009


Useful LivesMachinery and equipment

$
128,655


$
117,780



3-15 yearsBuildings


47,909



47,840



40 yearsData processing


67,631



50,691



3-5 yearsLeasehold improvements


72,114



64,617



1-20 yearsFurniture and fixtures


115,043



93,870



5-10 yearsLand


6,059



6,009437,411



380,807Less: accumulated depreciation


(246,682
)


(205,813
)$
190,729


$
174,994      F-29




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2010


2009Machinery and equipment under capital leases

$
10,030


$
9,444Less: accumulated amortization


(6,269
)


(4,212
)$
3,761


$
5,232     Note 5 
    Acquisitions
    and Transactions  Wholesale
    Acquisitions
       F-30




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Franchise
    Store Acquisitions
    Goodwill
    Changes by Reporting Segment
    2010


2009Wholesale segment:Beginning balance

$
283,612


$
280,005Bakery Sugarcraft acquisition






2,652American Greetings acquisition


27,463Christys acquisition


25,309Foreign currency impact


(340
)


955Ending balance


336,044



283,612Retail segment:Beginning balance


275,649



274,548Adjustments to 2007 acquisitionsHalloween City earnout


1,399



721Franchisee acquisitions


17,400Other






380Ending balance


294,448



275,649Total ending balance both segments

$
630,492


$
559,261  F-31




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6 
    Other
    Intangible Assets, net    At December 31, 2010Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise licenses

$
63,630


$
24,754


$
38,876



9-20 yearsCustomer lists and relationships


14,500



6,444



8,056



15 yearsCopyrights, designs, and other


13,710



13,096



614



2-3 yearsLeasehold and other intangibles


2,087



1,593



494



1-15 yearsAcquired design licenses


10,973



3,651



7,322



1-7 yearsTotal

$
104,900


$
49,538


$
55,362   At December 31, 2009Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise licenses

$
63,630


$
19,431


$
44,199



9-20 yearsCustomer lists and relationships


14,500



5,477



9,023



15 yearsCopyrights, designs, and other


13,632



12,989



643



2-3 yearsLeasehold and other intangibles


2,087



1,283



804



1-15 yearsTotal

$
93,849


$
39,180


$
54,669     Note 7 
    Loans and
    Notes Payable 
   
 
   
  New
    ABL Facility
 
   
 F-32




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1 2
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 F-33




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
  Prior
    ABL Facility
 
   
    1 2
 
   
    PCFG
    Credit Facility
 
   
    Other
    Credit Agreements
 
   
 F-34




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 8 
    Long-Term
    Obligations    December 31,2010


2009First lien term loan due 2017(a)

$
666,644


$
Term loan(b)






364,688PCFG term loan(c)






23,000Mortgage obligation(d)


4,539



5,600Capital lease obligations(e)


3,975



5,5108.75% senior subordinated notes(f)


175,000



175,000Total long-term obligations

$
850,158


$
573,798Less: current portion


(9,046
)


(34,906
)Long-term obligations, excluding current portion

$
841,112


$
538,892     New
    Term Loan Credit Agreement
 
   
  1 2
 
   
 
   
 F-35




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
 
   
     
   
 
   
      Prior
    Term Loan Credit Agreements
    1 2
 F-36




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Other
    Long Term Debt Agreements
   
   
           F-37




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
    Long-term Debt


Capital LeaseObligations


Obligations


Totals2011

$
6,810


$
2,236


$
9,0462012


6,835



1,446



8,2812013


6,860



147



7,0072014


181,982



131



182,1132015


5,737



15



5,752Thereafter


637,959







637,959Long-term obligations

$
846,183


$
3,975


$
850,158   Note 9 
    Capital
    Stock   
   
  one-for-one
   F-38




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
 
   
    2010


2009Redeemable common shares

$
16,547


$
16,8072004 Rollover Options


1,542



1,582$
18,089


$
18,389  
   
  
 Redeemable


TotalRollover








RedeemableStock


Common


PCFG


CommonOptions


shares


minority


SecuritiesBalance as of December 31, 2007


98.18



893.79



13,443.52


$
33,782Additional minority investment










2,500.00



2,500Minority interest purchased










(500.00
)


(500
)Minority interest exchanged for redeemable warrants










(15,444.52
)


(15,444
)Shares sold in Advent transaction


(37.00
)


(308.64
)






(7,079
)Revaluation of remaining options/shares














4,912Balance as of December 31, 2008


61.18



585.15







18,171Shares issued upon option exercise






7.69







218Balance as of December 31, 2009


61.18



592.84







18,389Shares issued upon option exercise






4.68







133Dividend paid














(6,192
)Revaluation of remaining options/shares














5,709Balance as of December 31, 2010


61.18



597.52






$
18,039  
 
   
 F-39




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
  ASC 480-10 Distinguishing Liabilities from Equity
 
    Note 10 
    Provision
    for Doubtful Accounts    Note 11 
    Non-recurring
    Expenses and Write-off of Deferred Financing Costs    Note 12 
    Restructuring
    Charges         F-40




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 13 
    Other
    Expense (Income)  Year Ended December 31,2010


2009


2008Other expense (income) consists of the following:Undistributed income in unconsolidated joint venture

$
(678
)

$
(632
)

$
(538
)Change in fair market value of the interest rate cap










(187
)Foreign currency loss (gain)


354



670



(476
)Write-off of deferred finance charges in connection with the
    extinguishment of debt


2,448







Other acquisition costs


1,607







Royalty amendment fee










400Other, net


477



(70
)


(17
)Other expense (income), net

$
4,208


$
(32
)

$
(818
)   Note 14 
    Employee
    Benefit Plans    Note 15 
    Equity
    Incentive Plan      Rollover
    Options
  ASC 805-30-30-11 Goodwill or Gain from Bargain Purchase, Including
    Consideration Transferred,
 F-41




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Time-based
    options
       F-42




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Granted

Exercise Price per Share722.00

$
10,000489.50


12,000187.00


14,25020.00


17,500122.00


20,7505.00


22,34095.00


28,35057.00


27,700       Expected dividend rate


Risk free interest rate


1.76% to 5.08%Price volatility


15.00Weighted average expected life


7.5Forfeiture rate


7.75       Performance-based
    options
  EITF 96-5,
 F-43




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Options Granted

Exercise Price per Share760.00

$
10,000893.50


12,000314.00


14,25030.00


17,500147.00


20,750185.00


22,340116.00


28,35099.00


27,700          F-44




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverageAverage Fair





RemainingAverage


Market


Aggregate


ContractualExercise


Value of Options at


Intrinsic


TermOptions


Price


Grant Date


Value


(Years)Outstanding at December 31, 2007


3,399.14


$
11,700Granted


305.90



24,617


$
5,736Exercised


(627.90
)


14,283Canceled


(144.54
)


10,193Outstanding at December 31, 2008


2,932.60



13,242Granted


40.00



28,350



5,712Exercised


(7.70
)


11,573Canceled


(31.87
)


12,459Outstanding at December 31, 2009


2,933.03



13,462Granted


327.00



28,035



7,399Exercised


(4.68
)


11,090Canceled


(133.10
)


21,622Outstanding at December 31, 2010


3,122.25



14,350







41,743



5.7Exercisable at December 31, 2010


996.79



11,139







16,504



4.8Expected to vest (excludes performance options)


233.41



22,929







1,166



8.1     Note 16 
    Income
    Taxes    Year Ended December 31,2010


2009


2008Domestic

$
77,537


$
92,364


$
54,701Foreign


4,841



8,060



9,120Total

$
82,378


$
100,424


$
63,821  F-45




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Current:Federal

$
34,752


$
22,643


$
24,515State


5,281



3,930



4,817Foreign


1,854



2,297



2,741Total current provision


41,887



28,870



32,073Deferred:Federal


(7,187
)


7,705



(6,627
)State


(1,739
)


1,150



(1,139
)Foreign


(16
)


(52
)


(119
)Total deferred (benefit) provision


(8,942
)


8,803



(7,885
)Income tax expense

$
32,945


$
37,673


$
24,188       December 31,2010


2009Current deferred income tax assets:Inventory valuation

$
17,246


$
16,186Allowance for doubtful accounts


1,129



941Accrued liabilities


11,637



10,733Contribution carryforward


107



56Tax loss carryforward


405



1,761Tax credit carryforward


576



576Current deferred income tax assets (included in prepaid expenses
    and other current assets)

$
31,100


$
30,253Non-current deferred income tax liabilities, net:Property, plant and equipment

$
12,194


$
11,631Intangible assets


59,031



69,774Amortization of goodwill and other assets


22,599



19,457Other


1,157



708Non-current deferred income tax liabilities, net

$
94,981


$
101,570    F-46




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Provision at federal statutory income tax rate


35.0
%


35.0
%


35.0
%State income tax, net of federal income tax benefit


2.8



3.1



4.2Warrant compensation charge not deductible


2.0







Domestic manufacturing deductions


(3.0
)


(0.8
)


(1.3
)Adjustments related to previous acquisitions


3.5







Other


(0.3
)


0.2



Effective income tax rate


40.0
%


37.5
%


37.9
%               2010


2009


2008Balance as of January 1,

$
992


$
2,024


$
2,485Increases related to current year tax positions


73



81



172Increases related to prior year tax positions


505







Decrease related to settlements


(334
)


(822
)


Decreases related to lapsing of statutes of limitations


(405
)


(291
)


(633
)Balance as of December 31,

$
831


$
992


$
2,024  F-47




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        non-U.S. income
  Note 17 
    Commitments,
    Contingencies and Related Party Transactions  Lease
    Agreements
      Future MinimumOperating LeasePayments2011

$
112,1722012


95,0262013


67,3142014


45,5102015


33,369Thereafter


71,773$
425,164        F-48




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Product
    Royalty Agreements
      Future MinimumRoyalty Payments2011

$
8,2712012


7,3202013


1,7242014


8002015


550Thereafter


1,100$
19,765       Legal
    Proceedings
    Related
    Party Transactions
    Note 18 
    Segment
    Information  Industry
    Segments
   F-49




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Wholesale


Retail


ConsolidatedYear Ended December 31, 2010Revenues:Net sales

$
769,247


$
1,108,785


$
1,878,032Royalties and franchise fees






19,417



19,417Total revenues


769,247



1,128,202



1,897,449Eliminations


(298,355
)






(298,355
)Net revenues

$
470,892


$
1,128,202


$
1,599,094Income from operations

$
85,636


$
41,800


$
127,436Interest expense, net










40,850Other expense, net










4,208Income before income taxes









$
82,378Depreciation and amortization

$
18,979


$
30,439


$
49,418Total assets

$
948,850


$
704,301


$
1,653,151   Wholesale


Retail


ConsolidatedYear Ended December 31, 2009Revenues:Net sales

$
633,006


$
1,055,965


$
1,688,971Royalties and franchise fees






19,494



19,494Total revenues


633,006



1,075,459



1,708,465Eliminations


(221,647
)






(221,647
)Net revenues

$
411,359


$
1,075,459


$
1,486,818Income from operations

$
65,007


$
76,866


$
141,873Interest expense, net










41,481Other income, net










(32
)Income before income taxes









$
100,424Depreciation and amortization

$
14,652


$
29,730


$
44,382Total assets

$
747,262


$
733,239


$
1,480,501   F-50




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Wholesale


Retail


ConsolidatedYear Ended December 31, 2008Revenues:Net sales

$
653,403


$
1,099,136


$
1,752,539Royalties and franchise fees






22,020



22,020Total revenues


653,403



1,121,156



1,774,559Eliminations


(214,898
)






(214,898
)Net revenues

$
438,505


$
1,121,156


$
1,559,661Income from operations

$
58,290


$
55,628


$
113,918Interest expense, net










50,915Other expense, net










(818
)Income before income taxes









$
63,821Depreciation and amortization

$
14,926


$
32,352


$
47,278Total assets

$
702,938


$
805,039


$
1,507,977   Geographic
    Segments
      Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31, 2010Revenues:Net sales to unaffiliated customers

$
1,469,533


$
110,144


$



$
1,579,677Net sales between geographic areas


23,570







(23,570
)


Net sales


1,493,103



110,144



(23,570
)


1,579,677Royalties and franchise fees


19,417











19,417Total revenues

$
1,512,520


$
110,144


$
(23,570
)

$
1,599,094Income from operations

$
120,058


$
6,129


$
1,249


$
127,436Interest expense, net














40,850Other income, net














4,208Income before income taxes













$
82,378Depreciation and amortization

$
48,427


$
991






$
49,418Total assets

$
1,645,154


$
108,646


$
(100,649
)

$
1,653,151   F-51




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31, 2009Revenues:Net sales to unaffiliated customers

$
1,371,611


$
95,713


$



$
1,467,324Net sales between geographic areas


24,247







(24,247
)


Net sales


1,395,858



95,713



(24,247
)


1,467,324Royalties and franchise fees


19,494











19,494Total revenues

$
1,415,352


$
95,713


$
(24,247
)

$
1,486,818Income from operations

$
132,115


$
8,686


$
1,072


$
141,873Interest expense, net














41,481Other income, net














(32
)Income before income taxes













$
100,424Depreciation and amortization

$
43,496


$
886






$
44,382Total assets

$
1,478,493


$
82,890


$
(80,882
)

$
1,480,501   Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31, 2008Revenues:Net sales to unaffiliated customers

$
1,454,145


$
83,496


$



$
1,537,641Net sales between geographic areas


23,194







(23,194
)


Net sales


1,477,339



83,496



(23,194
)


1,537,641Royalties and franchise fees


22,020











22,020Total revenues

$
1,499,359


$
83,496


$
(23,194
)

$
1,559,661Income from operations

$
104,217


$
8,536


$
1,165


$
113,918Interest expense, net














50,915Other expense, net














(818
)Income before income taxes













$
63,821Depreciation and amortization

$
46,328


$
950






$
47,278Total assets

$
1,508,310


$
49,319


$
(49,652
)

$
1,507,977   Note 19 
    Quarterly
    Results (Unaudited)   F-52




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the Three Months Ended,March 31,


June 30,


September 30,


December 31,2010Revenues:Net sales

$
304,379


$
352,705


$
358,772


$
563,821Royalties and franchise fees


3,844



4,453



4,035



7,085Gross profit


104,479



141,840



132,437



257,863Income from operations


8,288



35,367



17,963



65,818
(a)Net (loss) income attributable to Party City Holdings Inc.


(412
)


16,460



4,603



28,668
(a)2009Revenues:Net sales

$
309,046


$
337,536


$
336,944


$
483,798Royalties and franchise fees


3,694



4,536



4,164



7,100Gross profit


103,629



128,425



121,453



214,776Income from operations


12,201



27,818



14,937



86,917Net income attributable to Party City Holdings Inc.


2,403



10,952



3,079



46,1192008Revenues:Net sales

$
325,032


$
365,174


$
356,231


$
491,204Royalties and franchise fees


5,342



6,350



5,863



4,465Gross profit


110,347



139,414



125,311



196,143Income from operations


8,778



35,511



18,573



51,056
(a)Net (loss) income attributable to Party City Holdings Inc.


(2,537
)


14,669



4,563



23,815
(a)     (a)
    
    During 2010 and 2008, the Company instituted programs to convert
    its FCPO stores and its company-owned and franchised Party
    America stores to Party City stores and recorded fourth quarter
    charges of $27,400, and $17,376, respectively, for the
    impairment of the Factory Card & Party Outlet and
    Party America trade names.  Note 20 
    Fair
    Value Measurements     F-53




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        SignificantQuoted Prices in


OtherActive Markets for


Observable


Unobservable


Total as ofIdentical Assets or


Inputs


Inputs


December 31,Liabilities (Level 1)


(Level 2)


(Level 3)


2010Derivative assets





$
241






$
241Derivative liabilities






(2,288
)






(2,288
)     SignificantQuoted Prices in


OtherActive Markets for


Observable


Unobservable


Total as ofIdentical Assets or


Inputs


Inputs


December 31,Liabilities (Level 1)


(Level 2)


(Level 3)


2009Derivative assets














Derivative liabilities





$
(6,582
)





$
(6,582
)      
   
  
 December 31, 2010


December 31, 2009Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueTerm Loans

$
666,644


$
674,060


$
364,688


$
331,866Senior Subordinated Notes


175,000



176,750



175,000



166,250  
    Note 21 
    Derivative
    Financial Instruments  Interest
    Rate Risk Management
   F-54




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Foreign
    Exchange Risk Management
      F-55




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Notional Amounts


Derivative Assets


Derivative LiabilitiesBalance




Balance





Balance




BalanceSheet

Fair


Sheet


Fair


Sheet

Fair


Sheet

FairLine

Value


Line


Value


Line

Value


Line

ValueDerivative

December 31,


December 31,








December 31,


December 31,Instrument

2010


2009


December 31, 2010


December 31, 2009


2010


2009Interest Rate Hedge

$
135,374


$
163,441




$







$



(b) AE

$
(2,244
)

(b) AE

$
(6,313
)Foreign Exchange Contracts


13,468



19,200


(a) PP


241






$



(a) AE


(44
)

(a) AE


(269
)Total Hedges

$
148,842


$
182,641




$
241






$





$
(2,288
)



$
(6,582
)     (a)
    
    PP = Prepaid expenses and other current assets(b)
    
    AE = Accrued expenses  Note 22 
    Comprehensive
    Income    Year Ended December 31,2010


2009


2008Net income attributable to Party City Holdings Inc.

$
49,319


$
62,553


$
40,510Net change in cumulative translation adjustment


(376
)


4,007



(11,338
)Change in fair value of interest rate swap contracts, net of
    income taxes of $1,505, $773, and $(2,851)


2,563



1,317



(4,855
)Change in fair value of foreign exchange contracts, net of
    income tax (benefit) expense of $172, $(1,097), and $1,169


293



(1,867
)


1,990Comprehensive income attributable to Party City Holdings
    Inc.

$
51,799


$
66,010


$
26,307     Year Ended December 31,2010


2009Cumulative translation adjustment

$
(4,625
)

$
(4,249
)Interest rate swap contracts, net of income tax benefit of
    $(830) and $(2,336)


(1,414
)


(3,977
)Foreign exchange contracts, net of income tax expense (benefit)
    of $73 and $(100)


124



(169
)Total accumulated other comprehensive income

$
(5,915
)

$
(8,395
)   Note 23 
    Subsequent
    Events 
   
  Note 24 
    Condensed
    Consolidating Financial Information 
   
 F-56




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 
   
  
    Amscan Inc.
    Am-Source, LLC
    Anagram Eden Prairie Property Holdings LLC
    Anagram International, Inc.
    Anagram International Holdings, Inc.
    Anagram International, LLC
    Gags & Games, Inc.
    JCS Packaging Inc.
    M&D Industries, Inc.
    Party City Corporation
    PA Acquisition Corporation
    SSY Realty Corp.
    Party City Franchise Group Holdings, LLC (PCFG)
    Trisar, Inc. 
   
  
    Amscan Distributors (Canada) Ltd.
    Amscan Holdings Limited
    Amscan (Asia-Pacific) Pty.  Ltd.
    Amscan de Mexico, S.A. de C.V.
    Anagram International (Japan) Co., Ltd.
    Christys Asia, Ltd.
    Christys By Design, Ltd.
    Christys Dress Up, Ltd.
    Christys Garments & Accessories Ltd.
    JCS Hong Kong Ltd.       F-57




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEET
    December 31, 2010
  Amscan Holdings,


CombinedInc. and Combined


Non-Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
14,198


$
6,256


$



$
20,454Accounts receivable , net


76,699



30,632







107,331Inventories, net


405,452



19,883



(1,018
)


424,317Prepaid expenses and other current assets


61,211



4,461







65,672Total current assets


557,560



61,232



(1,018
)


617,774Property, plant and equipment, net


187,574



3,155







190,729Goodwill


600,014



30,478







630,492Trade names


129,954











129,954Other intangible assets, net


55,362











55,362Investment in and advances to unconsolidated subsidiaries


64,485







(64,485
)


Due from affiliates


22,148



12,998



(35,146
)


Other assets, net


28,057



783







28,840Total assets

$
1,645,154


$
108,646


$
(100,649
)

$
1,653,151LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable


150,098











150,098Accounts payable


97,510



10,662







108,172Accrued expenses


102,749



8,305







111,054Income taxes payable


35,706



(1,355
)


(26
)


34,325Due to affiliates


11,593



23,553



(35,146
)


Redeemable warrants


15,086











15,086Current portion of long-term obligations


9,005



41







9,046Total current liabilities


421,747



41,206



(35,172
)


427,781Long-term obligations, excluding current portion


841,023



89







841,112Deferred income tax liabilities


94,427



554







94,981Other


14,766











14,766Total liabilities


1,371,963



41,849



(35,172
)


1,378,640Redeemable common securities


18,089











18,089Commitments and contingenciesStockholders equity:Class A and Class B Common Stock






336



(336
)


Additional paid-in capital


287,583



31,025



(31,025
)


287,583Retained (deficit)earnings


(26,566
)


37,535



(38,527
)


(27,558
)Accumulated other comprehensive (loss) income


(5,915
)


(4,411
)


4,411



(5,915
)Party City Holdings Inc. stockholders equity


255,102



64,485



(65,477
)


254,110Noncontrolling interests






2,312







2,312Total stockholders equity


255,102



66,797



(65,477
)


256,422Total liabilities, redeemable common securities and
    stockholders equity

$
1,645,154


$
108,646


$
(100,649
)

$
1,653,151  F-58




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEET
    December 31, 2009
  Amscan Holdings,Inc. and Combined


Combined Non-Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assets:Cash and cash equivalents


8,240



7,180







15,420Accounts receivable, net of allowances


60,655



22,126







82,781Inventories, net of allowances


295,004



41,893



(947
)


335,950Prepaid expenses and other current assets


52,706



6,013







58,719Total current assets


416,605



77,212



(947
)


492,870Property, plant and equipment, net


163,999



10,995







174,994Goodwill


521,222



38,039







559,261Trade names


157,283











157,283Other intangible assets, net


29,948



24,721







54,669Other assets, net


160,401



7,033



(126,010
)


41,424Total assets

$
1,449,458


$
158,000


$
(126,957
)

$
1,480,501LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
76,990


$
645


$



$
77,635Accounts payable


67,235



9,666







76,901Accrued expenses


83,430



10,250







93,680Income taxes payable


32,969



(817
)


(91
)


32,061Redeemable warrants


15,444











15,444Current portion of long-term obligations


28,406



6,500







34,906Total current liabilities


304,474



26,244



(91
)


330,627Long-term obligations, excluding current portion


522,392



16,500







538,892Deferred income tax liabilities


101,000



570







101,570Other


20,288



71,569



(79,956
)


11,901Total liabilities


948,154



114,883



(80,047
)


982,990Redeemable common securities


18,389











18,389Commitments and contingenciesStockholders equity:Class A and Class B Common Stock






339



(339
)


Additional paid-in capital


335,731



46,167



(46,075
)


335,823Retained earnings


155,579



(5,476
)


(546
)


149,557Accumulated other comprehensive loss


(8,395
)


(50
)


50



(8,395
)Party City Holdings Inc. stockholders equity


482,915



40,980



(46,910
)


476,985Noncontrolling interests






2,137







2,137Total stockholders equity


482,915



43,117



(46,910
)


479,122Total liabilities, redeemable common securities and
    stockholders equity

$
1,449,458


$
158,000


$
(126,957
)

$
1,480,501  F-59




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    For The Year Ended December 31, 2010
  Amscan Holdings,Inc. and Combined


Combined Non-Guarantors


Guarantors


Eliminations


ConsolidatedRevenues:Net sales

$
1,493,103


$
110,144


$
(23,570
)

$
1,579,677Royalties and franchise fees


19,417











19,417Total revenues


1,512,520



110,144



(23,570
)


1,599,094Expenses:Cost of sales


884,957



81,600



(23,499
)


943,058Selling expenses


31,379



11,346







42,725Retail operating expenses


296,891











296,891Franchise expenses


12,269











12,269General and administrative expenses


124,542



11,170



(1,320
)


134,392Art and development costs


15,024



(101
)






14,923Impairment of trade name


27,400











27,400Total expenses


1,392,462



104,015



(24,819
)


1,471,658Income from operations


120,058



6,129



1,249



127,436Interest expense, net


40,791



59







40,850Other (income) expense, net


(1,312
)


1,159



4,361



4,208Income before income taxes


80,579



4,911



(3,112
)


82,378Income tax expense


31,215



1,756



(26
)


32,945Net income

$
49,364


$
3,155


$
(3,086
)

$
49,433Less net income attributable to noncontrolling interests






114







114Net income attributable to Party City Holdings Inc.

$
49,364


$
3,041


$
(3,086
)

$
49,319  F-60




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    For The Year Ended December 31, 2009
  Amscan Holdings,Inc. and Combined


Combined Non-Guarantors


Guarantors


Eliminations


ConsolidatedRevenues:Net sales

$
1,291,848


$
199,723


$
(24,247
)

$
1,467,324Royalties and franchise fees


19,494











19,494Total revenues


1,311,342



199,723



(24,247
)


1,486,818Expenses:Cost of sales


794,363



128,677



(23,999
)


899,041Selling expenses


29,580



10,206







39,786Retail operating expenses


226,159



35,532







261,691Franchise expenses


11,991











11,991General and administrative expenses


104,072



16,441



(1,320
)


119,193Art and development costs


13,324



(81
)






13,243Total expenses


1,179,489



190,775



(25,319
)


1,344,945Income from operations


131,853



8,948



1,072



141,873Interest expense, net


38,785



2,696







41,481Other (income) expense, net


(7,818
)


1,346



6,440



(32
)Income before income taxes


100,886



4,906



(5,368
)


100,424Income tax expense


36,631



1,133



(91
)


37,673Net income


64,255



3,773



(5,277
)


62,751Less net income attributable to noncontrolling interests






198







198Net income attributable to Party City Holdings Inc.

$
64,255


$
3,575


$
(5,277
)

$
62,553  F-61




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##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    For Year Ended December 31, 2008
  Amscan Holdings,Inc. and Combined


Combined Non-Guarantors


Guarantors


Eliminations


ConsolidatedRevenues:Net sales

$
1,359,780


$
201,055


$
(23,194
)

$
1,537,641Royalties and franchise fees


22,020











22,020Total revenues


1,381,800



201,055



(23,194
)


1,559,661Expenses:Cost of sales


861,368



128,097



(23,039
)


966,426Selling expenses


32,172



9,722







41,894Retail operating expenses


233,348



40,279







273,627Franchise expenses


13,686











13,686General and administrative expenses


104,445



17,147



(1,320
)


120,272Art and development costs


12,462











12,462Impairment of trade name


17,376











17,376Total expenses


1,274,857



195,245



(24,359
)


1,445,743Income from operations


106,943



5,810



1,165



113,918Interest expense, net


48,130



2,785







50,915Other income, net


(7,526
)


(552
)


7,260



(818
)Income before income taxes


66,339



3,577



(6,095
)


63,821Income tax expense


21,900



2,345



(57
)


24,188Net income


44,439



1,232



(6,038
)


39,633Less net loss attributable to noncontrolling interests






(877
)






(877
)Net income attributable to Party City Holdings Inc.

$
44,439


$
2,109


$
(6,038
)

$
40,510  F-62




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##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For The Year Ended December 31, 2010
  Amscan Holdings,


CombinedInc. and Combined


Non-Guarantors


Guarantors


Eliminations


ConsolidatedCash flows used in operating activities:Net income

$
49,364


$
3,155


$
(3,086
)

$
49,433Less: net income attributable to noncontrolling interest






114







114Net income attributable to Party City Holdings Inc.


49,364



3,041



(3,086
)


49,319Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


48,427



991







49,418Amortization of deferred financing costs


2,475











2,475Provision for doubtful accounts


695



(58
)






637Deferred income tax expense


(8,942
)










(8,942
)Deferred rent


4,500











4,500Undistributed gain in unconsolidated joint venture


(678
)










(678
)Impairment of trade name


27,400











27,400Impairment of fixed assets


597











597Loss (gain) on disposal of equipment


206



(15
)






191Equity based compensation


6,018











6,018Write-off of deferred financing costs


2,448











2,448Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


(14,428
)


7,921







(6,507
)Increase in inventories


(84,538
)


(1,300
)


71



(85,767
)Increase in prepaid expenses and other current assets


(21,711
)


(1,282
)






(22,993
)Increase (decrease) in accounts payable, accrued expenses and
    income taxes payable


44,254



(4,217
)


3,015



43,052Net cash provided by operating activities


56,087



5,081







61,168Cash flows used in investing activities:Cash paid in connection with acquisitions


(53,350
)


2







(53,348
)Capital expenditures


(48,558
)


(1,065
)






(49,623
)Proceeds from disposal of property and equipment


159



46







205Net cash used in investing activities


(101,749
)


(1,017
)






(102,766
)Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations


(393,259
)


(30
)






(393,289
)Proceeds from loans, notes payable and long-term obligations


742,112



41







742,153Dividend distribution


(301,829
)










(301,829
)Payments related to redeemable common stock and rollover options


(572
)










(572
)Proceeds from issuance of common stock and exercise of options,
    net of retirements


52











52Net cash provided by financing activities


46,504



11







46,515Effect of exchange rate changes on cash and cash equivalents


(243
)


360







117Net increase in cash and cash equivalents


599



4,435







5,034Cash and cash equivalents at beginning of period


13,599



1,821







15,420Cash and cash equivalents at end of period

$
14,198


$
6,256


$



$
20,454  F-63




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##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For The Year Ended December 31, 2009
  Amscan Holdings,


CombinedInc. and Combined


Non-Guarantors


Guarantors


Eliminations


ConsolidatedCash flows provided by operating activities:Net income

$
64,255



3,773


$
(5,277
)

$
62,751Less: net income attributable to noncontrolling interest






198







198Net income attributable to Party City Holdings Inc.


64,255



3,575



(5,277
)


62,553Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


39,885



4,497







44,382Amortization of deferred financing costs


1,888



275







2,163Provision for doubtful accounts


2,444



1,538







3,982Deferred income tax expense


8,803











8,803Deferred rent


977



786







1,763Undistributed gain in unconsolidated joint venture


(632
)










(632
)Loss on disposal of equipment


61



217







278Equity based compensation


876











876Changes in operating assets and liabilities:Decrease (increase) in accounts receivable


11,498



(5,161
)






6,337Decrease (increase) in inventories


35,824



(5,139
)


248



30,933Increase in prepaid expenses and other assets


(20,408
)


(765
)






(21,173
)(Decrease) increase in accounts payable, accrued expenses and
    income taxes payable


(30,528
)


9,176



5,029



(16,323
)Net cash provided by operating activities


114,943



8,999







123,942Cash flows used in investing activities:Cash paid in connection with acquisitions


(726
)


(2,652
)






(3,378
)Cash in escrow in connection with acquisitions


(24,881
)










(24,881
)Capital expenditures


(23,860
)


(2,335
)






(26,195
)Proceeds from disposal of property and equipment


77



19







96Net cash used in investing activities


(49,390
)


(4,968
)






(54,358
)Cash flows used in financing activitiesRepayments of loans, notes payable and long-term obligations


(66,392
)


(3,855
)






(70,247
)Proceeds from issuance of common stock and exercise of options,
    net of retirements


90











90Net cash used in financing activities


(66,302
)


(3,855
)






(70,157
)Effect of exchange rate changes on cash and cash equivalents


488



2,447







2,935Net (decrease) increase in cash and cash equivalents


(261
)


2,623







2,362Cash and cash equivalents at beginning of period


8,501



4,557







13,058Cash and cash equivalents at end of period

$
8,240


$
7,180


$



$
15,420  F-64




---



##### Table of Contents



PARTY
    CITY HOLDINGS INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For Year Ended December 31, 2008
  Amscan Holdings,


CombinedInc. and Combined


Non-Guarantors


Guarantors


Eliminations


ConsolidatedCash flows provided by operating activities:Net income

$
44,439


$
1,232


$
(6,038
)

$
39,633Less: net loss attributable to noncontrolling interest






(877
)






(877
)Net income attributable to Party City Holdings Inc.


44,439



2,109



(6,038
)


40,510Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


42,406



4,872







47,278Amortization of deferred financing costs


1,956



265







2,221Provision for doubtful accounts


945



147







1,092Deferred income tax benefit


(7,885
)










(7,885
)Deferred rent


1,202











1,202Undistributed gain in unconsolidated joint venture


(538
)










(538
)Impairment of trade name


17,376











17,376(Gain) loss on disposal of equipment


(1,198
)


3







(1,195
)Equity based compensation


4,311



46







4,357Tax benefit on exercised options


(1,823
)










(1,823
)Changes in operating assets and liabilities:Decrease in accounts receivable


6,526



1,711







8,237Increase in inventories


(51,358
)


(1,144
)


155



(52,347
)Decrease in prepaid expenses and other current assets


29,595



1,645







31,240(Decrease) increase in accounts payable, accrued expenses and
    income taxes payable


(22,075
)


6,396



5,883



(9,796
)Net cash provided by operating activities


63,879



16,050







79,929Cash flows used in investing activities:Cash paid in connection with acquisitions


(1,143
)


(473
)






(1,616
)Capital expenditures


(44,457
)


(8,544
)






(53,001
)Proceeds from disposal of property and equipment


3,390



28







3,418Net cash used in investing activities


(42,210
)


(8,989
)






(51,199
)Cash flows used in financing activities:Repayments of loans, notes payable and long-term obligations


(24,250
)


(2,592
)






(26,842
)Tax benefit on exercised options


1,823











1,823Sale of additional interest to minority shareholder


2,500











2,500Purchase and retirement of redeemable common stock


(514
)










(514
)Net cash used in financing activities


(20,441
)


(2,592
)






(23,033
)Effect of exchange rate changes on cash and cash equivalents


(1,075
)


(8,838
)






(9,913
)Net increase (decrease) in cash and cash equivalents


153



(4,369
)






(4,216
)Cash and cash equivalents at beginning of period


8,391



8,883







17,274Cash and cash equivalents at end of period

$
8,544


$
4,514


$



$
13,058  F-65




---



##### Table of Contents



SCHEDULE II



PARTY
    CITY HOLDINGS INC.
    VALUATION AND QUALIFYING ACCOUNTSYears Ended December 31, 2010, 2009 and 2008 Beginning








EndingBalance


Write-Offs


Additions


Balance(Dollars in thousands)Allowance for Doubtful Accounts:For the year ended December 31, 2008

$
2,637


$
1,546


$
1,092


$
2,183For the year ended December 31, 2009


2,183



3,168



3,982



2,997For the year ended December 31, 2010


2,997



920



637



2,714Inventory Reserves:For the year ended December 31, 2008


10,416



5,128



3,030



8,318For the year ended December 31, 2009


8,318



2,755



2,989



8,552For the year ended December 31, 2010


8,552



2,734



4,687



10,505Sales, Returns and Allowances:For the year ended December 31, 2008


330



37,713



37,745



362For the year ended December 31, 2009


362



46,849



46,667



180For the year ended December 31, 2010


180



58,321



58,590



449  F-66




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##### Table of Contents



Party City Holdings
    Inc.
  Shares
   LOGO

LOGO   Common Stock
    Goldman, Sachs &
    Co.
 BofA Merrill Lynch
 Barclays Capital
 Deutsche Bank
    Securities
    Credit Suisse
 Morgan Stanley
 Wells Fargo
    Securities
    Baird
 William Blair &
    Company
 RBC Capital Markets
 Stifel Nicolaus
    Weisel




---



##### Table of Contents



PART II
  INFORMATION
    NOT REQUIRED IN PROSPECTUS
  ITEM 13.
    Other
    Expenses of Issuance and Distribution. 
   
  SEC registration fee

$
40,635FINRA filing fee


35,500Stock exchange listing fee


*Accountants fees and expenses


*Legal fees and expenses


*Transfer Agents fees and expenses


*Printing and engraving expenses


*Miscellaneous


*Total Expenses

$
*     *
    
    To be filed by amendment  ITEM 14.
    Indemnification
    of Directors and Officers.       II-1




---



##### Table of Contents



ITEM 15.
    Recent
    Sales of Unregistered Securities.   
   
     II-2




---



##### Table of Contents



ITEM 16.
    Exhibits
    and Financial Statement Schedules.    
 Number

Description1
.1*

Form of Underwriting Agreement2
.1

Party City Acquisition Merger Agreement, dated as of
    September 26, 2005 (incorporated by reference to
    Exhibit 2.1 to Amscan Holdings Current Report on
    Form 8-K
    dated September 27, 2005)3
.1*

Third Amended and Restated Certificate of Incorporation (to be
    effective upon completion of this offering)3
.2*

Amended and Restated Bylaws (to be effective upon completion of
    this offering)3
.3**

Second Amended and Restated Certificate of Incorporation of
    Party City Holdings Inc., dated August 19, 2008, as amended
    on April 19, 20113
.4**

By-Laws of Party City Holdings Inc.4
.1

Specimen common stock certificate4
.2

Indenture, dated as of April 30, 2004, by and among Amscan
    Holdings, Inc. (Amscan Holdings), the Guarantors
    named therein and The Bank of New York with respect to the
    8.75% Senior Subordinated Notes due 2014 (incorporated by
    reference to Exhibit 4(1) to Amscan Holdings
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))4
.3

First Supplemental Indenture, dated as of June 21, 2004 by
    and among Amscan Holdings, the Guarantors named therein and The
    Bank of New York with respect to the 8.75% Senior
    Subordinated Notes due 2014 (incorporated by reference to
    Exhibit 4(2) to Amscan Holdings Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))5
.1*

Opinion of Ropes & Gray LLP10
.1

2004 Equity Incentive Plan of AAH Holdings Corporation
    (incorporated by reference to Exhibit 10(6) to Amscan
    Holdings Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))10
.2

The MetLife Capital Corporation Master Lease Purchase Agreement
    between MetLife Capital Corporation and Amscan Inc., Deco Paper
    Products, Inc., Kookaburra USA Ltd., and Trisar, Inc., dated
    November 21, 1991, as amended (incorporated by reference to
    Exhibit 10(n) to Amendment No. 2 to Amscan
    Holdings Registration Statement on
    Form S-1
    (Registration
    No. 333-14107))10
.3*

Form of Indemnification Agreement10
.4

Employment Agreement between Party City Holdings Inc. and Gerald
    C. Rittenberg, dated June 1, 2011 and amended and restated
    as of July 1, 201110
.5

Employment Agreement between Party City Holdings Inc. and James
    M. Harrison, dated June 1, 2011 and amended and restated as
    of July 1, 201110
.6**

Amended and Restated Stockholders Agreement of AAH Holdings
    Corporation, dated as of August 19, 200810
.7**

Severance Agreement between Amscan Inc. and Michael Correale,
    dated as of April 28, 199710
.8**

Amended and Restated Management Agreement between Berkshire
    Partners LLC, Weston Presidio Service Company LLC and Amscan
    Holdings, Inc., dated as of November 10, 200610
.9

ABL Credit Agreement, dated as of August 13, 2010, among
    the Company, Amscan Holdings, the Subsidiaries of Amscan
    Holdings from time to time party thereto, the financial
    institutions party thereto, as Lenders, Wells Fargo Retail
    Finance, LLC, as Administrative Agent and Collateral Agent,
    Wells Fargo Capital Finance, LLC and Banc of America Securities
    LLC, as Joint Bookrunners and Joint Lead Arrangers, Bank of
    America, N.A., as Syndication Agent, and SunTrust Bank, T.D.
    Bank, N.A. and RBS Business Capital, as Co-Documentation Agents
    (incorporated by reference to Exhibit 4.3 to Amscan
    Holdings, Inc. Current Report on
    Form 8-K
    dated December 2, 2010) 
 II-3




---



##### Table of Contents



Number

Description10
.10

Pledge and Security Agreement dated as of August 13, 2010
    by and among Amscan Inc., Anagram International, Inc.,
    Am-Source, LLC, Factory Card Outlet of America Ltd., Gags and
    Games, Inc., PA Acquisition Corp., Party City Corporation, and
    Party City Franchise Group, LLC, each a Borrower and
    collectively, Borrowers, Amscan Holdings, Inc., AAH Holdings
    Corporation, the Subsidiary Parties from time to time party
    hereto, and Wells Fargo Retail Finance, LLC, as administrative
    and collateral agent for the lenders party to the Credit
    Agreement (incorporated by reference to Exhibit 4.1 to
    Amscan Holdings, Inc. Current Report on
    Form 8-K
    dated December 2, 2010)10
.11

Term Loan Credit Agreement, dated as of December 2, 2010,
    among the Company, Amscan Holdings, the subsidiaries of Amscan
    Holdings from time to time party thereto, the financial
    institutions party thereto, as Lenders, and Credit Suisse AG, as
    Administrative Agent and Collateral Agent, Credit Suisse
    Securities (USA) LLC and Goldman Sachs Lending Partners LLC, as
    Joint Lead Arrangers, Credit Suisse Securities (USA) LLC,
    Goldman Sachs Lending Partners LLC, Barclays Capital, Deutsche
    Bank Securities Inc. and Wells Fargo Securities, LLC as Joint
    Bookrunners, Goldman Sachs Lending Partners LLC and Wells Fargo
    Securities, LLC, as
    Co-Syndication
    Agents, Barclays Capital and Deutsche Bank Securities Inc., as
    Co-Documentation Agents (incorporated by reference to Exhibit
    4.6 to Amscan Holdings, Inc. Annual Report on Form 10-K
    dated April 13, 2011)10
.12

Amendment No. 1 to ABL Credit Agreement, dated as of
    December 2, 2010, by and among Wells Fargo Bank, National
    Association Successor by merger to Wells Fargo Retail Finance,
    LLC, as Administrative Agent, the Lenders, the Borrowers party
    thereto, the Company, Amscan Holdings and the other Guarantors
    party thereto (incorporated by reference to Exhibit 4.5 to
    Amscan Holdings, Inc. Annual Report on Form 10-K dated April 13,
    2011)10
.13**

Registration and Information Rights Agreement, dated as of
    August 19, 2008, among AAH Holdings Corporation and
    Advent-Amscan Acquisition LLC10
.14

Form of Management Agreement Termination14
.1*

Code of Business Conduct21
.1*

List of Subsidiaries of the Party City Holdings Inc.23
.1

Consent of Ernst & Young LLP, independent registered
    public accounting firm23
.2*

Consent of Ropes & Gray LLP (included in
    Exhibit 5.1)24
.1**

Power of Attorney  
    *
    
    To be filed by amendment**
    
    Previously filed  ITEM 17.
    Undertakings.       II-4




---



##### Table of Contents



II-5




---



##### Table of Contents



SIGNATURES
 
   
  Party City Holdings Inc.
  By:
    /s/  Michael
    Correale       
 Signature

Title

Date*Gerald
    C. Rittenberg

Chief Executive Officer and Director (Principal Executive Officer)

July 6, 2011/s/  Michael
    A. CorrealeMichael
    A. Correale

Chief Financial Officer (Principal Financial Officer)
    (Principal Accounting Officer)

July 6, 2011*Robert
    J. Small

Chairman of the Board of Directors

July 6, 2011*James
    M. Harrison

Director

July 6, 2011*Steven
    J. Collins

Director

July 6, 2011*Michael
    F. Cronin

Director

July 6, 2011*Kevin
    M. Hayes

Director

July 6, 2011*Jordan
    A. Kahn

Director

July 6, 2011*William
    Kussell

Director

July 6, 2011*Richard
    K. Lubin

Director

July 6, 2011 
 II-6




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##### Table of Contents



Signature

Title

Date*Carol
    M. Meyrowitz

Director

July 6, 2011*David
    M. Mussafer

Director

July 6, 2011*By:

/s/ Michael CorrealeMichael
    Correale
    Attorney-in-Fact  
 II-7