##### Table of Contents



SECURITIES
    AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
 For the fiscal year ended December 31, 2006
  Commission file number
    000-21827
      Amscan Holdings, Inc.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

13-3911462(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)80 Grasslands Road Elmsford,
    NY

10523(Address of Principal Executive
    Offices)

(Zip
    Code)   Registrants telephone number, including area code:
 (914) 345-2020
  Securities Registered Pursuant to Section 12(b) of the
    Act: None
  Securities Registered Pursuant to Section 12(g) of the
    Act: None
  o þ
  þ o
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



AMSCAN
    HOLDINGS, INC.FORM 10-K
    December 31, 2006
    TABLE OF CONTENTS
  PagePART IItem 1


Business

3Item 1A


Risk
    Factors

15Item 1B


Unresolved Staff
    Comments

18Item 2


Properties

19Item 3


Legal
    Proceedings

22Item 4


Submission of
    Matters to a Vote of Security Holders

22PART IIItem 5


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities

22Item 6


Selected
    Consolidated Financial Data

23Item 7


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

26Item 7A


Quantitative and
    Qualitative Disclosures About Market Risk

41Item 8


Financial
    Statements and Supplementary Data

42Item 9


Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure

42Item 9A


Controls and
    Procedures

42Item 9B


Other
    Information

42PART IIIItem 10


Directors and
    Executive Officers of the Registrant

43Item 11


Executive
    Compensation

45Item 12


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters

53Item 13


Certain
    Relationships and Related Transactions

54Item 14


Principal
    Accountant Fees and Services

55PART IVItem 15


Exhibits and
    Financial Statement Schedules

55Signatures

59EX-11: STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23: CONSENT OF ERNST & YOUNG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION      1-800-SEC-0330. http://www.sec.gov.
 2




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##### Table of Contents



PART I  Item 1.
    Business    Wholesale
    Operations
  Rock-and-Roll
      Retail
    Operations
   3




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##### Table of Contents



eight-day
  52-week 53-week 13-week 53-week
  52-week 53-week 13-week 53-week
  52-week 53-week
  The Party
    America Acquisition
   4




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##### Table of Contents



The Party
    City Acquisition
          The 2004
    Transactions
   5




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##### Table of Contents



non-U.S. persons Form S-4,
      Summary
    Financial Information about the Company
   6




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##### Table of Contents



Wholesale
    Operations
    Retail
    Operations
    Our
    Business Strategy
    Wholesale
    Operations
  
    Build upon our Position as a Leading Provider to Party Goods
    Retailers.  We will continue to offer convenient
    one-stop shopping for both large party superstores
    and smaller party goods retailers. We will seek to grow our
    sales to existing stores by increasing our share of sales volume
    and shelf space, continuing to develop innovative new products
    and helping retailers promote coordinated ensembles that
    increase average purchase volume per consumer through
    add-on or impulse purchases. Given our position in
    the party superstore distribution channel and the strength of
    our relationships with all major party superstore chains, we
    expect our sales will continue to grow as new party superstores
    are opened.
    Capitalize on Investments in
    Infrastructure.  We intend to increase our net
    sales and profitability by leveraging the significant
    investments we have made in our infrastructure. We believe that
    our
    state-of-the-art
    896,000 square foot distribution facility provides us with
    warehousing and distribution capabilities to serve anticipated
    future growth.
    Expand International Presence.  We believe
    there is an opportunity to expand our international business,
    which represented approximately 14% of our net sales in each of
    the years in the three-year period ended December 31, 2006.
    We currently have a presence in Europe, Mexico, Canada, and
    Asia. During 2005, we strengthened our international management
    infrastructure, hiring a senior sales executive to help
    implement our strategies to grow international sales. We have
    our own sales force in the United Kingdom, Mexico and Canada,
    and operate through third-party sales representatives elsewhere.
    The market for decorative party goods outside the U.S. is
    less mature due to lower consumer awareness of party products
    and less developed retail distribution channels. Our strategies
    include broadening our distribution network, increasing
    accessorization and customization of our products to local
    tastes and holidays and continuing to deepen retail penetration. 7




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##### Table of Contents




    Increase Penetration in Independent Retail Distribution
    Channel.  We believe there is a significant
    opportunity to expand our sales to independent retailers,
    including card and gift stores. We have made significant
    investments by adding management and expanding our customer
    service and marketing infrastructure to support the existing
    sales effort. As our existing sales representatives become more
    seasoned and productive, and as we add new sales
    representatives, we expect to increase sales and profitability
    from this distribution channel as sales growth is achieved with
    relatively fixed support costs.
    Continued Growth Through Targeted
    Acquisitions.  We believe that there will be, from
    time to time, opportunities to make acquisitions of
    complementary businesses. Through such businesses, we can
    leverage our existing marketing, distribution and production
    capabilities, expand our presence in the various retail
    distribution channels, further broaden and deepen our product
    lines and increase our penetration in international markets.  Retail
    Operations
  
    Offer a Broad Selection of Merchandise.  We
    will continue to provide customers with convenient one-stop
    shopping for party supplies by offering what we believe is one
    of the most extensive selections of party supplies available.
    The typical retail store offers a broad selection of Amscan,
    private label and other brand merchandise consisting of more
    than 15,000 active SKUs.
    Maintain Value Price Position.  We will
    continue to use the aggregate buying power of over
    760 company-owned and franchise stores, which allows us to
    offer a broad line of high quality merchandise at low prices. We
    believe we reinforce customers expectations of value
    through our advertising and marketing campaigns.
    Store Layout and Product Selection.  With the
    Party America acquisition, were realigning our aisle
    layouts and standardizing our product assortment, where
    appropriate, to allow customers to navigate the store more
    easily, and to provide increased availability of Amscan and
    other desired products.
    Expand Network of Convenient Store
    Locations.  Although we believe that our stores
    typically are destination shopping locations, we seek to
    maximize customer traffic and quickly build the visibility of
    new stores by situating our stores in high traffic areas. Site
    selection criteria include: population density, demographics,
    traffic counts, location of complementary retailers, storefront
    visibility and presence (either in a stand-alone building or in
    dominant strip shopping centers), competition, lease rates and
    accessible parking. We believe there are an extensive number of
    suitable domestic locations available for future stores, and we
    plan to open up to five new company-owned retail stores and
    anticipate that our franchisees will open between 15 and 20
    franchise stores during 2007. In addition, we will continue our
    evaluation of the potential for growth through acquisition, and
    through temporary Halloween stores under the Halloween Costume
    Warehouse brand.
    Provide Excellent Customer Service.  We view
    the quality of our customers shopping experience as
    critical to our continued success, and we are committed to
    making shopping in our stores an enjoyable experience. For
    example, at Halloween, our most important selling season, each
    store significantly increases the number of sales associates. We
    hire and train qualified store managers and other personnel
    committed to serving our customers and compensate them based on
    performance measures in order to enhance the customer-service
    oriented culture in our stores.
    Information Systems.  In recent years our
    retail segment upgraded a number of its information systems
    which will allow us to continue to use technology to enhance our
    business practices. We are currently implementing software
    systems that will align all retail store POS systems and further
    automate the merchandise forecasting and planning functions.  Innovative
    Product Development and Design Capabilities
   8




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##### Table of Contents



Product
    Lines
    Party Goods

Metallic Balloons

Stationery

GiftDecorative and Solid Color Tableware

Sing-A-Tune SuperShapes

Baby and Wedding Memory Books

Ceramic Giftware
    Decorative CandlesCandles

Bouquets

Decorative Tissues

Decorative FramesCascades and Centerpieces

18 Inch Standard

Gift Wrap, Bows and Bags

MugsCrepe

Weights

Invitations, Notes and Stationery

Plush ToysCutouts





Wedding Accessories and Cake TopsFlags and Banners



Photograph AlbumsLatex Balloons



RibbonsNovelty Gifts



Stickers and ConfettiParty FavorsPiñatasScene SettersWearables     2006


2005


2004Party Goods


69
%


65
%


68
%Metallic Balloons


23



25



24Stationery


3



6



5Gift.


5



4



3100
%


100
%


100
%  9




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##### Table of Contents



Seasonal

Themes

EverydayNew Years

Bachelorette

BirthdaysValentines Day

Casino

Bridal/Baby ShowersSt. Patricks Day

Card Party

GraduationsEaster

Chinatown

WeddingsPassover

Cocktail Party

AnniversariesFourth of July

Disco

First CommunionsHalloween

Fiesta

ConfirmationsFall

Fifties Rock and Roll

RetirementsThanksgiving

Hawaiian Luau

ChristeningsHanukkah

Hollywood

Bar MitzvahsChristmas

Mardi GrasMasqueradePatrioticReligiousSportsSummer Barbeque
    Western   Manufactured
    Products
  i.e. State-of-the-art
  Purchased
    Products
    Raw
    Materials
   10




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##### Table of Contents



Wholesale
    Sales and Marketing
        Wholesale
    Distribution and Systems
    state-of-the-art
  Wholesale
    Customers
     11




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##### Table of Contents



Competition
    at Wholesale
      Retail
    Merchandising
           12




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##### Table of Contents



Retailer
    Suppliers
    Supplier

Products Supplied


2006


2005


2004Hallmark Marketing Corp


Paper products



6
%


6
%


6
%Unique Industries, Inc.


Paper products



4



5



7Rubies Costume Co. Inc.


Halloween costumes



4



4



5Total






14
%


15
%


18
%       Retail
    Advertising and Marketing
    Franchise
    Operations
      three-mile ® ® ®
 13




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Competition
    at Retail
      Government
    Regulation
         14




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##### Table of Contents



Copyrights
    and Trademarks
    ® ® ® ® ® ®
  Information
    Systems
    Employees
    Item 1A.
    Risk
    Factors  Consumer
    Demands and Preferences
    
    we are unable to identify and respond to emerging trends;
    we miscalculate either the market for the merchandise in our
    stores or our customers purchasing habits; or 15




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
    consumer demand dramatically shifts away from disposable party
    supplies;    Competition
      Raw
    Material and Production Costs
      Interest
    Rates
    Exchange
    Rates
    Execution
    of Key Initiatives
   16




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Franchise
    Program
      Economic
    Downturn
    Key
    Vendors
      Additional
    Capital Requirements
   17




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##### Table of Contents



Seasonal
    and Quarterly Fluctuations
    Key
    Personnel
      Item 1B.
    Unresolved
    Staff Comments   18




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##### Table of Contents



Item 2.
    Properties    Owned or LeasedLocation

Principal Activity

Square Feet

(With Expiration Date)Elmsford, New York

Executive offices, show rooms,
    design and art production of party products and decorations

189,846 square feet

Leased (expiration date:
    December 31, 2014)Harriman, New York

Manufacture of paper napkins

75,000 square feet

Leased (expiration date:
    March 31, 2011)Narragansett, Rhode Island

Manufacture and distribution of
    plastic plates, cups and bowls

48,455 square feet

Leased (expiration date:
    April 28, 2011)Newburgh, New York

Manufacture of paper napkins and
    cups

53,000 square feet

Leased (expiration date:
    May 31, 2008)Louisville, Kentucky

Manufacture and distribution of
    paper plates

189,000 square feet

Leased (expiration date:
    March 31, 2010)Eden Prairie, Minnesota

Manufacture and distribution of
    balloons and accessories

115,600 square feet

OwnedTijuana, Mexico

Manufacture and distribution of
    party products

75,000 square feet

Leased (expiration dates:
    May 16, 2007 and May 31, 2009)Chester, New York(1)

Distribution of decorative party
    and gift products

896,000 square feet

OwnedChester, New York

Distribution of decorative party
    products

287,000 square feet

Leased (expiration date:
    May 1, 2007)Milton Keynes, Buckinghamshire,
    England

Distribution of party products
    throughout the United Kingdom and Europe

110,000 square feet

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

Distribution of balloons and
    accessories

122,312 square feet

Leased (expiration date:
    December 31, 2010)     (1)
    
    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 bears interest
    at a rate of 6.76%, subject to change under certain conditions.
    The mortgage note is for a term of 96 months and requires
    monthly payments based on a
    180-month
    amortization period with a balloon payment upon maturity in
    January 2010. At December 31, 2006, the principal amount
    outstanding under the lien mortgage note is approximately
    $7.4 million.      month-to-month
 19




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##### Table of Contents



2006


2005


2004Company-owned:Stores open at beginning of year


474



478



309Stores opened


6



6



8Stores closed


(37
)


(10
)


(4
)Stores acquired










165Stores open at end of year


443



474



478Franchise:Stores open at beginning of year


315



318



312Stores opened


16



11



12Stores acquired


2Stores closed


(9
)


(14
)


(6
)Stores open at end of year


324



315



318Total company-owned and franchise
    stores


767



789



796     State

Company-Owned


Franchise


Chain-WideAlabama


4



7



11Arizona


4



12



16Arkansas


1



3



4California


97



16



113Colorado


17



6



23Connecticut


5



3



8Delaware


1



1



2Florida


12



44



56Georgia


6



27



33Hawaii






1



1Idaho


1







1Illinois


25







25Indiana


8







8Iowa


2



1



3Kansas


5



6



11Kentucky


4







4Louisiana


4



8



12   20




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##### Table of Contents



Company-State

Owned


Franchise


Chain-WideMaryland


6



11



17Massachusetts






1



1Michigan


33



1



34Minnesota


6



19



25Mississippi


3



3



6Missouri


16



4



20Montana






3



3Nebraska


2



2



4Nevada


5



2



7New Hampshire


2







2New Jersey


10



20



30New Mexico






3



3New York


35



18



53North Carolina


4



18



22North Dakota






4



4Ohio


18







18Oklahoma


9







9Oregon


5



4



9Pennsylvania


14



16



30Rhode Island






2



2South Carolina


2



6



8South Dakota






3



3Tennessee


5



10



15Texas


33



20



53Utah


6







6Vermont


1







1Virginia


7



9



16Washington


19



2



21West Virginia


1







1Wisconsin


5



1



6Wyoming






2



2Puerto Rico






5



5Total


443



324



767      21




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##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer  Purchases
    of Equity Securities
      Dividends
    Issuer
    Purchases of Equity Securities
   22




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##### Table of Contents



Equity
    Compensation Plan Information
    (a)


(b)


(c)Number of





Number of SecuritiesSecurities to be





Remaining AvailableIssued Upon


Weighted-Average


for Future IssuanceExercise of


Exercise Price of


Under EquityOutstanding


Outstanding


Compensation PlansOptions, Warrants


Options, Warrants


(Excluding Securitiesand Rights


and Rights


Reflected in Column (a))Equity compensation plans approved
    by security holders


2,858.205


$
10,648



65.002Equity compensation plans not
    approved by security holders










Total


2,858.205


$
10,648



65.002     (1)
    
    See Note 15 to our consolidated financial statements
    included herein for a description of our equity compensation
    plan.  Item 6.
    Selected
    Consolidated Financial Data    Eight



FourYear Ended


Year Ended


Months Ended



Months Ended


Years EndedDecember 31,


December 31,


December 31,



April 30,


December 31,2006(1)


2005(2)


2004



2004


2003


2002(Dollars in thousands)


(Predecessor)Statement of Operations
    Data:Revenues:Net sales

$
993,342


$
417,226


$
265,556



$
133,660


$
402,816


$
385,603Royalties and franchise fees


21,746



509
















Total revenues


1,015,088



417,735



265,556




133,660



402,816



385,603Expenses:Cost of sales


676,527



281,632



178,210




88,247



269,125



252,980Selling expenses


39,449



36,181



23,529




12,430



36,515



34,619Retail operating expenses


126,224



1,824
















Franchise expenses


13,009



779
















General and administrative expenses


84,836



36,026



22,718




10,874



34,513



35,064Art and development costs


10,338



8,941



6,713




3,332



9,395



10,301 23




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##### Table of Contents



Eight



FourYear Ended


Year Ended


Months Ended



Months Ended


Years EndedDecember 31,


December 31,


December 31,



April 30,


December 31,2006(1)


2005(2)


2004



2004


2003


2002(Dollars in thousands)


(Predecessor)Non-recurring expenses and
    restructuring charges(3)(4)(5)






3,988








11,757



1,007



3,924Income from operations


64,705



48,364



34,386




7,020



52,261



48,715Interest expense, net


54,887



31,907



19,124




8,384



26,368



21,792Other (income) expense, net(6)


(1,000
)


(764
)


882




31



(1,434
)


(311
)Income (loss) before income taxes
    and minority interests


10,818



17,221



14,380




(1,395
)


27,327



27,234Income tax expense (benefit)


4,295



4,940



5,679




(551
)


10,065



10,757Minority interests


83



21



137




46



99



12Net income (loss)


6,440



12,260



8,564




(890
)


17,163



16,465Dividend on redeemable convertible
    preferred stock















136



399



376Net income (loss) applicable to
    common shares

$
6,440


$
12,260


$
8,564



$
(1,026
)

$
16,764


$
16,089Other Financial Data:Capital expenditures, including
    assets under capital leases


40,376


$
17,051


$
7,910



$
3,757


$
12,668


$
17,765Depreciation and amortization


38,619



18,602



9,519




5,296



16,119



13,962Ratio of earnings to fixed
    charges(7)


1.1
x


1.5
x


1.7
x



0.9
x


1.9
x


2.0
x   December 31,



December 31,2006


2005


2004



2003


2002(Dollars in thousands)



(Predecessor)Balance Sheet Data:Working capital

$
167,561


$
157,139


$
126,372



$
120,559


$
119,256Total assets(9)(10)(11)


1,217,371



1,118,947



647,266




382,102



372,497Short-term obligations(8)


3,703


$
2,643


$
4,832



$
23,237


$
3,220Long-term obligations(9)(10)(11)


558,372



561,567



384,993




272,272



295,420Total obligations

$
562,075


$
564,210


$
389,825



$
295,509


$
298,640Redeemable convertible preferred
    stock(12)














$
7,045


$
6,646Redeemable common securities(9)
    (13)(14)

$
9,343


$
6,821


$
3,705



$
9,498


$
30,523Stockholders equity
    (deficit)(9) (10) (11) (13)(14)

$
359,839


$
320,810


$
146,728



$
(8,619
)

$
(46,283
)     (1)
    
    Party America is included in the balance sheet data for
    December 31, 2006, and the statement of operations and
    other financial data from the Party America Acquisition date,
    September 29, 2006. 24




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##### Table of Contents



(2)
    
    Party City is included in the balance sheet data beginning with
    December 31, 2005 and the statement of operations and other
    financial data from the Party City Acquisition date,
    December 23, 2005.(3)
    
    In connection with the Party City Acquisition in December 2005
    and the 2004 Transactions in April 2004, the Company recorded
    non-recurring expenses of $4.0 million and
    $11.8 million, respectively, including $6.2 million of
    debt retirement costs in 2004 and the write-off of
    $4.0 million and $5.6 million of deferred financing
    costs associated with the repayment of debt in 2005 and 2004,
    respectively.(4)
    
    During the fourth quarter of 2002, we amended and restated our
    credit facility with various lenders which resulted in a
    $1.5 million write-off of deferred financing costs
    associated with the facility. Additionally, during the fourth
    quarter of 2002, we decided not to pursue an initial public
    offering (IPO) of shares of our Common Stock given
    valuations available in the equity markets at that time, which
    resulted in a $0.8 million write-off of costs associated
    with the offering. On March 12, 2003, we filed a
    Form RW with the Securities and Exchange Commission
    withdrawing our registration statement for the IPO.(5)
    
    During 2003 and 2002, we incurred restructuring charges of
    $1.0 million and $1.7 million, respectively, resulting
    from the consolidation of certain domestic and foreign
    distribution operations, and during 2003, the integration of
    M&D Industries.(6)
    
    During 2004 and 2003, we sold common stock of a customer
    received in connection with the customers reorganization
    in bankruptcy, receiving net proceeds of approximately
    $0.07 million and $2.0 million and recognizing gains
    of approximately $0.05 million and $1.5 million,
    respectively.(7)
    
    For purposes of determining the ratio of earnings to fixed
    charges, earnings are defined as earnings before income taxes
    and minority interests plus fixed charges. Fixed charges consist
    of interest expense on all obligations, amortization of deferred
    financing costs and an estimate of the rental expense on
    operating leases representing that portion of rental expense
    deemed by the Company to be attributable to interest.(8)
    
    Short-term obligations consist primarily of borrowings under
    bank lines of credit and the current portion of long-term debt.
    At December 31, 2003, the current portion of long-term debt
    included $20.2 million of the Companys then existing
    term loan which was paid in March 2004 as required based on the
    Companys excess cash flows, as defined, for the year ended
    December 31, 2003.(9)
    
    Common stock issued to consummate the Party America Acquisition
    totaled $29.7 million. Cash also paid to consummate the
    acquisition included $1.1 million for transaction costs,
    and $12.6 million to repay Party America senior debt.(10)
    
    Cash paid to consummate the Party City Acquisition totaled
    $567.0 million. Financing for the acquisition, including
    the repayment of borrowings under the Companys 2004 Senior
    Secured Credit Facility, was provided by: (i) the
    $166.4 million Equity Investment in the Companys
    parent, AAH, (ii) the $325 million First Term Loan
    (net of an original issue discount of $3.25 million),
    (iii) the $60 million Second Term Loan (net of an
    original issue discount of $1.5 million) and (iv) cash
    on-hand of $20.4 million.(11)
    
    Cash paid to consummate the 2004 Transactions in April 2004
    totaled $530.0 million and was financed with initial
    borrowings (before deducting deferred financing costs of
    $13.1 million) consisting of a $205.0 million term
    loan under a new senior secured credit facility, the proceeds
    from the issuance of $175.0 million of 8.75% senior
    subordinated notes due 2014, an equity contribution by the
    Principal Investors and employee stockholders of
    $140.5 million, borrowings under the revolver of
    $23.6 million and available cash on hand.(12)
    
    At December 31, 2003 and 2002, 44.94 and
    42.4 shares of our Predecessor Series A Redeemable
    Convertible 6% Preferred Stock were issued and outstanding.
    Each share of Series A Redeemable Convertible 6%
    Preferred Stock was convertible at the option of the holder at
    any time into shares of Common Stock, $0.10 par value, at a
    conversion rate of 1.0 share of Common Stock for each share
    of Series A Redeemable Convertible Preferred Stock, subject
    to adjustment under certain conditions. Upon completion of the
    2004 Transactions, no shares of the Series A Redeemable
    Convertible Preferred Stock were outstanding.(13)
    
    Under the terms of the Predecessors amended and restated
    stockholders agreement, dated February 20, 2002 and
    the AAH stockholders agreement dated April 30, 2004,
    we have an option to purchase all of the shares of common stock
    held by former management stockholders, as defined, and, under
    certain 25




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##### Table of Contents



circumstances, including death and disability, former management
    stockholders can require us to purchase all of the shares held
    by the former associates. The purchase price as prescribed in
    the stockholders agreements is to be determined through a
    market valuation of the minority-held shares or, under certain
    circumstances, based on cost, as defined therein. The aggregate
    amount that may be payable by us to all employee stockholders
    based on fully paid and vested shares is classified as
    redeemable common securities.(14)
    
    In connection with the 2004 Transactions, our Chief Executive
    Officer and our President exchanged 5.4945 and
    2.7472 shares of Company Common Stock for 100 and
    50 shares of AAH Common Stock with an equivalent value of
    $1.0 million and $0.5 million, respectively. In
    addition, our Chief Executive Officer and President exchanged
    5.607 and 2.804 vested options, respectively, to purchase shares
    of Company Common Stock, which had intrinsic values of
    $0.6 million and $0.3 million, respectively, for
    vested options to purchase 65.455 and 32.727 shares of AAH
    Common Stock under the new equity incentive plan with intrinsic
    values of $0.5 million and $0.2 million and estimated
    fair values of $0.6 million and $0.3 million,
    respectively. The fair value of the AAH options was included in
    the equity contribution related to the 2004 Transactions;
    however, as the AAH options are options to purchase redeemable
    common stock, their estimated redemption value is classified as
    redeemable common securities on the consolidated balance sheet.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  General
      e.g. e.g
  Results
    of Operations
  eight-day
 26




---



##### Table of Contents



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Percentage
    of Total Revenues
  Year Ended December 31,20052006


2005


Pro FormaTotal revenues:Net sales


97.9
%


99.9
%


97.7
%Royalties and franchise fees


2.1



0.1



2.3Total revenues


100.0



100.0



100.0Total expenses:Cost of sales


66.6



67.4



66.0Selling expenses


3.9



8.7



4.1Retail operating expenses


12.4



0.4



13.1Franchise expenses


1.3



0.2



1.5General and administrative expenses


8.4



8.6



8.3Art and development costs


1.0



2.1



1.0Non-recurring expenses






1.0



Total expenses


93.7



88.4



94.1Income from operations


6.3



11.6



5.9Interest expense, net


5.4



7.6



5.8Other income, net


(0.1
)


(0.1
)


(0.1
)Income before income taxes and
    minority interest


1.0



4.1



0.2Income tax expense


0.4



1.2



0.1Minority interest










Net income


0.6
%


2.9
%


0.1
%   Total
    Revenues
   27




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##### Table of Contents



Year EndedYear Ended


Year Ended


December 31, 2005December 31, 2006


December 31, 2005


Pro Forma% of Total





% of Total





% of Total$


Revenues


$


Revenues


$


Revenues(Dollars in thousands)Net sales:Wholesale sales

$
508,486



50.1
%

$
407,187



97.5
%

$
439,969



49.6
%Eliminations


(75,952
)


(7.5
)


(1,727
)


(0.4
)


(52,693
)


(5.9
)Wholesale net sales


432,534



42.6



405,460



97.1



387,276



43.7Retail sales


560,808



55.2



11,766



2.8



478,836



54.0Total net sales


993,342



97.9



417,226



99.9



866,112



97.7Royalties and franchise fees


21,746



2.1



509



0.1



20,001



2.3Total revenues

$
1,015,088



100.0
%

$
417,735



100.0
%

$
886,113



100.00
%   Wholesale
      Retail
    Royalties
    and franchise fees
   28




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##### Table of Contents



Gross
    Profit
    Year EndedYear Ended


Year Ended


December 31, 2005December 31, 2006


December 31, 2005


Pro Forma% of





% of





% ofAssociated





Associated





Associated$


Net Sales


$


Net Sales


$


Net SalesGross profit:Wholesale

$
142,903



28.1
%

$
131,755



32.4
%

$
131,785



30.0
%Retail


184,813



33.0



4,007



34.1
%


158,276



33.1Total Gross Profit

$
327,716



30.6
%

$
135,762



32.4
%

$
290,061



31.6
%     Operating
    expenses
          Interest
    expense, net
   29




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##### Table of Contents



Other
    (income) expense, net
    Income
    taxes
    Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Percentage
    of Total Revenues
  Year Ended December 31,2005


2004Total revenues:Net sales


99.9
%


100.0
%Royalties and franchise fees


0.1



Total revenues


100.0



100.0Total expenses:Cost of sales


67.4



66.7Selling expenses


8.7



9.0Retail operating expenses


0.4



Franchise expenses


0.2



General and administrative expenses


8.6



8.4Art and development costs


2.1



2.4Non-recurring expenses


1.0



3.0Total expenses


88.4



89.6Income from operations


11.6



10.4Interest expense, net


7.6



6.9Other (income) expense, net


(0.1
)


0.2Income before income taxes and
    minority interest


4.1



3.3Income tax expense


1.2



1.3Minority interest






Net income


2.9
%


2.0
%   Total Revenues. eight-day
 30




---



##### Table of Contents



eight-day
  Gross Profit.
  Operating Expenses.
  eight-day
        Interest Expense, net.
  Other (income ) expense, net.
 31




---



##### Table of Contents



Income Taxes.
  Liquidity
    and Capital Resources
  Capital
    Structure
  The First Lien Credit Agreement.
        The Second Lien Credit Agreement.
   32




---



##### Table of Contents



180-month
  non-U.S. persons Form S-4,
     33




---



##### Table of Contents



Cash
    Flow Data  Year Ended December 31, 2006 Compared
    to Year Ended December 31, 2005
       34




---



##### Table of Contents



Cash Flow
    Data  Year Ended December 31, 2005 Compared to
    Year Ended December 31, 2004
    available-for-sale
    Tabular
    Disclosure of Contractual Obligations
    Total


2007


2008


2009


2010


2011


ThereafterLong-term debt obligations(a)

$
560,943


$
3,053


$
3,105


$
3,145


$
8,219


$
2,531


$
540,890Capital lease obligations(a)


1,132



650



185



110



94



93



Operating lease obligations(b)


312,401



78,847



61,451



44,899



35,225



28,790



63,189Merchandise purchase commitments(c)


105,740



19,140



20,090



21,100



22,150



23,260



Minimum product royalty obligations


11,002



2,608



2,519



1,627



1,149



1,099



2,000Total contractual obligations

$
991,218


$
104,298


$
87,350


$
70,881


$
66,837


$
55,773


$
606,079  35




---



##### Table of Contents



(a)
    
    See Note 8 to our Consolidated Financial Statements which
    are included in this report beginning on page F-2.(b)
    
    We are also an assignor with continuing lease liability for 22
    stores sold to franchisees that expire through 2011. 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, 2006, the maximum amount of the
    assigned lease obligations was approximately $8.2 million
    and is not included in the table above.The operating lease obligations included in the above table also
    do not include contingent rent based upon sales volume (which
    represented less than 1% of Party Citys minimum lease
    obligations in Fiscal 2006), or other variable costs such as
    maintenance, insurance and taxes.. See Note 17 to our
    Consolidated Financial Statements which are included in this
    report beginning on
    page F-2.(c)
    
    The company has certain purchase commitments with vendors
    requiring minimum purchase commitments through 2011.    page F-2.
  Off-Balance
    Sheet Arrangements
  Regulation S-K
  Effects
    of Inflation
    Critical
    Accounting Policies and Estimates
      Revenue
    Recognition
     36




---



##### Table of Contents



Store
    Closure Costs
    Product
    Royalty Agreements
    Doubtful
    Accounts
    Inventories
    store-by-store
  Long-Lived
    and Intangible Assets
       37




---



##### Table of Contents



Insurance
    accruals
    Income
    Taxes
      Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosure Accounting for Stock
    Issued to Employees
 38




---



##### Table of Contents



Legal
    Proceedings
    Income
    Taxes
    Recently
    Issued Accounting Standards
    No. 06-3 06-3),
 39




---



##### Table of Contents



Safe
    Harbor Statement under Private Securities Litigation
    Reform Act of 1995
    Quarterly
    Results (Unaudited)
   40




---



##### Table of Contents



eight-day
  For the Three Months Ended,March 31,


June 30,


September 30,


December 31,(Dollars in thousands)2006Revenues:Net sales

$
204,183


$
223,847


$
220,514


$
344,798
(a)Royalties and franchise fees


4,157



4,886



4,505



8,198
(a)Gross profit


59,673



71,529



68,636



138,723
(a)Income from operations


1,202



12,244



5,311



45,948
(a)(b)Net income (loss)


(7,157
)


(9
)


(5,675
)


19,281
(a)(b)2005Revenues:Net sales

$
100,376


$
101,285


$
105,582


$
109,983
(c)Royalties and franchise fees














509
(c)Gross profit


33,575



32,523



36,022



33,474
(c)Income from operations


13,951



11,602



16,487



6,324
(c)(d)(e)Net income (loss)


4,006



3,621



5,279



(646
)(c)(d)(e)     (a)
    
    The results of operations for 2006 include the results of Party
    America for the period from the Party America Acquisition date
    (September 29, 2006) through December 30, 2006.(b)
    
    The results of operations for the fourth quarter of 2006 include
    adjustments to decrease depreciation expense by $3,032, and
    increase rent expense by $2,898, representing the difference
    between the actual depreciation and amortization expense and
    rent expense, respectively, following the completion of purchase
    accounting for the Party City Acquisition.(c)
    
    The results of operations for the fourth quarter of 2005 include
    the results of Party City for the
    eight-day
    period from the Party City Acquisition date through
    December 31, 2005.(d)
    
    In connection with the Party City Acquisition, we recorded
    non-recurring expenses of $4.0 million due to the write-off
    of deferred financing costs associated with the repayment of
    debt.(e)
    
    The results of operations for the fourth quarter of 2005 include
    an adjustment to increase depreciation and amortization expense
    by $1,932, representing the difference between the actual
    depreciation and amortization expense following the completion
    of purchase accounting for the 2004 Transaction in the second
    quarter of 2005 and amounts previously recorded.  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk   41




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  page F-1
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures    Item 9B.
    Other
    Information   42




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Name

Age

PositionGerald C. Rittenberg


55


Chief Executive Officer and
    DirectorJames M. Harrison


55


President, Chief Operating Officer
    and DirectorMichael A. Correale


49


Chief Financial OfficerRobert J. Small


40


Chairman of the Board of DirectorsMichael C. Ascione


35


DirectorMichael F. Cronin


53


DirectorKevin M. Hayes


38


DirectorJordan A. Kahn


65


DirectorRichard K. Lubin


60


DirectorCarol M. Meyrowitz


53


DirectorJohn R. Ranelli


60


Director                    43




---



##### Table of Contents



Board of
    Directors
      Audit
    Committee
        Compensation
    Committee.
    Code of
    Ethics
  Regulation S-K
 44




---



##### Table of Contents



Section 16(a)
    Beneficial Ownership Reporting Compliance
    Item 11.
    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 the stockholders.  Compensation
   45




---



##### Table of Contents



Components
    of Compensation
      Base
    Salary
    Annual
    Cash Bonus Plan
    Stock-based
    Incentive Program
       46




---



##### Table of Contents



Other
    Compensation
  length-of-service
      Accounting
    and Tax Treatment
  Accounting
    Treatment
  Share-based Payment
    Awards, share-based
   47




---



##### Table of Contents



Tax
    Treatment
      Incentive stock-options.
  Non-qualified stock-options.
  Restricted Stock.
 48




---



##### Table of Contents



Summary
    of Compensation
  Summary
    Compensation Table
  Option


OtherName and Principal Position

Year


Salary(a)


Bonus(b)


Awards(c)


Compensation(d)


TotalGerald C, Rittenberg


2006


$
750,000


$
750,000


$
258,800


$
45,705


$
1,804,505Chief Executive Officer


2005



525,000



500,000



98,000



38,896



1,161,8962004



500,000



330,000







34,370



864,370James M. Harrison


2006



675,000



675,000



202,500


$
36,836



1,589,336President and


2005



472,500



450,000



65,000



34,879



1,022,379Chief Operating Officer


2004



450,000



297,000







30,934



777,934Michael A. Correale


2006



257,700



100,000



40,300


$
35,365



433,365Chief Financial Officer


2005



208,000



125,000



8,600



33,245



374,8452004



195,000



70,000







33,939



298,939     (a)
    
    Amounts include executives contribution to profit sharing
    plans(b)
    
    Represents amounts earned with respect to the years indicated,
    whether paid or accrued.(c)
    
    The dollar values shown reflect the compensation cost of the
    awards, before reflecting forfeitures, over the requisite
    service period, as described in SFAS No. 123(R) and
    SFAS No. 123, which we implemented January 1,
    2006 and April 30, 2004, respectively. (See Grants of Plan
    Based Awards, below)(d)
    
    Represents contributions by the Company under a profit sharing
    and savings plan, insurance premiums paid by the Company with
    respect to term life insurance for the benefit of the named
    executive officer and automobile-related compensation.  Grants of
    Plan Based Awards
    Number ofSecurities


Exercise Price


Grant DateUnderlying


of Option


Fair Value ofName

Grant Date


Options


Awards ($/Share)


Option AwardsGerald C, Rittenberg


04/01/06



200


$
12,000


$
812,50004/01/05



456



10,000



523,000James M. Harrison


04/01/06



180



12,000



731,00004/01/05



304



10,000



348,000Michael A. Correale


04/01/06



45



12,000



183,00004/01/05



40



10,000



46,000   Potential
    Payments upon Change in Control
    Option
    Exercises
   49




---



##### Table of Contents



Outstanding
    Equity Awards
    Outstanding
    Equity Awards at December 31, 2006
  Number ofSecurities


Number ofUnderlying


SecuritiesUnexercised


Underlying


Option


OptionOptions


Unexercised options


Exercise


ExpirationName

No. Exercisable


No. Unexercisable


Price ($/Share)


DateGerald C, Rittenberg


10.000



190.000


$
12,000



04/01/1688.800



367.200



10,000



04/01/1565.455







2,500



04/30/14James M. Harrison


9.000



171.000



12,000



04/01/1659.200



244.800



10,000



04/01/1532.727







2,500



04/30/14Michael A. Correale


3.000



42.000



12,000



04/01/166.000



34.000



10,000



04/01/15   Director
    Compensation
  Annual
    Compensation
      Director
    Compensation
  Fees Earned or


OptionName

Paid in Cash


Awards(a)


TotalJordan A, Kahn

$
28,500


$
1,425


$
29,925Carol M. Meyrowitz

$
13,000



2,400



15,400John R. Ranelli

$
28,500



1,425



29,925     (a)
    
    The dollar values shown reflect the compensation cost of the
    awards, before reflecting forfeitures, over the requisite
    service period, as described in SFAS No. 123(R) and
    SFAS No 123, which we implemented January 1, 2006 and
    April 30, 2004, respectively.    Number of


OptionSecurities


Exercise


Grant DateUnderlying


Price


Fair Value ofName

Grant Date


Options


($/Share)


Option AwardsJordan A, Kahn


04/01/05



5.0


$
10,000


$
5,700Carol M. Meyrowitz


06/09/06



5.0



12,000



20,300John R. Ranelli


04/01/05



5.0



10,000



5,700    50




---



##### Table of Contents



Compensation
    Committee Interlocks and Insider Participation
    Report of
    Compensation and Benefits Committee on Executive
    Compensation
  Regulation S-K Form 10-K.
            Employment
    Arrangements
  Employment Agreement with Gerald C.
    Rittenberg.
   51




---



##### Table of Contents



Employment Agreement with James M.
    Harrison.
  2004
    Equity Incentive Plan
       52




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters      Shares of Company


PercentageCommon Stock


of ClassName of Beneficial Owner

Beneficially Owned


OutstandingBerkshire Partners LLC(1)


18,081.1483



60.07
%Weston Presidio(2)


9,040.5743



30.03
%GB Retail Funding LLC(3)


1,490.6285



4.95
%Michael C. Ascione(4)


18,081.1483



60.07
%Michael A. Correale(5)


20.7667



*Michael F. Cronin(6)


9,040.5743



30.03
%James M. Harrison(7),
    


209.2606



*Kevin M. Hayes(6)


9,040.5743



30.03
%Jordan A. Kahn(8) 


92.6667



*Richard K. Lubin(4)


18,081.1483



60.07
%Carol M. Meyrowitz 


41.6667



*John R. Ranelli


33.0000



*Gerald C. Rittenberg(9),
    


389.2545



1.29
%Robert J. Small(4)


18,081.1483



60.07
%All directors and executive
    officers as a group (11 persons)


27,908.3378



91.88
%     *
    
    Less than 1%
    
    Director
    
    Named Executive Officer(1)
    
    Consists of (i) 4,118.3209 shares of common stock
    owned by Berkshire Fund V, Limited Partnership,
    (ii) 13,371.3235 shares of common stock owned by
    Berkshire Fund VI, Limited Partnership,
    (iii) 31.4740 shares of common stock owned by
    Berkshire Investors III LLC and
    (iv) 560.0299 shares of common stock owned by
    Berkshire Investors LLC. The address of Berkshire Partners LLC
    is One Boston Place, Suite 3300, Boston, Massachusetts
    02108.(2)
    
    Consists of (i) 8,899.6993 shares of common stock
    owned by Weston Presidio Capital IV, L.P. and
    (ii) 140.8750 shares of common stock owned by WPC
    Entrepreneur Fund II, L.P. The address of Weston Presidio
    is 200 Clarendon Street, 50th Floor, Boston, Massachusetts
    02116. 53




---



##### Table of Contents



(3)
    
    Consists of (i) 161.4035 shares of common stock owned
    by GB Retail Funding LLC and (ii) 1,329.2250 shares
    owned by GB Holdings I, LLC.(4)
    
    Mr. Ascione, Mr. Lubin and Mr. Small are Managing
    Directors of Berkshire Partners LLC. Mr. Lubin and
    Mr. Small each disclaims beneficial ownership of the shares
    held by Berkshire Partners LLC, except to the extent of his
    pecuniary interest therein. Their addresses are One Boston
    Place, Suite 3300, Boston, Massachusetts 02108.(5)
    
    Includes 9.000 shares which could be acquired by
    Mr. Correale within 60 days upon exercise of options.(6)
    
    Mr. Cronin is a Managing Partner of Weston Presidio and
    Mr. Hayes is a General 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 100.927 shares which could be acquired by
    Mr. Harrison within 60 days upon exercise of options.(8)
    
    Includes one share which could be acquired by Mr. Kahn
    within 60 days upon exercise of options.(9)
    
    Includes 164.255 shares which could be acquired by
    Mr. Rittenberg within 60 days upon exercise of options.  Stockholders
    Agreement
  (
    Item 13.
    Certain
    Relationships and Related Transactions   54




---



##### Table of Contents



Item 14.
    Principal
    Accountant Fees and Services  Audit
    Fees
  Form 10-Q;
  Audit-Related
    Fees
    Tax
    Fees
    All Other
    Fees
     PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules      page F-1
    ExhibitNumber

Description2

Press release, dated as of
    September 29, 2006, jointly issued by AAH Holdings
    Corporations and Gordon Brothers Group, LLC (incorporated by
    reference to Exhibit 99.1 to the registrants current
    report on
    Form 8-K
    dated September 29, 2006)2

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

Certificate of Incorporation of
    Amscan Holdings, Inc., dated October 3, 1996, as amended to
    March 30, 2001 (incorporated by reference to
    Exhibit 3(a) to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000 (Commission File
    No. 000-21827))3(2)

Amended By-Laws of Amscan
    Holdings, Inc. (incorporated by reference to Exhibit 3.2 to
    the Registrants Registration Statement on
    Form S-4
    (Registration
    No. 333-45457))3(3)

Amended Articles of Incorporation
    of Anagram International, Inc. (incorporated by reference to
    Exhibit 3(1) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827)) 55




---



##### Table of Contents



ExhibitNumber

Description3(4)

By-Laws of Anagram International,
    Inc. (incorporated by reference to Exhibit 3(2) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))3(5)

Articles of Incorporation of
    Anagram International Holdings, Inc. (incorporated by reference
    to Exhibit 3(3) to the Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))3(6)

By-Laws of Anagram International
    Holdings, Inc. (incorporated by reference to Exhibit 3(4)
    to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))3(7)

Articles of Organization of
    Anagram International, LLC (incorporated by reference to
    Exhibit 3(5) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))3(8)

Operating Agreement of Anagram
    International, LLC (incorporated by reference to
    Exhibit 3(6) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))3(9)

Certificate of Formation of
    Anagram Eden Prairie Property Holdings LLC (incorporated by
    reference to Exhibit 3(7) to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))3(10)

Plan of Merger of Am-Source, Inc.
    into Am-Source, LLC dated February 28, 2000 and Articles of
    Organization of Am-Source, LLC. (incorporated by reference to
    Exhibit 3(8) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))3(11)

Operating Agreement of Am-Source,
    LLC. (incorporated by reference to Exhibit 3(9) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))3(12)

Certificate of Incorporation of
    M&D Industries, Inc. (incorporated by reference to
    Exhibit 3(10) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))3(13)

By-Laws of M&D Industries,
    Inc. (incorporated by reference to Exhibit 3(11) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))4(1)

Indenture, dated as of
    April 30, 2004, by and among the Company, 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 the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))4(2)

First Supplemental Indenture,
    dated as of June 21, 2004 by and among the Company, 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 the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))4(3)

Exchange and Registration Rights
    Agreement dated April 30, 2004 by and among the Company,
    the Guarantors named therein and Goldman, Sachs & Co.
    and Credit Suisse First Boston LLC. (incorporated by reference
    to Exhibit 4(3) to the Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))10(1)

Credit and Guaranty Agreement,
    dated as of April 30, 2004, by and among AAH Holdings
    Corporation, Amscan Holdings, Inc., certain subsidiaries of
    Amscan Holdings, Inc., Goldman Sachs Credit Partners, L.P., as
    Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent,
    General Electric Capital Corporation, as Administrative Agent
    and Collateral Agent, and J.P. Morgan Securities Inc., as
    Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent.
    (incorporated by reference to Exhibit 10(1) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))10(2)

Counterpart Agreement, dated as of
    July 16, 2004, of Anagram International, LLC to the Credit
    and Guaranty Agreement (incorporated by reference to
    Exhibit 10(2) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827)) 56




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##### Table of Contents



ExhibitNumber

Description10(3)

Purchase Agreement dated
    April 27, 2004 by and among AAH Holdings Corporation,
    Amscan Holdings, Inc., the Guarantors named therein and Goldman,
    Sachs & Co. and Credit Suisse First Boston LLC.
    (incorporated by reference to Exhibit 10(3) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))10(4)

Stockholders Agreement of
    AAH Holdings Corporation dated as of April 30, 2004
    (incorporated by reference to Exhibit 10(4) to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))10(5)

Amendment No. 1 to the
    Stockholders Agreement of AAH Holdings Corporation dated
    as of May 24, 2004 (incorporated by reference to
    Exhibit 10(5) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission File
    No. 000-21827))10(6)

Amendment No. 2 to the
    Stockholders Agreement of AAH Holdings Corporation dated
    as of December 21, 2005 (incorporated by reference to
    Exhibit 10-1
    to the Registrants Current Report on
    Form 8-K
    dated October 5, 2006 (Commission File
    No. 000-21827))10(7)

Amendment No. 3 to the
    Stockholders Agreement of AAH Holdings Corporation dated
    as of September 29, 2006 (incorporated by reference to
    Exhibit 10-1
    to the Registrants Current Report on
    Form 8-K
    dated October 5, 2006 (Commission File
    No. 000-21827))10(8)

2004 Equity Incentive Plan of AAH
    Holdings Corporation (incorporated by reference to
    Exhibit 10(6) to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (Commission
    File No. 000-21827))10(9)

Stock Purchase Agreement, dated as
    of August 6, 1998, by and among Amscan Holdings, Inc. and
    certain stockholders of Anagram International, Inc. and certain
    related companies (incorporated by reference to Exhibit 2.1
    to the Registrants Quarterly Report on
    Form 8-K
    dated August 6, 1998 (Commission File
    No. 000-21827))10(10)

Tax Indemnification Agreement
    between Amscan Holdings, Inc., and John A. Svenningsen, dated as
    of December 18, 1996 (incorporated by reference to
    Exhibit 10(j) to the Registrants 1996 Annual Report
    on
    Form 10-K
    (Commission File
    No. 000-21827))10(11)

Tax Indemnification Agreement
    between Amscan Holdings, Inc., Christine Svenningsen and the
    Estate of John A. Svenningsen, dated as of August 10, 1997
    (incorporated by reference to Exhibit 10.17 to the
    Registrants Registration Statement on
    Form S-4
    (Registration
    No. 333-40235))10(12)

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 the
    Registrants Registration Statement on
    Form S-1
    (Registration
    No. 333-14107))10(13)

Form of Indemnification Agreement
    between the Company and each of the directors of the Company
    (incorporated by reference to Exhibit 10(o) to Amendment
    No. 2 to the Registrants Registration Statement on
    Form S-1
    (Registration
    No. 333-14107))10(14)

Employment Agreement, dated as of
    June 19, 2003, by and among the Company and Gerald C.
    Rittenberg (incorporated by reference to Exhibit 10(b) to
    the Registrants Current Report on
    Form 10-Q
    for the quarter ended September 30, 2003 (Commission File
    No. 000-21827))10(15)

Employment Agreement, dated as of
    June 19, 2003, by and among the Company and James M.
    Harrison (incorporated by reference to Exhibit 10(c) to the
    Registrants Current Report on
    Form 10-Q
    for the quarter ended September 30, 2003 (Commission File
    No. 000-21827))10(16)

Agreement and Plan of Merger,
    dated as of March 26, 2004, by and among Amscan Holdings,
    Inc., AAH Holdings Corporation and AAH Acquisition Corporation
    (incorporated by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    dated March 29, 2004 (Commission File
    No. 000-21827))10(17)

Form of Support Agreement, dated
    as of March 26, 2004, by and among AAH Holdings Corporation
    and Stockholder (incorporated by reference to Exhibit 2.2
    to the Registrants Current Report on
    Form 8-K
    dated March 29, 2004 (Commission File
    No. 000-21827))11

Statement re: computation of ratio
    of earnings to fixed charges14

Code of Business Conduct
    (incorporated by reference to Exhibit 14 to the
    Registrants Current Report on
    Form 10-K
    for the year ended December 31, 2003 (Commission File
    No. 000-21827))21

Subsidiaries of the Registrant
    (incorporated by reference to Exhibit 21 to the
    Registrants Registration Statement on
    Form S-1
    (Registration
    No. 333-90404)) 57




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##### Table of Contents



ExhibitNumber

Description23

Consent of Ernst & Young
    LLP31.1

Certification by Chief Executive
    Officer Pursuant to
    Rule 15d-14(a)31.2

Certification by Chief Financial
    Officer Pursuant to
    Rule 15d-14(a)32

Certification of Chief Executive
    Officer and Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002   Supplemental
    Information to be Furnished with Reports Filed Pursuant to
    Section 15(d) of the Act by Registrants Which Have Not
    Registered Securities Pursuant to Section 12 of the
    Act.
   58




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##### Table of Contents



SIGNATURES      By:
    /s/  Michael
    A. Correale           Signature

Title

Date/s/  Robert
    J. SmallRobert
    J. Small

Chairman of the Board of Directors

March 30, 2007/s/  Michael
    C. AscioneMichael
    C. Ascione

Director

March 30, 2007/s/  Michael
    F. CroninMichael
    F. Cronin

Director

March 30, 2007/s/  Kevin
    M. HayesKevin
    M. Hayes

Director

March 30, 2007/s/  Jordan
    A. KahnJordan
    A. Kahn

Director

March 30, 2007/s/  Richard
    K. LubinRichard
    K. Lubin

Director

March 30, 2007/s/  Carol
    M. MeyrowitzCarol
    M. Meyrowitz

Director

March 30, 2007/s/  John
    R. RanelliJohn
    R. Ranelli

Director

March 30, 2007/s/  Gerald
    C. RittenbergGerald
    C. Rittenberg

Chief Executive Officer and
    Director

March 30, 2007/s/  James
    M. HarrisonJames
    M. Harrison

President, Chief Operating Officer
    and Director

March 30, 2007/s/  Michael
    A. CorrealeMichael
    A. Correale

Chief Financial Officer

March 30, 2007  59




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.FORM 10-K
    Item 8, Item 15(a) 1 and 2
    AMSCAN HOLDINGS, INC.
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    AND FINANCIAL STATEMENT SCHEDULE
    Report of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets at December 31, 2006 and 2005


F-3Consolidated
    Statements of Operations for the Years Ended December 31,
    2006 and 2005, the Eight Months ended December 31, 2004 and
    the Four Months Ended April 30, 2004
    (Predecessor)


F-4Consolidated
    Statements of Stockholders (Deficit) Equity for the Four
    Months Ended April 30, 2004 (Predecessor), the Eight Months
    Ended December 31, 2004 and the Years Ended
    December 31, 2005 and 2006


F-5Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006 and 2005, the Eight Months Ended December 31, 2004 and
    the Four Months Ended April 30, 2004
    (Predecessor)


F-7Notes to
    Consolidated Financial Statements


F-8Financial Statement Schedule for
    the Years Ended December 31, 2006 and December 31,
    2005, the Eight Months Ended December 31, 2004 and the Four
    Months Ended April 30, 2004 (Predecessor):Schedule II 
    Valuation and Qualifying Accounts


F-49    F-1




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           Ernst &
    Young LLP
    F-2




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2005(Dollars in thousands,except per share)ASSETSCurrent assets:Cash and cash equivalents

$
4,966


$
8,745Accounts receivable, net


95,470



83,029Inventories, net


227,450



188,457Prepaid expenses and other current
    assets


35,700



39,561Total current assets


363,586



319,792Property, plant and equipment, net


155,443



150,877Goodwill


476,704



505,731Trade names


143,000



68,500Other intangible assets, net


47,407



48,699Other assets


31,230



25,348Total assets

$
1,217,371


$
1,118,947LIABILITIES, REDEEMABLE COMMON
    SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
4,930


$
Accounts payable


110,429



105,787Accrued expenses


68,089



50,806Income taxes payable


8,874



3,387Current portion of long-term
    obligations


3,703



2,643Total current liabilities


196,025



162,623Long-term obligations, excluding
    current portion


558,372



561,567Deferred income tax liabilities


83,592



63,782Deferred rent and other long-term
    liabilities


10,199



3,344Total liabilities


848,188



791,316Redeemable common securities


9,343



6,821Commitments and contingenciesStockholders equity:Common stock ($0.01 par
    value; 40,000.00 shares authorized; 30,100.75 shares
    and 27,882.73 shares issued and outstanding at
    December 31, 2006 and 2005, respectively)






Additional paid-in capital


331,113



300,983Retained earnings


27,264



20,824Accumulated other comprehensive
    income (loss)


1,463



(997
)Total stockholders equity


359,840



320,810Total liabilities, redeemable
    common securities and stockholders equity

$
1,217,371


$
1,118,947    F-3




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Four MonthsYear Ended


Year Ended


Eight Months



EndedDecember 31,


December 31,


Ended December 31,



April 30,2006


2005


2004



2004(Dollars in thousands)



(Predecessor)Revenues:Net sales

$
993,342


$
417,226


$
265,556



$
133,660Royalties and franchise fees


21,746



509








Total revenues


1,015,088



417,735



265,556




133,660Total expenses:Cost of sales


676,527



281,632



178,210




88,247Selling expenses


39,449



36,181



23,529




12,430Retail operating expenses


126,224



1,824








Franchise expenses


13,009



779








General and administrative expenses


84,836



36,026



22,718




10,874Art and development costs


10,338



8,941



6,713




3,332Non-recurring expenses






3,988








11,757Total expenses


950,383



369,371



231,170




126,640Income from operations


64,705



48,364



34,386




7,020Interest expense, net


54,887



31,907



19,124




8,384Other (income) expense, net


(1,000
)


(764
)


882




31Income (loss) before income taxes
    and minority interests


10,818



17,221



14,380




(1,395
)Income tax expense (benefit)


4,295



4,940



5,679




(551
)Minority interests


83



21



137




46Net income (loss)


6,440



12,260



8,564




(890
)Dividend on redeemable convertible
    preferred stock















136Net income (loss) applicable to
    common shares

$
6,440


$
12,260


$
8,564



$
(1,026
)    F-4




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    (DEFICIT) EQUITY
    For the Four Months Ended April 30, 2004 (Predecessor), the
    Eight Months Ended
    December 31, 2004 and the Years Ended December 31,
    2005 and 2006
  Unamortized








AccumulatedAdditional


Restricted


Notes Receivable


Retained


OtherCommon


Common


Paid-in


Common Stock


from


Earnings


ComprehensivePredecessor

Shares


Stock


Capital


Awards


Stockholders


(Deficit)


Loss


Total(Dollars in thousands)Balance at December 31, 2003


1,217.92


$



$
26,682


$
(155
)

$
(680
)

$
(34,020
)

$
(446
)

$
(8,619
)Net income






















(890
)






(890
)Net change in cumulative
    translation adjustment


























(673
)


(673
)Change in fair value of
    available-for-sale
    securities, net of income taxes


























(22
)


(22
)Reclassification adjustment for
    available-for-sale
    securities sold during the period, net of income taxes


























(28
)


(28
)Reclassification adjustment for
    terminated interest rate swap contracts, net of taxes


























408



408Change in fair value of interest
    rate swap and foreign exchange contracts, net of taxes


























306



306Comprehensive income






























(899
)Amortization of restricted common
    stock awards














52















52Redeemable convertible preferred
    stock dividend










(136
)


















(136
)Repayment of note receivable from
    stockholder


















25











25Accretion of interest income


















(14
)










(14
)Balance at April 30, 2004


1,217.92


$



$
26,546


$
(103
)

$
(669
)

$
(34,910
)

$
(455
)

$
(9,591
)  F-5




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT)
    EQUITY  (Continued)
    For the Four Months Ended April 30, 2004 (Predecessor), the
    Eight Months Ended
    December 31, 2004 and the Years Ended December 31,
    2005 and 2006
  AccumulatedAdditional





OtherCommon


Common


Paid-in


Retained


ComprehensiveShares


Stock


Capital


Earnings


Loss


Total(Dollars in thousands)Net income













$
8,564






$
8,564Net change in cumulative
    translation adjustment

















$
1,702



1,702Change in fair value of interest
    rate swap and foreign exchange contracts, net of taxes


















(357
)


(357
)Comprehensive income






















9,909Issuances of shares of common
    stock in connection with the 2004 Transactions


13,962.38






$
140,524











140,524Reclassification of common stock
    to redeemable common securities










(3,705
)










(3,705
)Balance at December 31, 2004


13,962.38







136,819



8,564



1,345



146,728Net income














12,260







12,260Net change in cumulative
    translation adjustment


















(2,699
)


(2,699
)Reclassification adjustment for
    terminated interest rate swap and foreign exchange contracts,
    net of taxes


















357



357Comprehensive income






















9,918Issuances of shares of common stock


62.00







624











624Issuances of shares of common
    stock in connection with the Party City Acquisition


13,868.75







166,425











166,425Purchase and retirement of
    redeemable Common Stock held by a former employee


(10.4
)Reclassification of common stock
    to redeemable common securities










(3,220
)










(3,220
)Stock option compensation expense










335











335Balance at December 31, 2005


27,882.73







300,983



20,824



(997
)


320,810Net income














6,440







6,440Net change in cumulative
    translation adjustment


















2,446



2,446Change in fair value of interest
    rate swap and foreign exchange contracts, net of taxes


















14



14Comprehensive income






















8,900Issuances of shares of common stock


154.66







1,899











1,899Issuances of shares of common
    stock in connection with the Party America Acquisition


2,071.36







29,517











29,517Rollover options issued in
    connection with the Party America Acquisitions










142











142Purchase and retirement of
    redeemable common stock held by a former employee


(8.0
)






(114
)










(114
)Reclassification of common stock
    to redeemable common securities










(2,522
)










(2,522
)Stock option compensation expense










1,208











1,208Balance at December 31, 2006


30,100.75


$



$
331,113


$
27,264


$
1,463


$
359,840  F-6




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  EightMonths



Four MonthsYear Ended


Year Ended


Ended



EndedDecember 31,


December 31,


December 31,



April 30,2006


2005


2004



2004(Dollars in thousands)Cash flows provided by operating
    activities:Net income (loss)

$
6,440


$
12,260


$
8,564



$
(890
)Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:Depreciation and amortization
    expense


38,619



18,602



9,519




5,296Amortization of deferred financing
    costs


2,661



1,582



1,022




709Amortization of restricted common
    stock awards















52Deferred rent


3,019



32








Provision for doubtful accounts


1,668



795



1,308




729Deferred income tax (benefit)
    expense


(6,326
)


1,243



3,638




(2,220
)(Gain) loss on disposal of
    property, plant and equipment


(879
)


34



(4
)



(35
)Undistributed (gain) loss in
    unconsolidated joint venture


(429
)


987



1,168




89Debt retirement costs















6,209Write-off of deferred financing
    costs






3,988








5,548Gain on sales of
    available-for-sale
    securities















(47
)Equity based compensation


1,208



335








Changes in operating assets and
    liabilities, net of acquisitions:(Increase) decrease in accounts
    receivable


(23,745
)


(1,154
)


1,552




(15,247
)(Increase) decrease in inventories


(7,128
)


(18,635
)


(6,594
)



6,229Decrease (increase) in prepaid
    expenses, other current assets and other, net


12,672



626



(527
)



(1,001
)Increase (decrease) in accounts
    payable, accrued expenses, income taxes payable and other
    liabilities


3,225



(5,209
)


5,116




3,991Net cash provided by operating
    activities


31,005



15,486



24,762




9,412Cash flows used in investing
    activities:Cash paid to consummate the 2004
    Transactions










(529,982
)



Cash paid in connection with Party
    America and Party City Acquisitions, net of cash acquired


(14,634
)


(325,562
)







Capital expenditures


(40,376
)


(17,051
)


(7,709
)



(3,726
)Proceeds from sale of
    available-for-sale
    securities















65Proceeds from disposal of property,
    plant and equipment


14,891



88



559




53Net cash used in investing
    activities


(40,119
)


(342,525
)


(537,132
)



(3,608
)Cash flows provided by (used in)
    financing activities:Proceeds from loans, notes payable
    and long-term obligations, net of debt issuance costs of $12,187
    and $13,084 in 2005 and 2004, respectively


5,149



372,813



368,941




Repayment of loans, notes payable
    and long-term obligations


(3,392
)


(206,372
)


(1,768
)



(21,251
)Capital contributions in connection
    with the Party City Acquisition and 2004 Transactions






166,425



139,024




Issuances of common stock


1,899



624








Debt retirement costs paid in
    connection with the 2004 Transactions















(6,209
)Purchase and retirement of
    redeemable common stock


(114
)


(109
)







Repayment of notes receivable from
    officers















25Net cash provided by (used in)
    financing activities


3,542



333,381



506,197




(27,435
)Effect of exchange rate changes on
    cash and cash equivalents


1,793



(1,849
)


1,188




(594
)Net (decrease) increase in cash and
    cash equivalents


(3,779
)


4,493



(4,985
)



(22,225
)Cash and cash equivalents at
    beginning of period


8,745



4,252



9,237




31,462Cash and cash equivalents at end of
    period

$
4,966


$
8,745


$
4,252



$
9,237Supplemental disclosures of cash
    flow information:Cash paid during the period for:Interest

$
48,931


$
32,219


$
16,208



$
6,531Income taxes


4,617



2,851



3,287




1,002           See accompanying notes to
    consolidated financial statements.
 F-7




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
    in thousands, except per share)
  Note 1 
    Organization and Description of Business
    The
    2004 Transactions
      December 31,2004Net sales

$
399,216Net income


16,855    F-8




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The
    Party City Acquisition
          Years EndedDecember 31,


December 31,2005


2004Net sales

$
886,113


$
848,129Net income


7,272



10,326    F-9




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   The
    Party America Acquisition
    Note 2 
    Summary of Significant Accounting Policies
  Consolidated
    Financial Statements
    52-week 53-week 13-week 53-week 52-week 53-week
    Use of
    Estimates
      Cash
    Equivalents
    Inventories
  first-in,
  store-by-store
 F-10




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Allowance
    for Doubtful Accounts
    Long-Lived
    and Intangible Assets
        Deferred
    Financing Costs and Original Issue Discount
    Investments
     F-11




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Insurance
    Accruals
    Revenue
    Recognition
      Shipping
    and Handling
    Store
    Closure Costs
    Product
    Royalty Agreements
    Catalogue
    Costs
    Art
    and Development Costs
   F-12




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Derivative
    Financial Instruments
      Income
    Taxes
    Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosure Accounting for Stock
    Issued to Employees,
   F-13




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Accumulated
    Other Comprehensive Income (Loss)
    Foreign
    Currency Transactions and Translation
    Concentration
    of Credit Risk
   F-14




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recently
    Issued Accounting Standards
    No. 06-3 06-3),
    Note 3 
    Inventories
    December 31,


December 31,2006


2005Finished goods

$
215,069


$
172,232Raw materials


12,105



12,272Work-in process


5,579



6,139232,753



190,643Less: reserve for slow moving and
    obsolete inventory


(5,303
)


(2,186
)$
227,450


$
188,457  F-15




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4 
    Property, Plant and Equipment, Net
    December 31,


December 31,2006


2005


Useful LivesMachinery and equipment

$
75,554


$
64,315



3-15 yearsBuildings


47,685



40,669



31-40 yearsData processing equipment


23,518



21,938



3-5 yearsLeasehold improvements


28,245



22,964



2-20 yearsFurniture and fixtures


23,721



13,874



10 yearsLand


5,874



7,130204,597



170,890Less: accumulated depreciation


(49,154
)


(20,013
)$
155,443


$
150,877       December 31,


December 31,2006


2005Equipment

$
1,147


$
1,202Less: accumulated depreciation


(280
)


(161
)$
867


$
1,041     Note 5 
    Party City and Party America Acquisitions and 2004
    Transactions
  Party
    America Acquisition
     F-16




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Party
    City Acquisition
      Purchase of all the outstanding
    common stock of Party City at $17.50 per share

$
346,819Related transaction costs


9,370Total purchase price

$
356,189      F-17




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2004
    Transactions
          non-U.S. persons Form S-4
   F-18




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Other Intangible Assets, net
    At December 31, 2006Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise licenses

$
37,500


$
3,974


$
33,526



9 yearsCustomer lists and relationships


14,500



2,578



11,922



15 yearsCopyrights, designs and other


13,111



11,603



1,508



2-3 yearsLeasehold and other intangibles


479



28



451



1-15 years$
65,590


$
18,183


$
47,407   At December 31, 2005Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise license

$
30,000


$
44


$
29,956



9 yearsCustomer lists and relationships


14,500



1,608



12,892



15 yearsCopyrights, designs and other


12,800



7,210



5,590



2-3 yearsLeasehold and other intangibles


261







261



15 years$
57,561


$
8,862


$
48,699     Note 7 
    Loans and Notes Payable
       F-19




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 8 
    Long-Term Obligations
    December 31,


December 31,2006


20058.750% senior subordinated
    notes(a)

$
175,000


$
175,000First Term Loan due 2012(b)


319,814



321,761Second Term Loan due 2012(c)


58,732



58,505Mortgage obligations(d)


7,397



7,917Capital lease obligations(e)


1,132



1,027Total long-term obligations


562,075



564,210Less: current portion


(3,703
)


(2,643
)Long-term obligations, excluding
    current portion

$
558,372


$
561,567       
    The First Lien Credit Agreement provides that the First Term
    Loan may be prepaid and the First Term Loan Revolver may be
    permanently reduced; provided that if the First Term Loan is
    repaid, the Company shall pay to its lenders a prepayment
    premium of 2% in the first year following the Closing Date and
    1% in the second year following the Closing Date. The First Term
    Loan is subject to mandatory prepayment and, under certain
    circumstances, reduction in the commitments for (i) net
    cash proceeds arising from certain asset sales, (ii) net
    cash proceeds arising from equity issuances, (iii) net cash
    proceeds arising from debt issuances, (iv) net cash
    proceeds arising from insurance and condemnation proceeds and
    (v) commencing with the year ended December 31, 2006,
    50% of the excess cash flow of the Company.
    The Second Lien Credit Agreement provides that the Second Term
    Loan may in no event be prepaid prior to the second anniversary
    of the Closing Date. If the Second Term Loan is repaid after the
    second anniversary of the Closing Date but on or prior to the
    fifth anniversary of the Closing Date, the Company shall pay to
    its lenders a prepayment premium of 3% in the third year
    following the Closing Date, 2% in the fourth year following the
    Closing Date and 1% in the fifth year following the Closing
    Date. The Second Term Loan is subject to mandatory prepayment
    and, under certain circumstances, F-20




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  reduction in the commitments out of (i) net cash proceeds
    arising from asset sales, (ii) net cash proceeds arising
    from equity issuances, (iii) net cash proceeds arising from
    debt issuances, (iv) net cash proceeds arising from
    insurance and condemnation proceeds and (v) commencing with
    the year ended December 31, 2006, 50% of the excess cash
    flow of the Company.         F-21




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    180-month
      Long-term Debt


Capital LeaseObligations


Obligations


Totals2007


3,053



650



3,7032008


3,105



185



3,2902009


3,145



110



3,2552010


8,219



94



8,3132011


2,531



93



2,624Thereafter


540,890







540,890Long-term obligations

$
560,943


$
1,132


$
562,075   Note 9 
    Capital Stock
     F-22




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Note 10 
    Provision for Doubtful Accounts
    Note 11 
    Non-recurring Expenses and Write-off of Deferred
    Financing
    Note 12 
    Restructuring Charges
       F-23




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13 
    Other (Income) Expense
  Four MonthsYear Ended


Year Ended


Eight Months



EndedDecember 31,


December 31,


Ended December 31,



April 30,2006


2005


2004



2004(Predecessor)Undistributed (income) loss in
    unconsolidated joint venture

$
(429
)

$
987


$
1,168



$
89Change in fair value of the
    foreign exchange contracts


171



(1,220
)







Gain on sale of property, plant
    and equipment


(879
)Gain on sale of marketable
    securities















(47
)Other expense (income), net


137



(531
)


(286
)



(11
)Other (income) expense, net

$
(1,000
)

$
(764
)

$
882



$
31   Note 14 
    Employee Benefit Plans
    Note 15 
    Equity Incentive Plan
     F-24




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Expected dividend rate


Risk free interest rate


4.85
%Price volatility


7.50Weighted average expected


15.00Forfeiture rate


7.75    F-25




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Average ExerciseOptions


PriceOutstanding at December 31,
    2003


186.485


$
Exercised/Exchanged


(186.485
)


113,715Outstanding at April 30, 2004






     Average Fair MarketAverage Exercise


Value of Options atOptions


Price


Grant DateOutstanding at May 1 and
    December 31, 2004


98.1818


$
2,500Granted


1,482.0000



10,000


$
1,094Exercised


Canceled


Outstanding at December 31,
    2005


1,580.1818


$
9,534Granted


1,409.023



11,929



4,060Exercised


(1
)


10,000Canceled


(130
)


11,000Outstanding at December 31,
    2006


2,858.2048


$
10,648Exercisable at December 31,
    2006


479.4048


$
8,676.94   Note 16 
    Income Taxes
    Eight MonthsYear Ended


Year Ended


Ended



Four MonthsDecember 31,


December 31,


December 31,



Ended April 30,2006


2005


2004



2004(Predecessor)Domestic

$
5,658


$
11,542


$
10,076



$
(2,233
)Foreign


5,160



5,679



4,304




838Total

$
10,818


$
17,221


$
14,380



$
(1,395
)  F-26




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Eight MonthsYear Ended


Year Ended


Ended



Four MonthsDecember 31,


December 31,


December 31,



Ended April 30,2006


2005


2004



2004(Predecessor)Current:Federal

$
6,493


$
1,611


$
523



$
1,103State


2,018



511



100




219Foreign


2,110



1,575



1,418




347Total current provision


10,621



3,697



2,041




1,669Deferred:Federal


(5,101
)


2,748



2,950




(1,894
)State


(861
)


(1,954
)


688




(326
)Foreign


(364
)


449








Total deferred provision (benefit)


(6,326
)


1,243



3,638




(2,220
)Income tax expense (benefit)

$
4,295


$
4,940


$
5,679



$
(551
)     December 31,


December 31,2006


2005Current deferred income tax assets:Inventory valuation

$
6,784


$
6,103Allowance for doubtful accounts


656



652Accrued liabilities


4,899



3,081Charitable contributions
    carryforward


533



890Tax loss carryforward


1,156



Tax credit carryforward






595Current deferred income tax assets
    (included in prepaid expenses and other current assets)

$
14,028


$
11,321Non-current deferred income tax
    liabilities, net:Property, plant and equipment

$
5,370


$
14,703Intangible assets


66,442



37,202Amortization of goodwill and other
    assets


12,280



12,239Interest rate swap and foreign
    exchange contracts






366Other


(500
)


(728
)Non-current deferred income tax
    liabilities, net

$
83,592


$
63,782    F-27




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Eight MonthsYear Ended


Year Ended


Ended



Four MonthsDecember 31,


December 31,


December 31,



Ended April 30,2006


2005


2004



2004(Predecessor)Provision at federal statutory
    income tax rate


35.0
%


35.0
%


35.0
%



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


7.0



2.9



3.1




4.9Effective of New York
    apportionment change






(8.3
)







Other


(2.3
)


(0.8
)


1.4




(0.4
)Effective income tax rate


39.7
%


28.8
%


39.5
%



39.5
%         Note 17 
    Commitments, Contingencies and Related Party
    Transactions
  Lease
    Agreements
   F-28




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2007

$
78,8472008


61,4512009


44,8992010


35,2252011


28,790Thereafter


63,189$
312,401         Product
    Royalty Agreements
      2007

$
2,6082008


2,5192009


1,6272010


1,1492011


1,099Thereafter


2,000$
11,002    F-29




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2007

$
19,1402008


20,0902009


21,1002010


22,1502011


23,260Thereafter


$
105,740   Legal
    Proceedings
    Related
    Party Transactions
        Note 18 
    Segment Information
  Industry
    Segments
   F-30




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Wholesale


Retail


Eliminations


ConsolidatedYear Ended December 31,
    2006Total Revenues:Net sales

$
508,486


$
560,808


$
(75,952
)

$
993,342Royalties and franchise fees






21,746







21,746Total revenues

$
508,486


$
582,554


$
(75,952
)

$
1,015,088Income from operations

$
51,904


$
23,701


$
(10,901
)

$
64,705Interest expense, net














54,887Other income, net














(1,000
)Income before income taxes and
    minority interests













$
10,818Long-lived assets

$
797,940


$
396,338


$
(340,494
)

$
853,784     Geographic
    Segments
      Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31,
    2006Revenues Net sales:Sales to unaffiliated customers

$
924,981


$
68,361


$



$
993,342Sales between geographic areas


20,166







(20,166
)


Net sales


945,147



68,361



(20,166
)


993,342Royalties and franchise fees


21,746











21,746Total revenues

$
966,893


$
68,361


$
(20,166
)

$
1,015,088Income from operations

$
69,267


$
6,339


$
(10,901
)

$
64,705Interest expense, net














54,887Other loss, net














(1,000
)Income before income taxes and
    minority interests













$
10,818Long-lived assets

$
881,900


$
17,319


$
(45,436
)

$
853,784   F-31




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31,
    2005Revenues Net sales:Sales to unaffiliated customers

$
356,801


$
60,425


$



$
417,226Sales between geographic areas


19,858







(19,858
)


Net sales


376,659



60,425



(19,858
)


417,226Royalties and franchise fees


509











509Total revenues

$
377,168


$
60,425


$
(19,858
)

$
417,735Income from operations

$
41,690


$
5,660


$
1,014


$
48,364Interest expense, net














31,907Other loss, net














(764
)Income before income taxes and
    minority interests













$
17,221Long-lived assets

$
820,414


$
11,491


$
(32,750
)

$
799,155   Domestic


Foreign


Eliminations


ConsolidatedEight Months Ended
    December 31, 2004Net sales:Sales to unaffiliated customers

$
227,733


$
37,823


$



$
265,556Sales between geographic areas


11,539







(11,539
)


Net sales

$
239,272


$
37,823


$



$
265,556Income from operations

$
29,893


$
3,588


$
905


$
34,386Interest expense, net














19,124Other loss, net














882Income before income taxes and
    minority interests













$
14,380Long-lived assets

$
470,542


$
10,508


$
(25,404
)

$
455,646   F-32




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Domestic


Foreign


Eliminations


ConsolidatedPredecessorFour Months Ended
    April 30, 2004Net sales:Sales to unaffiliated customers

$
115,939


$
17,721


$



$
133,660Sales between geographic areas


5,487







(5,487
)


Net sales

$
121,426


$
17,721


$
(5,487
)

$
133,660Income from operations

$
5,517


$
1,156


$
347


$
7,020Interest expense, net














8,384Other loss, net














31Loss before income tax benefit and
    minority interests













$
(1,395
)Long-lived assets

$
187,796


$
8,473


$
(25,224
)

$
171,045   Note 19 
    Quarterly Results (Unaudited)
   F-33




---



##### Table of Contents



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


June 30,


September 30,


December 31,(Dollars in thousands)2006Revenues:Net sales

$
204,183


$
223,847


$
220,514


$
344,798(a
)Royalties and franchise fees


4,157



4,886



4,505



8,198(a
)Gross profit


59,673



71,529



68,686



138,723(a
)Income from operations


1,202



12,244



5,311



45,948(a
)(b)Net (loss) income


(7,157
)


(9
)


(5,675
)


19,281(a
)(b)2005Revenues:Net sales

$
100,376


$
101,285


$
105,582


$
109,983(c
)Royalties and franchise fees














509(c
)Gross profit


33,575



32,523



36,022



33,474(c
)Income from operations


13,951



11,602



16,487



6,324(c
)(d)(e)Net income (loss)


4,006



3,621



5,279



(646
)(c)(d)(e)     (a)
    
    The results of operations for 2006 include the results of Party
    America for the period from the Party America Acquisition Date
    through December 30, 2006.(b)
    
    The results of operations for the fourth quarter of 2006 include
    adjustments to decrease depreciation expense by $3,032, and
    increase rent expense by $2,898, representing the difference
    between the actual depreciation and amortization expense and
    rent expense, respectively, following the completion of purchase
    accounting for the Party City Acquisition.(c)
    
    The results of operations for the fourth quarter of 2005 include
    the results of Party City for the
    eight-day
    period from the Party City Acquisition date through
    December 31, 2005.(d)
    
    In connection with the Party City Acquisition, we recorded
    non-recurring expenses of $4,000 due to the write-off of
    deferred financing costs associated with the repayment of debt.(e)
    
    The results of operations for the fourth quarter of 2005 include
    an adjustment to increase depreciation and amortization expense
    by $1,932, representing the difference between the actual
    depreciation and amortization expense following the completion
    of purchase accounting for the 2004 Transactions in the second
    quarter of 2005 and amounts previously recorded.  Note 20 
    Fair Value of Financial Instruments
     F-34




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 21 
    Derivative Financial Instruments
  Interest
    Rate Risk Management
        Foreign
    Exchange Risk Management
     F-35




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 22 
    Sales Leaseback Transaction
   F-36




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 22 
    Comprehensive Income (Loss)
    Eight Months



Four MonthsYear Ended


Year Ended


Ended



EndedDecember 31,


December 31,


December 31,



April 30,2006


2005


2004



2004(Predecessor)Net income (loss)

$
6,440


$
12,260


$
8,564



$
(890
)Net change in cumulative
    translation adjustment


2,446



(2,699
)


1,702




(673
)Change in fair value of
    available-for-sale
    securities, net of income tax (benefit) of $(14) and $620,
    respectively















(22
)Reclassification adjustment for
    available-for-sale
    securities sold during the period, net of income tax benefit of
    $(19)















(28
)Change in fair value of interest
    rate swap contracts, net of income tax expense (benefit) of $44,
    $(120), and $54


75







(184
)



82Reclassification adjustment for
    terminated interest rate swap and foreign exchange contracts,
    net of income taxes of $233 and $266, respectively






357








408Change in fair value of the
    foreign exchange contracts, net of income tax expense (benefit)
    of $(36) $(113)and $146, respectively


(61
)






(173
)



224$
8,900


$
9,918


$
9,909



$
(899
)     December 31,


December 31,2006


2005Cumulative translation adjustment

$
1,449


$
(997
)Interest rate swap contracts, net
    of income tax expense of $44


75



Foreign exchange contracts, net of
    income tax benefit of $(36)


(61
)Total accumulated other
    comprehensive (loss) income

$
1,463


$
(997
)   Note 23 
    Condensed Consolidating Financial Information
    (Unaudited)
   F-37




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     
    Amscan Inc.
    Am-Source, LLC
    Anagram International, Inc.
    Anagram International Holdings, Inc.
    Anagram International, LLC
    M&D Industries, Inc.
    Party City Corporation
    PA Acquisition Corporation
    SSY Realty Corp.
    JCS Packaging Inc. (formerly JCS Realty Corp.)
    Anagram Eden Prairie Property Holdings LLC
    Trisar, Inc.    
    Amscan Distributors (Canada) Ltd.
    Amscan Holdings Limited
    Amscan(Asia-Pacific) Pty.  Ltd.
    Amscan Partyartikel GmbH
    Amscan de Mexico, S.A. de C.V.
    Anagram International (Japan) Co., Ltd.
    Anagram Espana, S.A.
    Anagram France S.C.S.
    JCS Hong Kong Ltd.   F-38




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEET
    December 31, 2006
  AAH andCombined


Combined Non-Guarantors


Guarantors


Eliminations


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

$
4,395


$
571






$
4,966Accounts receivable, net


82,193



13,277







95,470Inventories, net


214,681



13,313


$
(544
)


227,450Prepaid expenses and other current
    assets


33,960



1,740







35,700Total current assets


335,229



28,901



(544
)


363,586Property, plant and equipment, net


152,956



2,487







155,443Goodwill, net


472,447



4,256







476,704Trade names


143,000











143,000Other intangible assets, net


47,407











47,407Intercompany due from/(due to)


37,831



7,582



(45,413
)


Other assets


28,260



2,993



(23
)


31,230Total assets

$
1,217,130


$
46,219


$
(45,980
)

$
1,217,371LIABILITIES, REDEEMABLE COMMON
    SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable

$
4,930


$







$
4,930Accounts payable


108,192



2,237







110,429Accrued expenses


61,940



6,149







68,089Income taxes payable


8,908



(50
)

$
16



8,874Intercompany due from/(due to)


9,933



35,574



(45,507
)


Current portion of long-term
    obligations


3,523



180







3,703Total current liabilities


197,426



44,090



(45,491
)


196,025Long-term obligations, excluding
    current portion


558,265



107







558,372Deferred income tax liabilities


82,891



701







83,592Deferred rent and other long-term
    liabilities


8,946



1,389



(136
)


10,199Total liabilities


847,528



46,287



(45,627
)


848,188Redeemable common securities


9,343











9,343Commitments and contingenciesStockholders equity:Common stock






339



(339
)


Additional paid-in capital


331,113











331,113Retained earnings


27,685



(327
)


(94
)


27,264Accumulated other comprehensive
    (loss) income


1,463



(80
)


80



1,463Total stockholders equity


360,261



(68
)


(353
)


359,840Total liabilities, redeemable
    common securities and stockholders equity

$
1,217,130


$
46,219


$
(45,980
)

$
1,217,371  F-39




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEET
    December 31, 2005
  AAH andCombined


Combined Non-Guarantors


Guarantors


Eliminations


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

$
7,695


$
1,050






$
8,745Accounts receivable, net


71,234



11,795







83,029Inventories, net


175,087



13,955


$
(585
)


188,457Prepaid expenses and other current
    assets


37,851



1,710







39,561Total current assets


291,867



28,510



(585
)


319,792Property, plant and equipment, net


147,340



2,297







150,877Goodwill, net


501,985



3,746







505,731Trade names


68,500











68,500Other intangible assets, net


48,699











48,699Other assets


52,650



5,448



(32,750
)


25,348Total assets

$
1,112,281


$
40,001


$
(33,335
)

$
1,118,947LIABILITIES, REDEEMABLE COMMON
    SECURITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
102,259


$
3,528






$
105,787Accrued expenses


46,093



4,713







50,806Income taxes payable


3,331



168


$
(112
)


3,387Current portion of long-term
    obligations


2,138



205







2,643Total current liabilities


154,121



8,614



(112
)


162,623Long-term obligations, excluding
    current portion


561,366



201







561,567Non-current deferred income tax
    liabilities


63,164



618







63,782Deferred rent and other long-term
    liabilities


5,553



30,552



(32,761
)


3,344Total liabilities


784,204



39,985



(32,873
)


791,316Redeemable common securities


6,821











6,821Commitments and contingenciesStockholders equity:Common stock






339



(339
)


Additional paid-in capital


300,983











300,983Retained earnings


21,270



(243
)


(203
)


20,824Accumulated other comprehensive
    (loss) income


(997
)


(80
)


80



(997
)Total stockholders equity


321,256



16



(462
)


320,810Total liabilities, redeemable
    common securities and stockholders equity

$
1,112,281


$
40,001


$
(33,335
)

$
1,118,947  F-40




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF OPERATIONS
    For Year Ended December 31, 2006
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Revenues:Net sales

$
945,147


$
68,361


$
(20,166
)

$
993,342Royalties and franchise fees


21,746











21,746Total revenues


966,893



68,361



(20,166
)


1,015,088Total expenses:Cost of sales


651,083



45,651



(20,207
)


676,527Selling expenses


31,355



8,094







39,449Retail operating expenses


126,224











126,224Franchise expenses


13,009











13,009General and administrative expenses


77,879



8,277



(1,320
)


84,836Art and development costs


10,338











10,338Total expenses


909,888



62,022



(21,527
)


950,383Income from operations


57,005



6,339



1,361



64,705Interest expense, net


54,748



139







54,887Other (income) loss, net


(6,754
)


542



5,212



(1,000
)Income before income taxes and
    minority interests


9,011



5,658



(3,851
)


10,818Income tax expense (benefit)


2,596



1,683



16



4,295Minority interests






83







83Net income (loss)

$
6,415


$
3,892


$
(3,867
)

$
6,440  F-41




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF OPERATIONS
    For The Year Ended December 31, 2005
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Revenues:Net sales

$
376,659


$
60,425


$
(19,858
)

$
417,226Royalties and franchise fees


509











509Total revenues


377,168



60,425



(19,858
)


417,735Total expenses:Cost of sales


261,210



39,974



(19,552
)


281,632Selling expenses


28,756



7,425







36,181Retail operating expenses


1,824











1,824Franchise expenses


779











779General and administrative expenses


29,980



7,366



(1,320
)


36,026Art and development costs


8,941











8,941Non-recurring expenses


3,988











3,988Total expenses


335,478



54,765



(20,872
)


369,371Income from operations


41,690



5,660



1,014



48,364Interest expense, net


31,774



133







31,907Other (income) loss, net


(6,062
)


(994
)


6,292



(764
)Income before income taxes and
    minority interests


15,978



6,521



(5,278
)


17,221Income tax expense (benefit)


3,524



1,528



(112
)


4,940Minority interests






21







21Net income (loss)

$
12,454


$
4,972


$
(5,166
)

$
12,260  F-42




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF OPERATIONS
    For The Eight Months Ended December 31, 2004
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Revenues:Net sales

$
239,272


$
37,823


$
(11,539
)

$
265,556Cost of sales


165,028



24,746



(11,564
)


178,210Gross profit


74,244



13,077



25



87,346Operating expenses:Selling expenses


18,959



4,570







23,529General and administrative expenses


18,679



4,919



(880
)


22,718Art and development costs


6,713











6,713Total operating expenses


44,351



9,489



(880
)


52,960Income from operations


29,893



3,588



905



34,386Interest expense, net


19,022



102







19,124Other (income) loss, net


(2,385
)


(80
)


3,347



882Income before income taxes and
    minority interests


13,256



3,566



(2,442
)


14,380Income tax expense


4,707



962



10



5,679Minority interests






137







137Net income (loss)

$
8,549


$
2,467


$
(2,452
)

$
8,564  F-43




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF OPERATIONS
    For The Four Months Ended April 30, 2004
    (Predecessor)
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Net sales

$
121,426


$
17,721


$
(5,487
)

$
133,660Cost of sales


81,845



11,796



(5,394
)


88,247Gross profit


39,581



5,925



(93
)


45,413Operating expenses:Selling expenses


10,095



2,335







12,430General and administrative expenses


8,880



2,434



(440
)


10,874Art and development costs


3,332











3,332Non-recurring expenses


11,757











11,757Total operating expenses


34,064



4,769



(440
)


38,393Income from operations


5,517



1,156



347



7,020Interest expense, net


8,320



64







8,384Other income (loss), net


(1,105
)


(39
)


1,175



31(Loss) income before income taxes
    and minority interests


(1,698
)


1,131



(828
)


(1,395
)Income tax (benefit) expense


(864
)


350



(37
)


(551
)Minority interests






46







46Net (loss) income


(834
)


735



(791
)


(890
)Dividend on redeemable convertible
    preferred stock


136











136Net (loss) income applicable to
    common shares

$
(970
)

$
735


$
(791
)

$
(1,026
)  F-44




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For Year Ended December 31, 2006
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Cash flows provided by operating
    activities:Net income (loss)

$
6,415


$
3,892


$
(3,867
)

$
6,440Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:Depreciation and amortization
    expense


37,808



811







38,619Amortization of deferred financing
    costs


2,661











2,661Deferred rent


3,019











3,019Provision for doubtful accounts


1,324



344







1,668Deferred income tax expense
    (benefit)


(6,326
)










(6,326
)(Gain) loss on disposal of
    property, plant and equipment


(886
)


7







(879
)Undistributed loss in
    unconsolidated joint venture


(429
)










(429
)Equity based compensation


1,208











1,208Changes in operating assets and
    liabilities, net of acquisitions:Increase in accounts receivable


(21,919
)


(1,826
)






(23,745
)(Increase) decrease in inventories


(7,729
)


642



(41
)


(7,128
)Decrease (increase) in prepaid
    expenses, other current assets and other, net


12,702



(30
)






12,672Increase (decrease) in accounts
    payable, accrued expenses, income taxes payable and other
    liabilities


4,318



(5,001
)


3,908



3,225Net cash provided by operating
    activities


32,166



(1,161
)






31,005Cash flows used in investing
    activities:Cash contributed to joint venture
    and cash paid for acquisition


(14,634
)










(14,634
)Capital expenditures


(39,568
)


(808
)






(40,376
)Proceeds from disposal of property,
    plant and equipment


14,839



52







14,891Net cash used in investing
    activities


(39,363
)


(756
)






(40,119
)Cash flows provided by (used in)
    financing activitiesProceeds from loans, notes payable
    and long-term obligations, net of debt issuance costs


5,149











5,149Repayment of loans, notes payable
    and long-term obligations


(3,135
)


(257
)






(3,392
)Issuance of common stock


1,899











1,899Purchase and retirement of
    redeemable common stock


(114
)










(114
)Net cash provided by (used in)
    financing activities


3,799



(257
)






3,542Effect of exchange rate changes on
    cash and cash equivalents


98



1,695







1,793Net increase (decrease) in cash and
    cash equivalents


(3,300
)


(479
)






(3,779
)Cash and cash equivalents at
    beginning of period


7,695



1,050







8,745Cash and cash equivalents at end of
    period

$
4,395


$
571


$



$
4,966  F-45




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For The Year Ended December 31, 2005
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Cash flows provided by operating
    activities:Net income (loss)

$
12,454


$
4,972


$
(5,166
)

$
12,260Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:Depreciation and amortization
    expense


17,924



678







18,602Amortization of deferred financing
    costs


1,582











1,582Deferred rent


32











32Provision for doubtful accounts


627



168







795Deferred income tax expense
    (benefit)


1,242



1







1,243(Gain) loss on disposal of
    property, plant and equipment


30



4







34Undistributed loss in
    unconsolidated joint venture


987











987Write-off of deferred financing
    costs


3,988











3,988Equity based compensation


335











335Changes in operating assets and
    liabilities, net of acquisitions:Increase in accounts receivable


(847
)


(307
)






(1,154
)(Increase) decrease in inventories


(16,038
)


(2,903
)


306



(18,635
)Decrease (increase) in prepaid
    expenses, other current assets and other, net


1,009



(383
)






626(Decrease) increase in accounts
    payable, accrued expenses, income taxes payable and other
    liabilities


(10,933
)


864



4,860



(5,209
)Net cash provided by operating
    activities s


12,392



3,094







15,486Cash flows used in investing
    activities:Cash paid in connection with Party
    City Acquisition


(325,562
)










(325,562
)Capital expenditures


(16,119
)


(932
)






(17,051
)Proceeds from disposal of property,
    plant and equipment


22



66







88Net cash used in investing
    activities


(341,659
)


(866
)






(342,525
)Cash flows provided by (used in)
    financing activitiesProceeds from loans, notes payable
    and long-term obligations, net of debt issuance costs


372,813











372,813Repayment of loans, notes payable
    and long-term obligations


(206,155
)


(217
)






(206,372
)Capital contributions


167,049











167,049Purchase of common stock from
    officers


(109
)










(109
)Net cash provided by (used in)
    financing activities


333,598



(217
)






333,381Effect of exchange rate changes on
    cash and cash equivalents


211



(2,060
)






(1,849
)Net increase (decrease) in cash and
    cash equivalents


4,542



(49
)






4,493Cash and cash equivalents at
    beginning of period


3,153



1,099







4,252Cash and cash equivalents at end of
    period

$
7,695


$
1,050


$



$
8,745  F-46




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For The Eight Months Ended December 31, 2004
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Cash flows provided by (used in)
    operating activities:Net income

$
8,549


$
2,467


$
(2,452
)

$
8,564Adjustments to reconcile net income
    to net cash provided by (used in) operating activitiesDepreciation and amortization
    expense


9,070



449







9,519Amortization of deferred financing
    costs


1,022











1,022Provision for doubtful accounts


975



333







1,308Deferred income tax benefit


3,638











3,638Gain on disposal of equipment


(1
)


(3
)






(4
)Undistributed loss in
    unconsolidated joint venture


1,168











1,168Changes in operating assets and
    liabilities:Decrease in accounts receivable


1,350



202







1,552Increase in inventories, net


(4,571
)


(1,998
)


(25
)


(6,594
)(Increase) decrease in prepaid
    expenses, other current assets and other, net


(56
)


(2,938
)


2,467



(527
)Increase (decrease) in accounts
    payable, accrued expenses and income taxes payable


4,212



894



10



5,116Net cash provided by (used in)
    operating activities


25,356



(594
)






24,762Cash flows used in investing
    activities:Cash paid to consummate the 2004
    Transactions


(529,982
)










(529,982
)Capital expenditures


(7,384
)


(325
)






(7,709
)Proceeds from disposal of property
    and equipment


160



399







559Net cash used in investing
    activities


(537,206
)


74







(537,132
)Cash flows provided by (used in)
    financing activities:Proceeds from loans, notes payable
    and long-term obligations, net of debt issuance costs of $12,705


368,941











368,941Repayment of loans, notes payable
    and long-term obligations


(1,651
)


(117
)






(1,768
)Capital contributions in connection
    with the 2004 Transactions


139,024











139,024Net cash provided by (used in)
    financing activities


506,314



(117
)






506,197Effect of exchange rate changes on
    cash and cash equivalents


43



1,145







1,188Net decrease in cash and cash
    equivalents


(5,493
)


508







(4,985
)Cash and cash equivalents at
    beginning of period


8,646



591







9,237Cash and cash equivalents at end of
    period

$
3,153


$
1,099


$



$
4,252  F-47




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For The Four Months Ended April 30, 2004
    (Predecessor)
  AAH andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


Consolidated(Unaudited)(Dollars in thousands)Cash flows provided by operating
    activities:Net (loss) income

$
(834
)

$
735


$
(791
)

$
(890
)Adjustments to reconcile net (loss)
    income to net cash provided by operating activities:Depreciation and amortization
    expense


5,076



220







5,296Amortization of deferred financing
    costs


709











709Amortization of restricted Common
    Stock award


52











52Provision for doubtful accounts


600



129







729Deferred income tax benefit


(2,220
)










(2,220
)Gain on disposal of equipment






(35
)






(35
)Undistributed loss in
    unconsolidated joint venture


89











89Debt retirement costs incurred in
    connection with the 2004 Transactions


6,209











6,209Write-off of deferred financing
    costs


5,548











5,548Gain on sale of
    available-for-sale
    securities


(47
)










(47
)Changes in operating assets and
    liabilities:Increase in accounts receivable


(13,843
)


(1,404
)






(15,247
)Decrease in inventories, net


5,833



303



93



6,229(Increase) decrease in prepaid
    expenses and other current assets


(2,400
)


664



735



(1,001
)Increase (decrease) in accounts
    payable, accrued expenses and income taxes payable


3,663



365



(37
)


3,991Net cash provided by operating
    activities


8,435



977







9,412Cash flows used in investing
    activities:Capital expenditures


(3,205
)


(521
)






(3,726
)Proceeds from sale of
    available-for-sale
    securities


65











65Proceeds from disposal of property
    and equipment






53







53Net cash used in investing
    activities


(3,140
)


(468
)






(3,608
)Cash flows used in financing
    activities:Repayment of loans, notes payable
    and long-term obligations


(21,184
)


(67
)






(21,251
)Debt retirement costs paid in
    connection with the 2004 Transactions


(6,209
)










(6,209
)Repayment of note receivable from
    stockholder


25











25Net cash used in financing
    activities


(27,368
)


(67
)






(27,435
)Effect of exchange rate changes on
    cash and cash equivalents


(21
)


(573
)






(594
)Net decrease in cash and cash
    equivalents


(22,094
)


(131
)






(22,225
)Cash and cash equivalents at
    beginning of period


30,740



722







31,462Cash and cash equivalents at end of
    period

$
8,646


$
591


$



$
9,237  F-48




---



##### Table of Contents



SCHEDULE II
    AMSCAN HOLDINGS, INC.
    VALUATION AND QUALIFYING ACCOUNTSYears Ended December 31, 2006 and 2005, the Eight
    Months Ended December 31, 2004
    and Four Months Ended April 30, 2004 Beginning








EndingBalance


Write-Offs


Additions


Balance(Dollars in thousands)Allowance for Doubtful
    Accounts:PredecessorFor the four months ended
    April 30, 2004


2,825



444



729



3,110For the eight months ended
    December 31, 2004


3,110



1,825



1,308



2,593For the year ended
    December 31, 2005


2,593



1,590



795



1,798For the year ended
    December 31, 2006


1,798



1,315



1,668



2,151Inventory Reserves::PredecessorFor the four months ended
    April 30, 2004


2,725



277



583



3,031For the eight months ended
    December 31, 2004










984



984For the year ended
    December 31, 2005


984



1,859



3,061



2,186For the year ended
    December 31, 2006


2,186



6,168



3,051



5,303  F-49