##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, 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, 2007
  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(Address of Principal
    Executive Offices)

10523(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
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





AMSCAN
    HOLDINGS, INC.
  FORM 10-K
  December 31,
    2007
  TABLE OF
    CONTENTS
  
  PagePART IItem 1

Business


3Item 1A

Risk Factors


14Item 1B

Unresolved Staff Comments


17Item 2

Properties


18Item 3

Legal Proceedings


21Item 4

Submission of Matters to a Vote of Security
    Holders


21PART IIItem 5

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


21Item 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


47Item 8

Financial Statements and Supplementary
    Data


48Item 9

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


48Item 9A

Controls and Procedures


48Item 9B

Other Information


49PART IIIItem 10

Directors and Executive Officers of the
    Registrant


49Item 11

Executive Compensation


51Item 12

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


59Item 13

Certain Relationships and Related
    Transactions


61Item 14

Principal Accountant Fees and Services


61PART IVItem 15

Exhibits and Financial Statement Schedules


62Signatures


65EX-11: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23: 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



Retail
    Acquisitions:
  Party
    City Franchise Group Transaction
      The
    Factory Card & Party Outlet Acquisition
      The Party
    America Acquisition
     4




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##### Table of Contents



The Party
    City Acquisition
               5




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##### Table of Contents



st
  Summary
    Financial Information about the Company
      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, 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. 6




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##### Table of Contents




    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, 2007.
    We currently have a presence in Europe, Mexico, Canada, and
    Asia. 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.
    Increase Penetration in Independent Retail Distribution
    Channel.  We believe there is an opportunity to
    expand our sales to independent retailers. 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
    950 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.  Weve
    standardized our product assortment, and continually evaluate
    our aisle layouts, 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 over 10 new company-owned retail stores and
    anticipate that our franchisees will open between 5 and 10
    franchise stores during 2008. 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. 7




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##### Table of Contents




    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
    Product
    Lines
    MetallicParty Goods

Balloons

Stationery

GiftDecorative and Solid Color Tableware
    Candles
    Cascades and Centerpieces
    Crepe
    Cutouts
    Flags and Banners
    Latex Balloons
    Novelty Gifts
    Party Favors
    Piñatas
    Scene Setters
    Wearables

Sing-A-Tune SuperShapes
    Bouquets
    18 Inch Standard
    Weights

Baby and Wedding Memory Books
    Decorative Tissues
    Gift Wrap, Bows and Bags
    Invitations, Notes and Stationery
    Photograph Albums
    Ribbons
    Stickers and Confetti

Ceramic Giftware
    Decorative Candles
    Decorative Frames
    Mugs
    Plush Toys
    Wedding Accessories and Cake Tops     2007


2006


2005Party Goods and Stationery


77
%


71
%


71
%Metallic Balloons


19



24



25Gift


4



5



4100
%


100
%


100
%  8




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##### Table of Contents



Seasonal

Themes

EverydayNew Years
    Valentines Day
    St. Patricks Day
    Easter
    Passover
    Fourth of July
    Halloween
    Fall
    Thanksgiving
    Hanukkah
    Christmas

Bachelorette
    Casino
    Card Party
    Chinatown
    Cocktail Party
    Disco
    Fiesta
    Fifties Rock and Roll
    Hawaiian Luau
    Hollywood
    Mardi Gras
    Masquerade
    Patriotic
    Religious
    Sports
    Summer Barbeque
    Western

Birthdays
    Bridal/Baby Showers
    Graduations
    Weddings
    Anniversaries
    First Communions
    Confirmations
    Retirements
    Christenings
    Bar Mitzvahs   Manufactured
    Products
  i.e.
  Purchased
    Products
    Raw
    Materials
    Wholesale
    Sales and Marketing
   9




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Wholesale
    Distribution and Systems
      Wholesale
    Customers
     10




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##### Table of Contents



Competition
    at Wholesale
      Retail
    Merchandising
            Retailer
    Suppliers
   11




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##### Table of Contents



Retail
    Advertising and Marketing
    Franchise
    Operations
      three-mile ® ® ®
   12




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##### Table of Contents



Competition
    at Retail
      Government
    Regulation
           13




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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
    consumer demand dramatically shifts away from disposable party
    supplies;   14




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Competition
      Raw
    Material and Production Costs
      Interest
    Rates
    Exchange
    Rates
    Execution
    of Key Initiatives
     15




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##### Table of Contents



Franchise
    Program
    company-owned
  Economic
    Downturn
    Key
    Vendors
      Additional
    Capital Requirements
   16




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##### Table of Contents



Seasonal
    and Quarterly Fluctuations
    Key
    Personnel
      Item 1B.
    Unresolved
    Staff Comments   17




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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

119,555 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

277,689 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, 2010)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

15,324 square feet

Leased (expiration date: June 30, 2009)Tijuana, Mexico

Manufacture and distribution of party products

25,000 square feet

Leased (expiration date: May 12, 2010)Chester, New York(1)

Distribution of decorative party and gift products

896,000 square feet

OwnedMilton 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 7.24%, 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, 2007, the principal amount
    outstanding under the lien mortgage note is approximately
    $6.9 million.       18




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##### Table of Contents



2007


2006


2005Company-owned:Stores open at beginning of year


630



662



662Stores opened


6



13



14Stores closed/sold


(28
)


(45
)


(14
)Stores acquired


65



0



0Stores open at end of year


673



630



662Franchise:Stores open at beginning of year


324



315



318Stores opened


22



16



11Stores acquired


7



2



Stores closed/sold


(70
)


(9
)


(14
)Stores open at end of year


283



324



315Total company-owned and franchise stores


956



954



977  19




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##### Table of Contents



Company-





Chain-State

Owned


Franchise


WideAlabama


4



7



11Arizona


2



19



21Arkansas


1



3



4California


95



22



117Colorado


17



6



23Connecticut


5



3



8Delaware


1



1



2Florida


52



15



67Georgia


29



1



30Hawaii


0



1



1Idaho


1



0



1Illinois


69



0



69Indiana


28



0



28Iowa


11



1



12Kansas


4



6



10Kentucky


10



0



10Louisiana


4



8



12Maryland


19



13



32Massachusetts


0



1



1Michigan


34



1



35Minnesota


8



23



31Mississippi


3



3



6Missouri


26



4



30Montana


0



3



3Nebraska


7



2



9North Carolina


5



19



24North Dakota


0



4



4Nevada


5



2



7New Hampshire


2



0



2New Jersey


14



13



27New Mexico


0



3



3New York


45



16



61Ohio


36



0



36Oklahoma


3



0



3Oregon


4



5



9Pennsylvania


20



13



33Rhode Island


0



2



2South Carolina


4



6



10South Dakota


0



3



3Tennessee


10



11



21Texas


33



22



55Utah


6



0



6Vermont


1



0



1Virginia


14



10



24Washington


19



2



21West Virginia


2



0



2Wisconsin


20



1



21Wyoming


0



2



2Puerto Rico


0



5



5Dubai


0



1



1Total


673



283



956  20




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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
   21




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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


3,399.145


$
11,700



81.000Equity compensation plans not approved by security holders










Total


3,399.145


$
11,700



81.000     (1)
    
    See Note 15 to our consolidated financial statements
    included herein for a description of our equity incentive plan. 22




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Year


Year


Year


Eight Months



Four Months


YearEnded


Ended


Ended


Ended



Ended


EndedDecember 31,


December 31,


December 31,


December 31,



April 30,


December 31,2007(1)


2006(2)


2005(3)


2004



2004


2003(Dollars in thousands)



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

$
1,221,516


$
993,342


$
417,226


$
265,556



$
133,660


$
402,816Royalties and franchise fees


25,888



21,746



509












Total revenues


1,247,404



1,015,088



417,735



265,556




133,660



402,816Expenses:Cost of sales


777,586



676,527



281,632



178,210




88,247



269,125Selling expenses


41,899



39,449



36,181



23,529




12,430



36,515Retail operating expenses


191,423



126,224



1,824












Franchise expenses


12,883



13,009



779












General and administrative expenses


105,707



84,836



36,026



22,718




10,874



34,513Art and development costs


12,149



10,338



8,941



6,713




3,332



9,395Income from operations


105,757



64,705



52,352



34,386




7,020



52,261Interest expense, net


54,590



54,887



31,907



19,124




8,384



26,368Other (income) expense, net(4),(5),(6),(7)


18,214



(1,000
)


3,224



882




31



(1,434
)Income (loss) before income taxes and minority interests


32,953



10,818



17,221



14,380




(1,395
)


27,327Income tax expense (benefit)


13,246



4,295



4,940



5,679




(551
)


10,065Minority interests


446



83



21



137




46



99Net income (loss)


19,261



6,440



12,260



8,564




(890
)


17,163Dividend on redeemable convertible preferred stock



















136



399Net income (loss) applicable to common shares

$
19,261


$
6,440


$
12,260


$
8,564



$
(1,026
)

$
16,764 23




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##### Table of Contents



Year


Year


Year


Eight Months



Four Months


YearEnded


Ended


Ended


Ended



Ended


EndedDecember 31,


December 31,


December 31,


December 31,



April 30,


December 31,2007(1)


2006(2)


2005(3)


2004



2004


2003(Dollars in thousands)



(Predecessor)Other Financial Data:Capital expenditures, including assets under capital leases


36,648



40,376



17,051



7,910




3,757



12,668Depreciation and amortization


38,093



38,619



18,602



9,519




5,296



16,119Ratio of earnings to fixed charges(8)


1.4
x


1.1
x


1.5
x


1.7
x



0.9
x


1.9x   December 31,



December 31,2007


2006


2005


2004



2003(Dollars in thousands)



(Predecessor)Balance Sheet Data:Working capital

$
108,374


$
167,561


$
157,139


$
126,372



$
120,559Total assets(10)(11)(12)


1,498,843



1,217,371



1,118,947



647,266




382,102Short-term obligations(9)


8,620



3,703



2,643



4,832




23,237Long-term obligations(10)(11)( 12)


584,336



558,372



561,567



384,993




272,272Total obligations

$
592,956


$
562,075


$
564,210


$
389,825



$
295,509Redeemable convertible preferred stock(13)



















7,045Redeemable common securities(10)(14)(15)

$
33,782


$
9,343


$
6,821


$
3,705



$
9,498Stockholders equity (deficit) (10) (11) (12) (14)(15)

$
375,586


$
359,839


$
320,810


$
146,728



$
(8,619
)     (1)
    
    Factory Card & Party Outlet and PCFG are included in
    the balance sheet data as of December 31, 2007, and the
    statement of income and other financial data from Party City
    Franchise Group Transaction date (November 2,
    2007) and the Factory Card & Party Outlet
    Acquisition Date (November 16, 2007), respectively.(2)
    
    Party America is included in the balance sheet data beginning
    with December 31, 2006, and the statement of income and
    other financial data from the Party America Acquisition Date
    (September 29, 2006)(3)
    
    Party City is included in the balance sheet data beginning with
    December 31, 2005 and the statement of income and other
    financial data from the Party City Acquisition Date
    (December 23, 2005)(4)
    
    In connection with the refinancing of debt in May 2007, the
    Company recorded non-recurring expenses of $16.2 million,
    including $6.2 million of debt retirement costs,
    $6.3 million write off of defered finance costs , and a
    $3.7 million write-off of original issue discount
    associated with the repayment of debt.(5)
    
    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.(6)
    
    During 2003, we incurred restructuring charges of
    $1.0 million, resulting from the consolidation of certain
    domestic and foreign distribution operations, and the
    integration of M&D Industries.(7)
    
    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. 24




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##### Table of Contents



(8)
    
    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.(9)
    
    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.(10)
    
    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.(11)
    
    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.(12)
    
    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.(13)
    
    At December 31, 2003, 44.94 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.(14)
    
    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 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 management stockholders based on fully paid and vested
    shares is classified as redeemable common securities(15)
    
    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 our 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. 25




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  General
      e.g. e.g
  Results
    of Operations
   26




---



##### Table of Contents



Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Percentage
    of Total Revenues
  Twelve Months EndedDecember 31,2007


2006Revenues:Net sales


97.9
%


97.9
%Royalties and franchise fees


2.1



2.1Total revenues


100.0



100.0Expenses:Cost of sales


62.3



66.6Selling expenses


3.4



3.9Retail operating expenses


15.3



12.4Franchise expenses


1.0



1.3General and administrative expenses


8.5



8.4Art and development costs


1.0



1.0Total expenses


91.5



93.6Income from operations


8.5



6.4Interest expense, net


4.4



5.4Other expense (income), net


1.5



(0.1
)Income (loss) before income taxes and minority interests


2.6



1.1Income tax (benefit) expense


1.1



0.5Minority interests


0.0



0.0Net income (loss )


1.5
%


0.6
%   Total
    Revenues
    Year Ended December 31,2007


2006Dollars in


Percentage of


Dollars in


Percentage ofThousands


Total Revenue


Thousands


Total RevenueRevenuesSalesWholesale

$
626,476



50.2
%

$
508,486



50.1
%Eliminations


(173,143
)


(13.9
)


(75,952
)


(7.5
)Net wholesale


453,333



36.3



432,534



42.6Retail


768,183



61.6



560,808



55.2Total net sales


1,221,516



97.9



993,342



97.9Franchise related


25,888



2.1



21,746



2.1Total revenues

$
1,247,404



100.0
%

$
1,015,088



100.0
%  27




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##### Table of Contents



Wholesale
      Retail
      Royalties
    and franchise fees
    Gross
    Profit
    Year Ended December 31,2007


2006Dollars in


% of Associated


Dollars in


% of AssociatedThousands


Sales


Thousands


SalesNet Wholesale

$
134,540



29.7
%

$
121,836



28.2
%Net Retail


309,390



40.3



194,979



34.8Total Gross Profit

$
443,930



36.3
%

$
316,815



31.9
%  28




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##### Table of Contents



Operating
    expenses
          Interest
    expense, net
    Other
    expense (income), net
    Income
    taxes
   29




---



##### 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 FormaRevenues:Net sales


97.9
%


99.9
%


97.7
%Royalties and franchise fees


2.1



0.1



2.3Total revenues


100.0



100.0



100.0Expenses: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



1.0Total expenses


93.6



87.4



94.1Income from operations


6.4



12.6



5.9Interest expense, net


5.4



7.6



5.8Other income, net


(0.1
)


0.9



(0.1
)Income before income taxes and minority interest


1.1



4.1



0.2Income tax expense


0.5



1.2



0.1Minority interest










Net income


0.6
%


2.9
%


0.1
%  30




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##### Table of Contents



Total
    Revenues
    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
  Same-store
  Royalties
    and franchise fees
   31




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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

$
121,836



28.2
%

$
131,755



32.4
%

$
131,785



30.0
%Retail


194,979



34.8



4,007



34.1
%


158,276



33.1Total Gross Profit

$
316,815



31.9
%

$
135,762



32.4
%

$
290,061



31.6
%     Operating
    expenses
         32




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##### Table of Contents



Interest
    expense, net
    Other
    (income) expense, net
    Income
    taxes
    Liquidity
    and Capital Resources
  Capital
    Structure
    Term
    Loan Credit Agreement
  1 2
     33




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##### Table of Contents



ABL
    Credit Agreement
      1 2
 34




---



##### Table of Contents



ABL
    Credit Agreement amendment
      Unrestricted
    Subsidiary Credit Agreement
    PCFG
    Credit Agreement
   35




---



##### Table of Contents



Interest
    Rate and Fees
    Prepayments
    Amortization
    Guarantee
    and Security
    Certain
    Covenants and events of default
   36




---



##### Table of Contents



Prior
    Capital Structure
  The First Lien Credit Agreement.
        The Second Lien Credit Agreement.
     37




---



##### Table of Contents



180-month
  non-U.S. persons S-4,
         38




---



##### Table of Contents



Cash
    Flow Data  Year Ended December 31, 2007 Compared
    to Year Ended December 31, 2006
       39




---



##### Table of Contents



Cash
    Flow Data  Year Ended December 31, 2006 Compared
    to Year Ended December 31, 2005
       40




---



##### Table of Contents



Tabular
    Disclosure of Contractual Obligations
    Total


2008


2009


2010


2011


2012


ThereafterLong-term debt obligations(a)

$
583,562


$
6,318


$
6,604


$
12,453


$
6,750


$
23,000


$
528,437Capital lease obligations(a)


9,394



2,302



1,909



1,942



1,928



1,312



Operating lease obligations(b)


506,003



119,229



98,643



80,978



67,052



52,717



87,384Merchandise purchase commitments(c)


89,900



23,152



21,338



22,150



23,260







Minimum product royalty obligations


17,944



2,353



5,287



4,202



4,001



1,101



1,000Total contractual obligations

$
1,206,803


$
153,355


$
133,781


$
121,725


$
102,991


$
78,130


$
616,821     (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 21
    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, 2007, the maximum amount of the
    assigned lease obligations was approximately $4.5 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 2007), 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
   41




---



##### Table of Contents



Revenue
    Recognition
      Store
    Closure Costs
    Product
    Royalty Agreements
    Doubtful
    Accounts
    Inventories
    store-by-store
 42




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##### Table of Contents



Long-Lived
    and Intangible Assets
            Insurance
    accruals
    Income
    Taxes
   43




---



##### Table of Contents



Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosure Accounting for Stock
    Issued to Employees
         44




---



##### Table of Contents



Legal
    Proceedings
    Income
    Taxes
    Recently
    Issued Accounting Standards
    contract-by-contract
      Safe
    Harbor Statement under Private Securities Litigation
    Reform Act of 1995
   45




---



##### Table of Contents



Quarterly
    Results (Unaudited)
         46




---



##### Table of Contents



For the Three Months Ended,March 31,


June 30,


September 30,


December 31,(Dollars in thousands)2007Revenues:Net sales

$
243,529



273,424



277,564



426,999
(a)Royalties and franchise fees


4,895



5,747



5,783



9,463
(a)Gross profit


82,601



104,146



102,566



180,505
(a)Income from operations


6,837



25,887



14,500



58,533
(a)Net income (loss)


(4,402
)


(2,458
)


424



25,697
(a)2006Revenues:Net sales

$
204,183


$
223,847


$
220,514


$
344,798
(b)Royalties and franchise fees


4,157



4,886



4,505



8,198
(b)Gross profit


59,673



71,529



68,636



138,723
(b)Income from operations


1,202



12,244



5,311



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


(7,157
)


(9
)


(5,675
)


19,281
(b),(c )     (a)
    
    The results of operations for 2007 include the results of
    Factory Card & Party Outlet for the period from the
    Factory Card & Party Outlet Acquisition date through
    December 29, 2007, and the results of PCFG for the period
    from the Party City Franchise Group Transaction Date through
    December 31, 2007.(b)
    
    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.(c)
    
    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.  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk     47




---



##### 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  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e)
  (b)
    Changes
    in Internal Control Over Financial Reporting  Rules 13a-15(f) 15d-15(f)
  (c)
    Managements
    Annual Report on Internal Control Over Financial
    Reporting  Rules 13a-15(f)
  
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of Amscan;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of the consolidated financial
    statements in accordance with generally accepted accounting
    principles, and that receipts and expenditures of Amscan are
    being made only in accordance with authorizations of management
    and directors of Amscan; and 48




---



##### Table of Contents




    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of
    Amscans assets that could have a material effect on the
    consolidated financial statements.    Internal
    Control  Integrated Framework
  Item 9B.
    Other
    Information    PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Name

Age

PositionGerald C. Rittenberg


56


Chief Executive Officer and DirectorJames M. Harrison


56


President, Chief Operating Officer and DirectorMichael A. Correale


50


Chief Financial OfficerRobert J. Small


41


Chairman of the Board of DirectorsMichael C. Ascione


36


DirectorMichael F. Cronin


54


DirectorKevin M. Hayes


39


DirectorJordan A. Kahn


66


DirectorRichard K. Lubin


61


DirectorCarol M. Meyrowitz


54


DirectorJohn R. Ranelli


61


Director   Gerald C. Rittenberg
  James M. Harrison
  Michael A. Correale
  Robert J. Small
 49




---



##### Table of Contents



Michael C. Ascione
  Michael F. Cronin
  Kevin M. Hayes
  Jordan A. Kahn
  Richard K. Lubin
  Carol M. Meyrowitz
  John R. Ranelli
  Board of
    Directors
      Audit
    Committee
     50




---



##### Table of Contents



Compensation
    Committee.
    Code of
    Ethics
  Regulation S-K
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
    Compensation
    Committee
      Compensation
    Philosophy
   51




---



##### Table of Contents




    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
      Components
    of Compensation
      Base
    Salary
    Annual
    Cash Bonus Plan
    Stock-based
    Incentive Program
   52




---



##### Table of Contents



Other
    Compensation
       53




---



##### Table of Contents



Accounting
    and Tax Treatment
  Accounting
    Treatment
  Share-based Payment
    Awards,
    Tax
    Treatment
      Incentive stock-options.
  Non-qualified stock-options.
  Restricted Stock.
 54




---



##### 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


2007


$
825,000


$
879,000


$
346,200


$
27,123


$
2,077,323Chief Executive Officer


2006



750,000



750,000



258,800



45,705



1,804,5052005



525,000



500,000



98,000



38,896



1,161,896James M. Harrison


2007


$
742,500


$
791,100


$
259,800


$
24,715


$
1,818,115President and


2006



675,000



675,000



202,500



36,836



1,589,336Chief Operating Officer


2005



472,500



450,000



65,000



34,879



1,022,379Michael A. Correale


2007


$
300,000


$
128,000


$
48,000


$
33,303


$
509,303Chief Financial Officer


2006



257,700



100,000



40,300



35,365



433,3652005



208,000



125,000



8,600



33,245



374,845     (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
   55




---



##### Table of Contents



Option
    Exercises
    Outstanding
    Equity Awards
    Number of

Number ofSecurities

SecuritiesUnderlying

UnderlyingUnexercised

Unexercised

Option

OptionOptions No.

Options No.

Exercise

ExpirationName

Exercisable

Unexercisable

Price ($/Share)

DateGerald C, Rittenberg


20.000



180.000


$
12,000



4/1/2016133.200



322.800



10,000



4/1/201565.455







2,500



4/30/2014James M. Harrison


18.000



162.000



12,000



4/1/201688.800



215.200



10,000



4/1/201532.727







2,500



4/30/2014Michael A. Correale


6.000



39.000



12,000



4/1/20169.000



31.000



10,000



4/1/2015   Director
    Compensation
  Annual
    Compensation
      Director
    Compensation
  Fees Earned or


OptionName

Paid in Cash


Awards(a)


TotalJordan A, Kahn

$
28,500


$
1,140


$
29,640Carol M. Meyrowitz

$
28,500


$
4,060


$
32,560John R. Ranelli

$
28,500


$
1,140


$
29,640     (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. 56




---



##### Table of Contents



Number of


OptionSecurities


Exercise


Grant DateUnderlying


Price


Fair Value ofName

Grant Date


Options


($/Share)


Option AwardsJordan A, Kahn


4/1/2005



5


$
10,000


$
5,700Carol M. Meyrowitz


6/9/2006



5


$
12,000


$
20,300John R. Ranelli


4/1/2005



5


$
10,000


$
5,700     Compensation
    Committee Interlocks and Insider Participation
    Report of
    Compensation Committee on Executive Compensation
  Regulation S-K 10-K.
           Form 10-K
  Employment
    Arrangements
  Employment Agreement with Gerald C.
    Rittenberg.
   57




---



##### Table of Contents



Employment Agreement with James M.
    Harrison.
  2004
    Equity Incentive Plan
     58




---



##### Table of Contents



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


PercentageCommon Stock


of ClassName of Beneficial Owner

Beneficially Owned


OutstandingBerkshire Partners LLC(1)


18,081.15



59.41
%Weston Presidio(2)


9,040.57



29.70
%GB Retail Funding LLC(3)


1,490.63



4.90
%Michael C. Ascione(4)


18,081.15



59.41
%Michael A. Correale(5)


36.77




*Michael F. Cronin(6)


9,040.57



29.70
%James M. Harrison(7), 


261.86




*Kevin M. Hayes(6)


9,040.57



29.70
%Jordan A. Kahn(8) 


93.17




*Richard K. Lubin(4)


18,081.15



59.41
%Carol M. Meyrowitz(10) 


42.17




*John R. Ranelli(11) 


43.90




*Gerald C. Rittenberg(9), 


478.65



1.56
%Robert J. Small(4)


18,081.15



59.41
%All directors and executive officers as a group (11 persons)


28,078.24



92.25
%     *
    
    Less than 1% 59




---



##### Table of Contents




    
    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.(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 15.000 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 139.527 shares which could be acquired by
    Mr. Harrison within 60 days upon exercise of options.(8)
    
    Includes 1.500 shares which could be acquired by
    Mr. Kahn within 60 days upon exercise of options.(9)
    
    Includes 218.655 shares which could be acquired by
    Mr. Rittenberg within 60 days upon exercise of options.(10)
    
    Includes 0.500 shares which could be acquired by
    Ms. Meyrowitz within 60 days upon exercise of options.(11)
    
    Includes 0.900 shares which could be acquired by
    Mr. Ranelli within 60 days upon exercise of options.  Stockholders
    Agreement
  (
 60




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services  Audit
    Fees
  Form 10-Q;
  Audit-Related
    Fees
    Tax
    Fees
    All Other
    Fees
     61




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Documents filed as part of this report:
  and Financial Statements and Schedule.
  page F-1
  Exhibits
  ExhibitNumber

Description2


Press release, dated as of November 8, 2007, issued by AAH
    Holdings Corporations (incorporated by reference to
    Exhibit 99.1 to the registrants current report on
    Form 8-K
    dated November 8, 2007)2


Agreement and Plan of Merger dated September 17, 2007, by
    and between Amscan Holdings, Inc., Amscan Acquisition, Inc. and
    Factory Card & Party Outlet Corp. (incorporated by
    reference to Exhibit 2.1 to the Companys Current
    Report on
    Form 8-K
    dated September 18, 2007).2


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))3(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)) 62




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##### Table of Contents



ExhibitNumber

Description3(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))10(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)) 63




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##### Table of Contents



ExhibitNumber

Description10(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 Annual 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))23


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.
   64




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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 28, 2008/s/  Michael
    C. AscioneMichael
    C. Ascione

Director

March 28, 2008/s/  Michael
    F. CroninMichael
    F. Cronin

Director

March 28, 2008/s/  Kevin
    M. HayesKevin
    M. Hayes

Director

March 28, 2008/s/  Jordan
    A. KahnJordan
    A. Kahn

Director

March 28, 2008/s/  Richard
    K. LubinRichard
    K. Lubin

Director

March 28, 2008/s/  Carol
    M. MeyrowitzCarol
    M. Meyrowitz

Director

March 28, 2008/s/  John
    R. RanelliJohn
    R. Ranelli

Director

March 28, 2008/s/  Gerald
    C. RittenbergGerald
    C. Rittenberg

Chief Executive Officer and Director

March 28, 2008/s/  James
    M. HarrisonJames
    M. Harrison

President, Chief Operating Officer and Director

March 28, 2008/s/  Michael
    A. CorrealeMichael
    A. Correale

Chief Financial Officer

March 28, 2008  65




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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, 2007
    and 2006


F-3Consolidated Statements of Income for the Years
    Ended December 31, 2007, 2006 and 2005


F-4Consolidated Statements of Stockholders
    (Deficit) Equity for the Years Ended December 31, 2007, 2006 and
    2005


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005,


F-6Notes to Consolidated Financial Statements


F-7Financial Statement Schedule for the Years Ended December 31,
    2007, 2006 and 2005:Schedule II  Valuation and
    Qualifying Accounts


F-50    F-1




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Ernst &
    Young LLP
    F-2




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(Dollars in thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
17,274


$
4,966Accounts receivable, net of allowances


98,425



95,470Inventories, net of allowances


319,621



227,450Prepaid expenses and other current assets


62,046



35,700Total current assets


497,366



363,586Property, plant and equipment, net


174,198



155,443Goodwill


558,943



476,704Trade names


186,187



143,000Other intangible assets, net


42,526



47,407Other assets, net


39,625



31,231Total assets

$
1,498,845


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

$
153,170


$
4,930Accounts payable


120,293



110,429Accrued expenses


94,328



68,089Income taxes payable


12,581



8,874Current portion of long-term obligations


8,620



3,703Total current liabilities


388,992



196,025Long-term obligations, excluding current portion


584,336



558,372Deferred income tax liabilities


94,360



83,592Deferred rent and other long-term liabilities


21,789



10,199Total liabilities


1,089,477



848,188Redeemable common securities


33,782



9,343Commitments and contingenciesStockholders equity:Common Stock ($0.01 par value; 40,000.00 shares
    authorized; 30,436.96 and 30,100.75 shares issued and
    outstanding at December 31, 2007 and December 31, 2006
    respectively.)






Additional paid-in capital


326,741



331,113Retained earnings


46,494



27,264Accumulated other comprehensive income


2,351



1,463Total stockholders equity


375,586



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

$
1,498,845


$
1,217,371    F-3




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF INCOME  Year Ended December 31,2007


2006


2005(Dollars in thousands)Revenues:Net sales

$
1,221,516


$
993,342


$
417,226Royalties and franchise fees


25,888



21,746



509Total revenues


1,247,404



1,015,088



417,735Expenses:Cost of sales


777,586



676,527



281,632Selling expenses


41,899



39,449



36,181Retail operating expenses


191,423



126,224



1,824Franchise expenses


12,883



13,009



779General and administrative expenses


105,707



84,836



36,026Art and development costs


12,149



10,338



8,941Total expenses


1,141,647



950,384



365,383Income (loss) from operations


105,757



64,705



52,352Interest expense, net


54,590



54,887



31,907Other (income) expense, net


18,214



(1,000
)


3,224Income (loss) before income taxes and minority interests


32,953



10,818



17,221Income tax (benefit) expense


13,246



4,295



4,940Minority interests


446



83



21Net income (loss)

$
19,261


$
6,440


$
12,260    F-4




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY

For the
    Years Ended December 31, 2005, 2006 and 2007  AccumulatedAdditional





OtherCommon


Common


Paid-in


Retained


ComprehensiveShares


Stock


Capital


Earnings


Loss


Total(Dollars in thousands, except per share amounts)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


(10.40
)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


(8.00
)






(114
)










(114
)Reclassification of common stock to redeemable common securities










(2,522
)










(2,522
)Stock option compensation expense










1,208











1208Balance at December 31, 2006


30,100.75


$



$
331,113


$
27,264


$
1,463


$
359,840Net income (loss)














19,261







19,261Cumulative change from adoption of FIN 48 (see Note 5)














(31
)






(31
)Net change in cumulative translation adjustment


















1,633



1,633Change in fair value of interest rate swap contracts, net of
    income tax benefit


















(514
)


(514
)Change in fair value of foreign exchange contracts, net of
    income tax benefit


















(231
)


(231
)Comprehensive income (loss)






















20,118Issuance of shares of redeemable and non-redeemable common stock


342.69







4,788











4,788Reclass of common stock to redeemable common securities










(4,565
)










(4,565
)Revaluation of common stock










(6,442
)










(6,442
)Purchase and retirement of redeemable and non-redeemable common
    stock held by former employees


(6.48
)






(80
)










(80
)Equity based compensation expense










1,928











1,928Balance at December 31, 2007


30,436.96


$



$
326,742


$
46,494


$
2,351


$
375,586  F-5




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(Dollars in thousands)Cash flows used in operating activities:Net income (loss)

$
19,261


$
6,440


$
12,260Adjustments to reconcile net loss to net cash used in operatingactivities:Depreciation and amortization expense


38,093



38,619



18,602Amortization of deferred financing costs


2,142



2,661



1,582Provision for doubtful accounts


1,290



1,668



795Deferred income tax benefit


(5,973
)


(6,326
)


1,243Deferred rent


1,165



3,019



32Undistributed income (loss) in unconsolidated joint venture


(628
)


(429
)


987Impairment of Investment in Subsidiary


2,005







Loss (gain) on disposal of equipment


1,452



(879
)


34Equity based compensation


1,928



1,208



335Debt retirement costs


3,781







Write-off of deferred financing costs


6,333







3,988Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


1,981



(23,745
)


(1,154
)(Increase) decrease in inventories


(22,914
)


(7,128
)


(18,635
)(Increase) decrease in prepaid expenses and other current assets


(14,219
)


12,672



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


(26,053
)


3,225



(5,209
)Other, net










Net cash provided by (used in) operating activities


9,644



31,005



15,486Cash flows used in investing activities:Cash paid in connection with acquisitions


(106,123
)


(14,634
)


(325,562
)Capital expenditures


(27,445
)


(40,376
)


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


162



14,891



88Net cash used in investing activities


(133,406
)


(40,119
)


(342,525
)Cash flows provided by financing activities:Repayment of loans, notes payable and long-term obligations


(387,549
)


(3,392
)


(206,372
)Proceeds from loans, notes payable and long-term obligations,
    net of debt issuance costs of $5,663


523,609



5,149



372,813Capital contributions in connection with the Party City
    Acquisition










166,425Debt retirement costs


(6,218
)






Capital contributions and proceeds from issuance of common stock
    and exercise of options, net of retirements


4,734



1,785



515Net cash provided by financing activities


134,576



3,542



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


1,494



1,793



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


12,308



(3,779
)


4,493Cash and cash equivalents at beginning of period


4,966



8,745



4,252Cash and cash equivalents at end of period

$
17,274


$
4,966


$
8,745Supplemental disclosures:Interest paid

$
52,511


$
48,931


$
32,219Income taxes paid

$
12,356


$
4,617


$
2,851        F-6




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##### 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
    Party City Acquisition
          Years EndedDecember 31,2005Net sales

$
886,113Net income


7,272    F-7




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The
    Party America Acquisition
    Party
    City Franchise Group Transaction
    The
    Factory Card & Party Outlet Acquisition
      Note 2 
    Summary
    of Significant Accounting Policies  Consolidated
    Financial Statements
   F-8




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Use of
    Estimates
      Cash
    Equivalents
    Inventories
  first-in,
  store-by-store
  Allowance
    for Doubtful Accounts
    Long-Lived
    and Intangible Assets
   F-9




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Deferred
    Financing Costs and Original Issue Discount
    Investments
      Insurance
    Accruals
    Revenue
    Recognition
   F-10




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##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Shipping
    and Handling
    Store
    Closure Costs
    Product
    Royalty Agreements
    Catalogue
    Costs
    Art
    and Development Costs
    Derivative
    Financial Instruments
     F-11




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Taxes
      Stock-Based
    Compensation
  Accounting for Stock-Based Compensation 
    Transition and Disclosure Accounting for Stock
    Issued to Employees,
     F-12




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accumulated
    Other Comprehensive Income (Loss)
   F-12.1




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign
    Currency Transactions and Translation
    Recently
    Issued Accounting Standards
    contract-by-contract
     F-13




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 3 
    Inventories    December 31,


December 31,2007


2006Finished goods

$
309,852


$
215,069Raw Materials


13,690



12,105Work in Process


6,495



5,579330,037



232,753Less: reserve for slow moving and obsolete inventory


(10,416
)


(5,303
)$
319,621


$
227,450   Note 4 
    Property,
    Plant and Equipment, Net    December 31,2007


2006Machinery and equipment

$
96,987


$
75,554Buildings


47,726



47,685Data processing


68,384



23,518Leasehold improvements


52,597



28,245Furniture and fixtures


70,695



23,721Land


5,923



5,874342,312



204,597Less: accumulated depreciation


(168,114
)


(49,154
)$
174,198


$
155,443       December 31,2007


2006Machinery and equipment under capital leases

$
10,074



1,147Accumulated amortization


(444
)


(280
)$
9,631


$
867    F-14




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5 
    Retail
    Transactions and Acquisitions  Party
    City Franchise Group Transaction
        The
    Factory Card & Party Outlet Acquisition
        Party
    America Acquisition
   F-15




---



##### 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-16




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 6 
    Other
    Intangible Assets, net    At December 31, 2007Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise licenses

$
37,500


$
8,138


$
29,362



9 yearsCustomer lists relationships


14,500



3,545



10,955



15 yearsCopyrights, designs,and other


14,136



13,023



1,113



2-3 yearsLeasehold and other intangibles


1,284



39



1,244



1-15 yearsTotal Cost

$
67,420


$
24,746


$
42,674   At December 31, 2006Accumulated


Net CarryingCost


Amortization


Value


Useful LivesRetail franchise licenses

$
37,500


$
3,974


$
33,526



9 yearsCustomer lists 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 yearsTotal Cost

$
65,590


$
18,183


$
47,407     Note 7 
    Loans and
    Notes Payable       F-17




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ABL
    Credit Agreement 
      1 2
              ABL
    Credit Agreement amendment
   F-18




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      PCFG
    Credit Agreement
    PCFG
    Credit Agreement borrowings:
    Interest
    Rate and Fees
    Prepayments
   F-19




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Amortization
    Guarantee
    and Security
    Certain
    Covenants and events of default
      Other
    Credit Agreements 
    Prior
    Credit Agreements 
   F-20




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The First Lien Credit Agreement.
      The Second Lien Credit Agreement.
       F-21




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 8 
    Long-Term
    Obligations    December 31,2007


2006First Term Loan due 2013(b)

$
372,187


$
PCFG Term Loan due 2012(c)


29,500



First Lien Term Loan(d)






319,814Second Lien Term Loan(e)






58,732Mortgage obligations(f)


6,875



7,397Capital lease obligations(g)


9,394



1,1328.750% senior subordinated notes(a)


175,000



175,000Total long-term obligations

$
592,956


$
562,075Less: current portion


(8,620
)


(3,703
)Long-term obligations, excluding current portion

$
584,336


$
558,372         Term
    Loan Credit Agreement 
         F-22




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                     F-23




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          180-month
   F-24




---



##### Table of Contents



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


Capital LeaseObligations


Obligations


Totals2008

$
6,318


$
2,302


$
8,6202009


6,604



1,909



8,5132010


12,453



1,942



14,3952011


6,750



1,928



8,6782012


23,000



1,312



24,312Thereafter


528,437



0



528,437Long-term obligations

$
583,562


$
9,394


$
592,956   Note 9 
    Capital
    Stock           F-25




---



##### 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-26




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31, 2007


December 31, 2006


December 31, 2005Undistributed (income) loss in unconsolidated joint venture

$
(628
)

$
(429
)

$
987Change in fair market value of the interest rate cap


61



126



Change in fair market value of the foreign exchange contracts






171



(1,220
)Gain on sale of property, plant, and equipment


(152
)


(879
)


Foreign currency (gain) or loss


388



78



7Early extinguisment of debt


16,360







3,998Impairment of investment in subsidiary


2,005Other expense (income), net


180



(67
)


(538
)Other (income) expense, net

$
18,214


$
(1,000
)

$
3,224   Note 14 
    Employee
    Benefit Plans    Note 15 
    Equity
    Incentive Plan       F-27




---



##### Table of Contents



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

Risk free interest rate

4.09% to 5.08%Price volatility

15.00Weighted average expected life

7.5Forfeiture rate

7.75    F-28




---



##### Table of Contents



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


Average Fair MarketExercise


Value of Options atOptions


Price


Grant DateOutstanding at December 31, 2004


98.18


$
2,500Granted


1,482.00



10,000


$
1,094Exercised


Canceled


Outstanding at December 31, 2005


1,580.18


$
9,534Granted


1,409.02



11,929



4,060Exercised


(1.00
)


10,000Canceled


(130.00
)


11,000Outstanding at December 31, 2006


2,858.20


$
10,648Granted


704.00



15,929



5,341Exercised


(14.52
)


14,250Canceled


(148.54
)


11,259Outstanding at December 31, 2007


3,399.14



11,700Exercisable at December 31, 2007


685.24


$
9,337   Note 16 
    Income
    Taxes    Year Ended


Year Ended


Year EndedDecember 31, 2007


December 31, 2006


December 31, 2005Domestic

$
27,444


$
5,658


$
11,542Foreign


5,509



5,160



5,679Total

$
32,953


$
10,818


$
17,221  F-29




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31, 2007


December 31, 2006


December 31, 2005Current:Federal

$
13,009


$
6,493


$
1,611State


4,074



2,018



511Foreign


2,136



2,110



1,575Total current provision


19,219



10,621



3,697Deferred:Federal


(5,229
)


(5,101
)


2,748State


(758
)


(861
)


(1,954
)Foreign


14



(364
)


449Total deferred provision (benefit)


(5,973
)


(6,326
)


1,243Income tax expense (benefit)

$
13,246


$
4,295


$
4,940     December 31, 2007


December 31, 2006Current deferred income tax assets:Inventory valuation

$
14,457


$
6,784Allowance for doubtful accounts


718



656Accrued liabilities


8,121



4,899Charitable contributions carryforward






533Tax loss carryforward


4,446



1,156Tax credit carryforward


1,148



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

$
28,890


$
14,028Non-current deferred income tax liabilities, net:Property, plant and equipment

$
1,676


$
5,370Intangible assets


80,750



66,442Amortization of goodwill and other assets


12,436



12,280Interest rate swap and foreign exchange contracts






Other


(502
)


(500
)Non-current deferred income tax liabilities, net

$
94,360


$
83,592    F-30




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31, 2007


December 31, 2006


December 31, 2005Provision at federal statutory income tax rate


35.0
%


35.0
%


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


6.6



7.0



2.9Non-deductible reserve for Loss on investment in foreign
    subsidiary


2.1







Effect of New York apportionment change










(8.3
)Domestic manufacturing deductions


(2.0
)


(2.7
)


(0.9
)Other


(1.5
)


0.4



0.1Effective income tax rate


40.2
%


39.7
%


28.8
%            F-31




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance as of January 1, 2007

$
2,550Increases related to prior year tax positions


160Decreases related to prior year tax positions


Increases related to current year tax positions


184Decreases related to settlements


(189
)Decreases related to lapsing of statutes of limitations


(220
)Balance as of December 31, 2007


2,485         non-U.S. income
  Note 17 
    Commitments,
    Contingencies and Related Party Transactions  Lease
    Agreements
      Future MinimumOperating Lease Pymts2008


119,2292009


98,6432010


80,9782011


67,0522012


52,717Thereafter


87,384$
506,003    F-32




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Product
    Royalty Agreements
      Future MinimumRoyalty Pymts2008

$
2,3532009


5,2872010


4,2022011


4,0012012


1,101Thereafter


1,000$
17,944       Product PurchaseCommitments2008


23,1522009


21,3382010


22,1502011


23,2602012 and Thereafter


$
89,900   Legal
    Proceedings
   F-33




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Related
    Party Transactions
    Note 18 
    Segment
    Information  Industry
    Segments
      Wholesale


Retail


Eliminations


ConsolidatedYear Ended December 31, 2007Revenues:Net sales

$
626,476


$
768,183


$
(173,143
)

$
1,221,516Royalties and franchise fees






25,888







25,888Total revenues

$
626,476


$
794,071


$
(173,143
)

$
1,247,404Income from operations

$
47,881


$
72,187


$
(14,311
)

$
105,757Interest expense, net














54,590Other expense, net














18,214Income (loss) before income tax benefit and minority interests













$
32,953Long-lived assets

$
451,379


$
582,607


$
(32,506
)

$
1,001,479 F-34




---



##### Table of Contents



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


Retail


Eliminations


ConsolidatedYear Ended December 31, 2006Revenues: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 (loss) from operations

$
51,904


$
23,701


$
(10,901
)

$
64,705Interest expense, net














54,887Other income, net














(1,000
)Income (loss) before income tax benefit and minority interests













$
10,818Long-lived assets

$
797,940


$
396,338


$
(340,494
)

$
853,784     Geographic
    Segments
      Domestic


Foreign


Eliminations


ConsolidatedYear Ended December 31, 2007Revenues:Net sales to unaffiliated customers

$
1,141,532


$
79,984


$



$
1,221,516Net sales between geographic areas


23,906







(23,906
)


Net sales


1,165,438



79,984



(23,906
)


1,221,516Royalties and franchise fees


25,888


$
0


$
0



25,888Total revenues

$
1,191,326


$
79,984


$
(23,906
)

$
1,247,404Income from operations

$
97,638


$
6,956


$
1,163


$
105,757Interest expense, net














54,590Other expense, net














18,214Income (loss) before income tax benefit and minority interests













$
32,953Long-lived assets

$
1,003,984


$
49,161


$
(51,666
)

$
1,001,479 F-35




---



##### Table of Contents



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


Foreign


Eliminations


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

$
924,981


$
68,361


$



$
993,342Net sales 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 income, net














(1,000
)Income (loss) before income tax benefit and minority interests













$
10,818Long-lived assets

$
881,900


$
17,319


$
(45,436
)

$
853,784Year Ended December 31, 2005Revenues Net Sales to unaffiliated customers

$
356,801


$
60,425


$



$
417,226Net Sales 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

$
45,678


$
5,660


$
1,014


$
52,352Interest expense, net














31,907Other loss, net














3,224Income before income taxes and minority interests













$
17,221Long-lived assets

$
820,414


$
11,491


$
(32,750
)

$
799,155   Note 19 
    Quarterly
    Results (Unaudited)     F-36




---



##### 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)2007Revenues:Net sales


243,529



273,424



277,564



426,999
(a)Royalties and franchise fees


4,895



5,747



5,783



9,463
(a)Gross profit


82,601



104,146



102,566



180,505
(a)Income from operations


6,837



25,887



14,500



58,533
(a)Net income (loss)


(4,402
)


(2,458
)


424



25,697
(a)(b)2006Revenues:Net sales


204,183



223,847



220,514



344,798
(c)Royalties and franchise fees


4,157



4,886



4,505



8,198
(c)Gross profit


59,673



71,529



68,636



138,723
(c)Income from operations


1,202



12,244



5,311



45,948
(c),(d)Net income (loss)


(7,157
)


(9
)


(5,675
)


19,281
(c),(d)2005Revenues:Net sales


100,376



101,285



105,582



109,983Royalties and franchise fees














509Gross profit


33,575



32,523



36,022



33,474
(e)Income from operations


13,951



11,602



16,487



6,324
(e)(f)(g)Net income (loss)


4,006



3,621



5,279



(646
)(e)(f)(g)     (a)
    
    The results of operations for 2007 include the results of
    Factory Card & Party Outlet for the period from the
    Factory Card & Party Outlet Acquisition date
    (November 16, 2007) through December 29, 2007,
    and the results of PCFG for the period from the Party City
    Franchise Transaction Date (November 2, 2007) through
    December 31, 2007.(b)
    
    In connection with debt refinancing, we recorded non-recurring
    expenses of $6,333 due to the write-off of deferred financing
    costs associated with the repayment of debt, and $3,781 of debt
    retirement costs.(c)
    
    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.(d)
    
    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.(e)
    
    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. F-37




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (f)
    
    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.(g)
    
    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      Note 21 
    Derivative
    Financial Instruments  Interest
    Rate Risk Management
         F-38




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign
    Exchange Risk Management
        Note 22 
    Sales
    Leaseback Transaction   F-39




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 23 
    Comprehensive
    Income (Loss)    Year Ended December 31,2007


2006


2005Net income (loss)

$
19,261


$
6,440


$
12,260Cumulative change from adoption of FIN 48 (see Note 16)


(31
)Net change in cumulative translation adjustment


1,633



2,446



(2,699
)Change in fair value of interest rate swap contracts, net of
    income tax expense (benefit) of $(302), $44


(514
)


75



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










357Change in fair value of foreign exchange contracts, net of
    income tax (benefit) expense of $(136), $(36)

$
(231
)

$
(61
)

$
$
20,118


$
8,900


$
9,918     December 31,2007


2006Cumulative translation adjustment

$
3,082


$
1,449Interest rate swap contracts, net of income tax (benefit)
    expense of $(258), and $44


(439
)


75Foreign exchange contracts, net of income tax (benefit) expense
    of $(172), and $(36)


(292
)


(61
)Total accumulated other comprehensive income

$
2,351


$
1,463   Note 24 
    Condensed
    Consolidating Financial Information (Unaudited)      
    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 F-40




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    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-41




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     CONSOLIDATING
    BALANCE SHEET
    December 31, 2007
  AHI andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
8,391


$
8,883


$



$
17,274Accounts receivable, net of allowances


81,057



17,368







98,425Inventories, net of allowances


282,954



37,368



(701
)


319,621Prepaid expenses and other current assets


54,810



7,236







62,046Total current assets


427,212



70,856



(701
)


497,366Property, plant and equipment, net


168,033



6,165







174,198Goodwill


509,114



49,829







558,943Trade names


172,883



13,304







186,187Other intangible assets, net


42,526











42,526Other assets, net


111,428



(20,137
)


(51,666
)


39,625Total assets

$
1,431,195


$
120,017


$
(52,367
)

$
1,498,845LIABILITIES, REDEEMABLE COMMON SECURITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Loans and notes payable


152,670



500







153,170Accounts payable


100,467



19,826







120,293Accrued expenses


81,600



12,728







94,328Income taxes payable


12,958



(319
)


(58
)


12,581Current portion of long-term obligations


6,524



2,096







8,620Total current liabilities


354,219



34,831



(58
)


388,992Long-term obligations, excluding current portion


556,817



27,519







584,336Deferred income tax liabilities


93,523



837







94,360Other


30,327



43,258



(51,796
)


21,789Total liabilities


1,034,886



106,445



(51,854
)


1,089,477Redeemable common securities


20,338



13,444







33,782Commitments and contingenciesStockholders equity:Common Stock






339



(339
)


Additional paid-in capital


326,695



46







326,741Retained earnings


46,925



(178
)


(254
)


46,494Accumulated other comprehensive income (loss)


2,351



(80
)


80



2,351Total stockholders equity


375,971



128



(514
)


375,586Total liabilities, redeemable common securities and
    stockholders equity

$
1,431,195


$
120,017


$
(52,367
)

$
1,498,845  F-42




---



##### 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-43




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    For Year Ended December 31, 2007
  AHI andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


ConsolidatedRevenues:Net sales

$
1,146,791


$
98,631


$
(23,906
)

$
1,221,516Royalties and franchise fees


25,888











25,888Total revenues


1,172,679



98,631



(23,906
)


1,247,404Expenses:Cost of sales


735,670



65,665



(23,749
)


777,586Selling expenses


32,292



9,607







41,899Retail operating expenses


184,768



6,655







191,423Franchise expenses


12,883











12,883General and administrative expenses


97,564



9,463



(1,320
)


105,707Art and development costs


12,149











12,149Total expenses


1,075,326



91,390



(25,069
)


1,141,647Income (loss) from operations


97,353



7,241



1,163



105,757Interest expense, net


54,393



197







54,590Other income (expense), net


12,136



319



5,759



18,214Loss before income taxes and minority interests


30,824



6,725



(4,596
)


32,953Income tax (benefit) expense


11,646



1,658



(58
)


13,246Minority interests






446







446Net income (loss)

$
19,177


$
4,621


$
(4,538
)

$
19,261  F-44




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    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-45




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF INCOME
    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











8,941Total expenses


331,490



54,765



(20,872
)


365,383Income from operations


45,468



5,660



1,014



52,352Interest expense, net


31,774



133







31,907Other (income) loss, net


(2,074
)


(994
)


6,292



3,224Income 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-46




---



##### Table of Contents



AMSCAN
    HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    For Year Ended December 31, 2007
  AHI andCombined


CombinedGuarantors


Non-Guarantors


Eliminations


ConsolidatedCash flows used in operating activities:Net (loss) income

$
19,177


$
4,621


$
(4,538
)

$
19,261Adjustments to reconcile net (loss) income to net cash used in
    operating activities:Depreciation and amortization expense


37,076



1,017







38,093Amortization of deferred financing costs


2,142











2,142Provision for doubtful accounts


1,045



245







1,290Deferred income tax expense (benefit)


(5,973
)










(5,973
)Deferred rent


744



421







1,165Undistributed loss (gain) in unconsolidated joint venture


(628
)










(628
)Impairment of Investment in Subsidiary


2,005











2,005(Gain) Loss on disposal of equipment


1,442



10







1,452Equity based compensation


1,882



46







1,928Debt retirement costs


3,781











3,781Write-off of deferred financing costs


6,333











6,333Changes in operating assets and liabilities:Decrease (increase) in accounts receivable


9,036



(7,055
)






1,981(Increase) decrease in inventories


(19,572
)


(3,499
)


157



(22,914
)(Increase) decrease in prepaid expenses and other current assets


(13,626
)


(592
)






(14,219
)Increase (decrease) in accounts payable, accrued expenses and
    income taxes payable


(19,481
)


(10,953
)


4,381



(26,053
)Other, net














Net cash used in operating activities


25,383



(15,739
)






9,644Cash flows used in investing activities:Cash paid in connection with store acquisitions


(132,262
)


26,139







(106,123
)Capital expenditures


(25,988
)


(1,457
)






(27,445
)Proceeds from disposal of property and equipment


162











162Net cash used in investing activities


(158,088
)


24,682







(133,406
)Cash flows provided by financing activities:Repayments of loans, notes payable and long-term obligations


(385,438
)


(2,111
)






(387,549
)Proceeds from loans, notes payable and long-term obligations


523,609











523,609Debt retirement costs


(6,218
)










(6,218
)Capital contributions and proceeds from issuance of common stock
    and exercise of options, net of retirements


4,734











4,734Net cash provided by financing activities


136,687



(2,111
)






134,576Effect of exchange rate changes on cash and cash equivalents


14



1,480







1,494Net decrease in cash and cash equivalents


3,995



8,312







12,308Cash and cash equivalents at beginning of period


4,395



571







4,966Cash and cash equivalents at end of period

$
8,390


$
8,883


$



$
17,274  F-47




---



##### 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-48




---



##### 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


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-49




---



##### Table of Contents



SCHEDULE II  AMSCAN
    HOLDINGS, INC.
  VALUATION
    AND QUALIFYING ACCOUNTS
 Years
    Ended December 31, 2007, 2006 and 2005
  Beginning








EndingBalance


Write-Offs


Additions


Balance(Dollars in thousands)Allowance for Doubtful Accounts:For 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



2,151For the year ended December 31, 2007


2,151



804



1,290



2,637Inventory Reserves:For the year ended December 31, 2005

$
984


$
1,859


$
3,061


$
2,186For the year ended December 31, 2006


2,186



3,051



6,168



5,303For the year ended December 31, 2007


5,303



1,459



6,572



10,416  F-50