<PAGE>

                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

For the Fiscal Year Ended December 31, 2001

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission file number  000-21827

                              AMSCAN HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                                  13-3911462
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
                or organization)                               Number)

             80 Grasslands Road
             Elmsford, New York                                10523
  (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:        (914) 345-2020

Securities registered pursuant to Section 12(b) of the Act:    None

Securities registered pursuant to Section 12(g) of the Act:    None


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

       Yes    X                No ____
           -------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant (assuming for purposes of this calculation, without conceding, that
all executive officers and directors are "affiliates") at March 28, 2002 was
$32,591,604.

As of March 28, 2002, 1,233.27 shares of Registrants' Common Stock, par value
$0.10, were outstanding.


                       Documents Incorporated by Reference

None.


<PAGE>


                              AMSCAN HOLDINGS, INC.

                                    FORM 10-K

                                DECEMBER 31, 2001

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
<S>               <C>                                                                                        <C>
                                                    PART I
ITEM 1            Business.......................................................................               3

ITEM 2            Properties.....................................................................               8

ITEM 3            Legal Proceedings..............................................................               9

ITEM 4            Submission of Matters to a Vote of Security Holders............................               9

                                                    PART II

ITEM 5            Market for Registrant's Common Equity and Related Stockholder
                     Matters.....................................................................              10

ITEM 6            Selected Consolidated Financial Data...........................................              10

ITEM 7            Management's Discussion and Analysis of Financial Condition and
                     Results of Operations.......................................................              13

ITEM 7A           Quantitative and Qualitative Disclosures About Market Risk.....................              23

ITEM 8            Financial Statements and Supplementary Data....................................              24

ITEM 9            Changes in and Disagreements with Accountants on Accounting and
                     Financial Disclosure........................................................              24

                                                    PART III

ITEM 10           Directors and Executive Officers of the Registrant.............................              24

ITEM 11           Executive Compensation ........................................................              25

ITEM 12           Security Ownership of Certain Beneficial Owners and Management.................              32

ITEM 13           Certain Relationships and Related Transactions.................................              34

                                                    PART IV

ITEM 14           Exhibits, Financial Statement Schedules and Reports on Form 8-K................              35

                  Signatures.....................................................................              39

</TABLE>



                                       2
<PAGE>



                                     PART I

ITEM 1.  BUSINESS

         Amscan Holdings, Inc. ("Amscan" or the "Company") designs, manufactures
and distributes decorative party goods, offering one of the broadest and deepest
product lines in the industry. Our products include paper and plastic tableware
(such as plates, napkins, tablecovers, cups and cutlery), accessories (such as
invitations, thank-you cards, table and wall decorations and balloons) and
novelties (such as games and party favors). Amscan also has product lines
encompassing home, baby and wedding products for general gift giving or
self-purchase. Our products are sold to party goods superstores, independent
card and gift retailers, mass merchandisers and other distributors which sell
Amscan products in more than 40,000 retail outlets throughout the world,
including North America, South America, Europe, Asia and Australia.

         The Company currently offers approximately 375 product ensembles,
generally containing 30 to 150 coordinated items. These ensembles comprise a
wide variety of products to accessorize a party including matching invitations,
tableware, decorations, party favors and thank-you cards. The Company designs,
manufactures and markets party goods for a wide variety of occasions including
seasonal and religious holidays, special events and themed celebrations. The
Company's seasonal and religious ensembles enhance holiday celebrations
throughout the year including New Year's, Valentine's Day, St. Patrick's Day,
Easter, Passover, Fourth of July, Halloween, Thanksgiving, Hanukkah and
Christmas. The Company's special event ensembles include birthdays,
christenings, first communions, bar mitzvahs, confirmations, graduations, bridal
and baby showers and anniversaries, while its theme-oriented ensembles include
Hawaiian luaus, Mardi Gras, Fifties rock-and-roll parties and casino nights.

         In addition to its long-standing relationships with independent card
and party retailers, Amscan is a leading supplier to the party goods superstore
distribution channel. Despite a consolidation in the number of companies
operating in the party goods superstore channel during the past five years, the
number of superstores continues to grow. Superstores provide consumers with a
one-stop source for all of their party needs, generally at discounted prices.
Amscan's sales to party goods superstores represented approximately 49% of total
sales in 2001. While the number of superstores that Amscan supplies has grown at
a compound annual growth rate ("CAGR") of 4% from 1998 to 2001, the Company's
sales to superstores have grown by a 14% CAGR during the same period. With
Amscan products occupying an increasing share of superstore shelf space in many
product categories, Amscan believes it is well positioned to take advantage of
continued growth in the party goods superstore channel.

         Amscan also has a broad presence in the gift shop, supermarket, and
other smaller independent retail channels. In 1998, Amscan acquired Anagram
International Inc. and certain related companies (collectively "Anagram"), a
metallic balloon manufacturer with a strong presence in these channels, and
leveraged Anagram's strong presence to bring additional party goods to these
markets. To achieve further sales growth and expansion, the Company realigned
its sales force, beginning in 1999, to focus more closely on independent retail
channels. The Company also introduced new product lines encompassing home, baby
and wedding gifts. Our recent expansion initiatives have been primarily funded
by current operations.

SUMMARY FINANCIAL INFORMATION ABOUT THE COMPANY

         Information about the Company's revenues, operating profits  and
assets for the last five years is included in this report in Item 6, "Selected
Consolidated Financial Data." Because more holidays fall in the fourth quarter
of the year than in the other three quarters, the Company's business is
somewhat seasonal. Third and fourth quarter sales are generally the highest of
the year due to a combination of increased sales to consumers of the Company's
products during summer months as well as initial shipments of seasonal holiday
merchandise as retailers build inventory.



                                       3
<PAGE>


         The Company does business in the United States and in other geographic
areas of the world. Information about the Company's revenues, operating profits
and assets relating to geographic areas outside the United States for each of
the years in the three-year period ended December 31, 2001, is included in Note
14 to the Company's 2001 Consolidated Financial Statements which are included
in this report beginning on page F-2.

COMPANY STRATEGY

         The Company seeks to become the primary source for consumers' party
goods requirements. The key elements of the Company's strategy are as follows:

         o      Strengthen Position as a Leading Provider to Party Goods
                Retailers. The Company offers convenient "one-stop shopping" for
                both large superstore and small retail buyers and seeks to
                increase its proportionate share of sales volume and shelf space
                in these stores.

         o      Offer the Broadest and Deepest Product Line in the Industry. The
                Company strives to offer the broadest and deepest product line
                in the industry. The Company helps retailers boost average
                purchase volume per consumer through coordinated ensembles that
                promote "add on" purchases.

         o      Diversify Distribution Channels, Product Offering and Geographic
                Presence. The Company seeks, through internal growth and
                acquisitions, to expand its distribution capabilities, increase
                its presence in additional retail channels and further broaden
                and deepen its product lines.

         o      Provide Superior Customer Service. The Company strives to
                achieve average fill rates in excess of 95% and to ensure short
                turnaround times.

         o      Maintain Product Design Leadership. The Company will continue
                investing in art and design to support a steady supply of fresh
                ideas and to create complex, unique ensembles that appeal to
                consumers and are difficult to replicate.

         o      Maintain State-of-the-Art Manufacturing and Distribution
                Technology. The Company maintains technologically advanced
                production and distribution systems in order to enhance product
                quality, manufacturing efficiency, cost control and customer
                satisfaction.

         o      Pursue Attractive Acquisitions. The Company believes that
                opportunities exist to make acquisitions of complementary
                businesses to leverage the Company's existing marketing,
                distribution and production capabilities, expand its presence in
                the various retail channels, further broaden and deepen its
                product line and penetrate international markets. The Company
                intends to pursue such acquisition opportunities.

PRODUCT DESIGN

         The Company's 105 person in-house design staff develops designs and
concepts for the Company's products. The Company then selects those designs and
concepts it believes best to replace or to supplement its existing product
ensembles each year. During 2001, the Company introduced approximately 55 new
ensembles.



                                       4
<PAGE>



PRODUCT LINE

         The major categories of products which the Company offers are
tableware, accessories and novelties. The percentage of sales for each product
category for 2001, 2000 and 1999 are set forth in the following table:

<TABLE>
<CAPTION>
                                                2001               2000              1999
                                                ----               ----              ----
<S>                                             <C>                <C>               <C>
Tableware.................................       44%                46%               45%
Accessories...............................       41                 39                38
Novelties.................................       15                 15                17
                                                ---                ----              ---
                                                100%               100%              100%
                                                ===                ===               ===
</TABLE>

         The following table sets forth the principal products in each of the
three categories:

<TABLE>
<CAPTION>
TABLEWARE                                       ACCESSORIES                              NOVELTIES
---------                                       -----------                              ---------
<S>                                             <C>                                      <C>
Decorated                                       Balloons                                 Buttons
   Paper Plates                                 Banners                                  Candles
   Paper Napkins                                Cake tops                                Cocktail Picks
   Paper Tablecovers                            Cascades                                 Games
   Paper Cups                                   Confetti                                 Mugs
                                                Crepe                                    Noise Makers
                                                Cutouts                                  Party Favors
                                                Decorative Tissues                       Party Hats
Solid Color                                     Flags                                    Pinatas
   Paper and Plastic Plates                     Gifts                                    Pom Poms
   Paper Napkins                                Gift Bags                                T-shirts
   Paper and Plastic Tablecovers                Gift Wrap
   Paper and Plastic Cups                       Guest Towels
   Plastic Cutlery                              Honeycomb Centerpieces
                                                Invitations and Notes
                                                Ribbons and Bows
                                                Signs
                                                Stationery

</TABLE>

         The Company supplies party goods and gifts for the following types of
occasions:


<TABLE>
<CAPTION>
SEASONAL                                        EVERYDAY                                THEMES
--------                                        --------                                ------
<S>                                             <C>                                     <C>
New Year's                                      Anniversaries                           Casino Night
Valentine's Day                                 Bar Mitzvahs                            Fall
St. Patrick's Day                               Birthdays                               Fiesta
Easter                                          Christenings                            Fifties Rock-and-Roll
Passover                                        Confirmations                           Hawaiian Luau
Fourth of July                                  First Communions                        Mardi Gras
Halloween                                       Graduations                             Masquerade
Thanksgiving                                    Retirements                             Patriotic
Hanukkah                                        Showers                                 Religious
Christmas                                       Weddings                                Sports
                                                                                        Summer Fun

</TABLE>

MANUFACTURED PRODUCTS

         Items manufactured by the Company accounted for nearly 60% of the
Company's sales in 2001. State-of-the-art printing, forming, folding and
packaging equipment support the Company's manufacturing operations. Company
facilities in New York, Kentucky, Rhode Island, Minnesota, and Mexico produce
paper and plastic plates, napkins, cups, metallic balloons and other party and
novelty items. This vertically integrated manufacturing capability provides the
Company the opportunity to




                                       5
<PAGE>


better control costs and monitor product quality, manage inventory investment
and provide efficient order fulfillment.

         Given its size and sales volume, the Company is generally able to
operate its manufacturing equipment on the basis of at least two shifts per day
thus lowering its production costs per unit. In addition, the Company
manufactures products for third parties allowing the Company to maintain a
satisfactory level of equipment utilization.

PURCHASED PRODUCTS

         The Company purchases the remainder of its products from
independently-owned manufacturers, many of whom are located in the Far East and
with whom the Company has long-standing relationships. The two largest such
suppliers operate as exclusive suppliers to the Company and represent
relationships that have been in place for more than ten years. The Company
believes that the quality and price of the products manufactured by these
suppliers provide a significant competitive advantage. The Company's business,
however, is not dependent upon any single source of supply for these products.

RAW MATERIALS

         The principal raw material used by the Company in its products is
paper. The Company has historically been able to change its product prices in
response to changes in raw material costs. While the Company currently purchases
such raw material from a relatively small number of sources, paper is available
from a number of sources. The Company believes its current suppliers could be
replaced without adversely affecting its operations in any material respect.

SALES AND MARKETING

         The Company's principal sales and marketing efforts are conducted
through a domestic direct employee sales force of approximately 150
professionals servicing over 10,000 retail accounts. These professionals have,
on average, been affiliated with the Company for four years. In addition to this
seasoned sales team, the Company utilizes a select group of manufacturers'
representatives to handle specific account situations. International customers
are generally serviced by employees of the Company's foreign subsidiaries. To
support its sales and marketing efforts, the Company produces four main product
catalogues annually, three catalogues for seasonal products and one catalogue
for everyday products. The Company also produces additional catalogues to market
its metallic balloons, gift products and other specialty items such as
stationery, stickers and confetti.

         The Company's practice of including party goods retailers in all facets
of the Company's product development is a key element of the Company's sales and
marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. In addition, the sales organization
assists customers in the actual set-up and layout of displays of the Company's
products and, from time to time, provides customers with promotional displays.

DISTRIBUTION AND SYSTEMS

         The Company ships its products from distribution facilities that employ
computer assisted systems. The Company's distribution facilities are principally
located in New York. As a result of the acquisition of Anagram, the Company
distributes its metallic balloons domestically from facilities in both New York
and Minnesota. Products for foreign markets are shipped from the Company's
distribution facilities in Mexico, England, Spain, France, Australia and Japan.
In conjunction with the planned consolidation of several of its distribution
facilities begun in 1998, the Company completed the construction of a new
domestic facility in New York in 2001. The Company expects the facility will be
operational in the second half of 2002. The planned consolidation may result in
additional restructuring charges in subsequent periods.



                                       6
<PAGE>



         Many of the Company's sales orders are generated electronically through
hand-held units with which the sales force and many customers are equipped.
Specifically, orders are entered into the hand-held units and then transmitted
over telephone lines to the Company's mainframe computer, where they are
processed for shipment. This electronic order entry expedites the order
processing which, in turn, improves the Company's ability to fill customer
merchandise needs accurately and quickly.

E-COMMERCE

         Amscan has successfully pursued opportunities to have our products
listed on the websites of various Internet retailers. We have also developed a
website to enable our key customers to access real time information regarding
the status of existing orders, stock availability, and to place new orders.

CUSTOMERS

         Amscan's customers are principally party goods superstores, independent
card and party retailers, mass merchandisers and other distributors. Amscan has
also expanded its presence in the gift shop, supermarket, and other smaller
independent retail channels. In the aggregate, Amscan supplies more than 40,000
retail outlets both domestically and internationally.

         The Company has a diverse customer base with only one customer, Party
City Corporation ("Party City"), accounting for more than 10% of the Company's
sales in 2001. For the years ended December 31, 2001, 2000 and 1999, sales to
Party City's corporate stores represented 13%, 12% and 10% of consolidated net
sales, respectively. For the years ended December 31, 2001, 2000 and 1999, sales
to Party City's franchise stores represented 15%, 13% and 9% of consolidated net
sales, respectively. Although the Company believes its relationships with Party
City and its franchisees are good, if they were to reduce their volume of
purchases from the Company significantly, the Company's financial condition and
future results of operations could be materially adversely affected.

COMPETITION

         The Company competes on the basis of diversity and quality of its
product designs, breadth of product line, product availability, price,
reputation and customer service. The Company has many competitors with respect
to one or more of its products, but believes that there are few competitors
which manufacture and distribute products with the complexity of design and
breadth of product offerings that the Company does. Furthermore, the Company
believes that its design and manufacturing processes create efficiencies in
manufacturing that few of its competitors achieve in the production of numerous
coordinated products in multiple design types.

         Competitors include smaller independent specialty manufacturers, as
well as divisions or subsidiaries of large companies with greater financial and
other resources than those of the Company. Certain of these competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. The Company
has pursued a strategy of developing its own designs and generally has not
pursued licensing opportunities. However, through its acquisition of Anagram and
its February 2002 acquisition of M&D Balloons, Inc. ("M&D Balloons"), the
Company acquired various licenses that it uses in its production of balloons.
(See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, for further discussion of the acquisition of M&D
Balloons.)

INTELLECTUAL PROPERTY AND LICENSES

         The Company owns copyrights on the designs created by the Company and
used on its products. The Company owns trademarks on the words and designs used
on or in connection with its products. It is the practice of the Company to
register its copyrights with the United States Copyright Office to the extent it
deems reasonable. The Company does not believe that the loss of copyrights or
trademarks with respect to any particular product or products would have a
material adverse effect on


                                       7
<PAGE>

the business of the Company. Except for Anagram and M&D Balloons, the Company
does not depend on licenses to any material degree in its business and,
therefore, does not incur any material licensing expenses. Anagram and M&D
Balloons hold approximately 90 and 25 licenses, respectively, allowing them to
use various cartoon and other characters on their balloons. None of these
licenses is individually material to the Company's business.

EMPLOYEES

         As of December 31, 2001, the Company had approximately 1,830 employees,
none of whom is represented by a labor union. The Company considers its
relationship with its employees to be good.

ITEM 2.  PROPERTIES

         The Company maintains its corporate headquarters in Elmsford, New York
and conducts its principal design, manufacturing and distribution operations at
the following facilities:

<TABLE>
<CAPTION>
                                                                                              OWNED OR LEASED
LOCATION                       PRINCIPAL ACTIVITY                  SQUARE FEET            (WITH EXPIRATION DATE)
--------                    ------------------------            -----------------         ----------------------
<S>                         <C>                                 <C>                       <C>
Elmsford, New York          Executive Offices; design and       84,700 square feet        Leased (expiration date:
                            art production of paper party                                 December 31, 2007)
                            products and decorations

Harriman, New York          Manufacture of paper napkins        75,000 square feet        Leased (expiration date:
                            and cups                                                      March 31, 2006)

Providence, Rhode Island    Manufacture and distribution        51,000 square feet        Leased (expiration date:
                            of plastic plates, cups and bowls                             June 30, 2008)

Louisville, Kentucky        Manufacture and distribution        189,000 square feet       Leased (expiration date:
                            of paper plates                                               March 31, 2003)

Newburgh, New York          Manufacture and distribution        349,100 square feet       Leased (expiration date:
                            of solid color party products                                 April 30, 2003)

Newburgh, New York          Distribution of gift products       53,000 square feet        Leased (expiration date:
                                                                                          May 31, 2004)

Eden Prairie, Minnesota     Manufacture and distribution        115,600 square feet       Owned
                            of balloons and accessories

Tijuana, Mexico             Manufacture and distribution        75,000 square feet        Leased (expiration date:
                            of party and wedding products                                 June 30, 2004)

Chester, New York (1)       Distribution of party products      287,000 square feet       Owned
                            and decorations

Chester, New York (2)       Distribution of party products      544,000 square feet       Owned
                            and decorations

Goshen, New York            Distribution of seasonal party      130,000 square feet       Leased (expiration date:
                            products and decorations                                      October 31, 2006)

Milton Keynes, England      Distribution of party products      110,000 square feet       Leased (expiration date:
                            and decorations throughout United                             June 30, 2017)
                            Kingdom and Europe

Saint Denis, France         Distribution of balloons and        6,800 square feet         Leased (expiration date:
                            accessories                                                   March 31, 2005)

Madrid, Spain               Distribution of balloons and        6,700 square feet         Leased (expiration date:
                            accessories                                                   April 1, 2004)

</TABLE>

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                             OWNED OR LEASED
LOCATION                       PRINCIPAL ACTIVITY                 SQUARE FEET             (WITH EXPIRATION DATE)
--------                    -----------------------             -----------------         ----------------------
<S>                         <C>                                 <C>                       <C>
Melbourne, Australia        Distribution of party products      10,000 square feet        Owned
                            and decorations in Australia
                            and Asia

Blacktown, Australia        Distribution of party products      4,900 square feet         Leased (expiration date:
                            and decorations in Australia                                  October 31, 2003)
                            and Asia

Mexico City, Mexico         Distribution of balloons and        6,600 square feet         Leased (expiration date:
                            accessories                                                   January 15, 2003)

Quebec, Canada              Sales  and administrative           14,700 square feet        Leased (expiration date:
                            offices                                                       March 31, 2004)

</TABLE>

          ------------------
          (1)  Property subject to a ten-year mortgage securing a loan in the
               original principal amount of $5,925,000 bearing interest at a
               rate of 8.51%. Such loan matures in September 2004. The principal
               amount outstanding as of December 31, 2001 was approximately
               $1,628,000.

          (2)  Property subject to first and second lien mortgage loans of $10
               million each with a financial institution and the New York State
               Job Development Authority, respectively. The first lien mortgage
               note bears interest at LIBOR plus 2.75%. However, the Company has
               utilized an interest rate swap agreement to effectively fix the
               loan rate at 8.40% for the term of the loan. The second lien
               mortgage note bears interest at a rate of 4.75%, subject to
               change under certain conditions. Both notes are for a term of 96
               months and require monthly payments based on a 180-month
               amortization period with balloon payments upon maturity in
               January 2010.

         The Company believes that its properties have been adequately
maintained, are in generally good condition and are suitable for the Company's
business as presently conducted. The Company believes its existing facilities
provide sufficient production capacity for its present needs and for its
anticipated needs in the foreseeable future. To the extent such capacity is not
needed for the manufacture of the Company's products, the Company generally uses
such capacity for the manufacture of products for others pursuant to terminable
contracts. All properties generally are used on a basis of two shifts per day.
The Company also believes that upon the expiration of its current leases, it
will be able either to secure renewal terms or to enter into leases for
alternative locations at market terms.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these proceedings will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or future results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.




                                       9
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         On December 19, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into a merger pursuant to an
agreement providing for a recapitalization of Amscan Holdings in which Confetti
was merged with and into Amscan Holdings (the "Merger"), with Amscan Holdings as
the surviving corporation. Following the consummation of the Merger in December
1997, the common stock of the Company (the "Common Stock" or "Company Common
Stock"), par value $0.10 per share, was delisted from the Nasdaq National Market
System ("Nasdaq") and the Company filed with the Securities and Exchange
Commission (the "Commission") a Form 15 to deregister the Company Common Stock
under the Securities Exchange Act of 1934. As a result, there is no public
trading market for the Company Common Stock.

         As of the close of business on March 28, 2002, there were 27 holders
of record of the Company's Common Stock.

         On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as Series A
Redeemable Convertible Preferred Stock ("Series A Redeemable Convertible
Preferred Stock"). Also on March 30, 2001, the Company issued 40 shares of
Series A Redeemable Convertible Preferred Stock to GSCP for proceeds of $6.0
million. Dividends are cumulative and shall be payable annually beginning March
30, 2002, at 6% per annum. Such dividends payable on or prior to March 30, 2004,
shall be payable in additional shares of Series A Redeemable Convertible
Preferred Stock. Subsequent to March 30, 2004, dividends shall be payable, at
the option of the Company, either in cash or additional shares of Series A
Redeemable Convertible Preferred Stock (see Note 12 to the Company's 2001
Consolidated Financial Statements which are included in this report beginning on
page F-2).

         The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. In addition,
the Company's current credit facility and the indenture governing its notes
contain restrictive covenants which have the effect of limiting the Company's
ability to pay cash dividends or distributions to its stockholders.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The selected consolidated financial data presented below under the
captions "Statement of Operations Data," "Cash Flow Statement Data" and "Balance
Sheet Data" as of the end of and for each of the years in the five-year period
ended December 31, 2001, are derived from the consolidated financial statements
of Amscan Holdings, Inc. The consolidated financial statements as of December
31, 2001 and 2000 and for each of the years in the three-year period ended
December 31, 2001 and the report thereon, are included in this report under Item
14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K." The
selected consolidated financial data should be read in conjunction with the
consolidated financial statements and the related notes thereto and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."




                                       10
<PAGE>
<TABLE>
<CAPTION>

                                                                    YEARS ENDED DECEMBER 31,
                                                -----------------------------------------------------------
                                                  2001          2000        1999          1998        1997
                                                --------      --------     -------      --------    --------
                                                                      (Dollars in thousands)
<S>                                             <C>           <C>          <C>          <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................... $347,089      $325,548     $306,112     $235,294    $209,931
Cost of sales..................................  225,036       206,872      194,632      151,324     137,485
                                                --------      --------     --------     --------    --------
Gross profit...................................  122,053       118,676      111,480       83,970      72,446
Selling expenses...............................   33,320        30,642       24,455       17,202      13,726
General and administrative expenses............   33,317        31,958       30,694       20,612      17,387
Provision for doubtful accounts................    3,758         7,133        2,906        3,336       3,775
Art and development costs......................    8,772         8,453        8,650        5,972       3,978
Non-recurring charges (1)......................                                 995
Restructuring charges (2)......................                    500                     2,400
Non-recurring charges in connection with the
  Merger (3)...................................                                                       22,083
                                                --------      --------     --------     --------    --------
Income from operations.........................   42,886        39,990       43,780       34,448      11,497
Interest expense, net..........................   24,069        26,355       26,365       22,965       3,892
Other expense (income), net....................       24            96           35         (121)        (71)
                                                --------      --------     --------     --------    --------
Income before income taxes and minority
 interests.....................................   18,793        13,539       17,380       11,604       7,676
Income tax expense.............................    7,423         5,348        7,100        4,816       7,665
Minority interests.............................       68            75           73           79         193
                                                --------      --------     --------     --------    --------
Net income (loss)..............................   11,302         8,116       10,207        6,709        (182)
Dividend requirement on redeemable convertible
  preferred stock..............................     (270)
                                                --------      --------     --------     --------    --------
Net income applicable to common shares.........  $11,032      $  8,116     $ 10,207     $  6,709    $   (182)
                                                ========      ========     ========     ========    ========
OTHER FINANCIAL DATA:
Gross margin percentage........................    35.2%         36.5%        36.4%        35.7%       34.5%
Capital expenditures, including assets under
  capital leases...............................  $37,623      $ 18,576     $ 12,283     $  7,714    $ 10,296
Depreciation and amortization..................   15,468        14,487       12,931        8,501       6,245
Ratio of earnings to fixed charges (4).........     1.6x          1.4x         1.6x         1.4x        2.2x

CASH FLOW STATEMENT DATA:
Cash flows from operations..................... $ 25,299      $ 19,258     $ 19,435     $ 22,762    $  4,169
Cash flows from investing......................  (37,424)      (18,475)     (11,416)     (83,127)    (10,097)
Cash flows from financing......................   11,923           866       (8,767)     (49,762)    116,005

NON-GAAP FINANCIAL DATA:
Adjusted EBITDA (5)............................ $ 58,614      $ 55,028     $ 56,881     $ 45,609    $ 40,115
Adjusted EBITDA margin.........................    16.9%         16.9%        18.6%        19.4%       19.1%
Adjusted EBITDA to interest expense, net.......     2.4x          2.1x         2.2x         2.0x       10.3x

BALANCE SHEET DATA:
Working capital................................ $ 96,713      $ 83,760     $ 82,228     $ 71,476    $ 96,793
Total assets...................................  310,474       280,627      263,487      248,852     269,276

Short-term obligations (6)..................... $  4,155      $ 14,089     $  8,250     $ 13,177    $  3,335
Long-term obligations..........................  278,443       261,815      266,891      270,127     234,422
                                                --------     ---------     --------     --------    --------
Total obligations.............................. $282,598      $275,904     $275,141     $283,304    $237,757
                                                ========      ========     ========     ========    ========

Redeemable convertible preferred stock (7)..... $  6,270
Redeemable Common Stock (8)....................   29,949      $ 28,768     $ 23,582     $ 19,547
Stockholders' deficit..........................  (77,305)      (86,881)     (88,529)     (95,287)   $(95,219)

</TABLE>


                                       11
<PAGE>



         -------------------
         (1)  During the fourth quarter of 1999, the Company recorded
              non-recurring charges of $1.0 million in association with the
              proposed construction of a new distribution facility. The
              non-recurring charges represented building costs written-off due
              to the relocation of the proposed site.

         (2)  The Company recorded charges of $0.3 million and $2.4 million in
              2000 and 1998, respectively, in connection with the restructuring
              of its distribution operations. The Company closed two facilities
              located in California and Canada. The restructuring charges
              include the non-cash write-down of $1.3 million relating to
              property, plant and equipment, the accrual of future lease
              obligations of $0.5 million and severance and other costs of $0.9
              million. In addition, during 2000, the Company incurred charges of
              $0.2 million in connection with the consolidation of certain
              manufacturing operations.

         (3)  In connection with the Merger in 1997, the Company recorded
              non-recurring charges of approximately $22.1 million related to
              the recapitalization comprised of $11.7 million in transaction
              costs, $7.5 million compensation payment to an officer, $1.9
              million for the redemption of Company stock options and $1.0
              million of debt retirement costs.

         (4)  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 one-third of the rental expense on operating
              leases representing that portion of rental expense deemed by the
              Company to be attributable to interest.

         (5)  "EBITDA" represents earnings before interest, income taxes,
              depreciation and amortization. "Adjusted EBITDA" represents EBITDA
              adjusted for certain non-recurring items, other income or
              expenses, amortization of the restricted Common Stock award, and
              minority interests reflected in the following table. Neither
              EBITDA nor Adjusted EBITDA are intended to represent cash flow
              from operations as defined by accounting principles generally
              accepted in the United States and should not be considered as an
              alternative to net income as an indicator of the Company's
              operating performance or to cash flows as a measure of liquidity.
              EBITDA and Adjusted EBITDA are presented because they are widely
              accepted financial indicators of a leveraged company's ability to
              service and/or incur indebtedness and because management believes
              EBITDA and Adjusted EBITDA are relevant measures of the Company's
              ability to generate cash without regard to the Company's capital
              structure or working capital needs. EBITDA and Adjusted EBITDA as
              presented may not be comparable to similarly titled measures used
              by other companies, depending upon the non-cash charges included.
              When evaluating EBITDA and Adjusted EBITDA, investors should
              consider that EBITDA and Adjusted EBITDA (i) should not be
              considered in isolation but together with other factors which may
              influence operating and investing activities, such as changes in
              operating assets and liabilities and purchases of property and
              equipment, (ii) are not measures of performance calculated in
              accordance with accounting principles generally accepted in the
              United States, (iii) should not be construed as an alternative or
              substitute for income from operations, net income or cash flows
              from operating activities in analyzing the Company's operating
              performance, financial position or cash flows and (iv) should not
              be used as an indicator of the Company's operating performance or
              as a measure of its liquidity.



                                       12
<PAGE>



<TABLE>
<CAPTION>

                                                                       YEARS ENDED DECEMBER 31,
                                                    ----------------------------------------------------------
                                                      2001         2000         1999          1998       1997
                                                    -------       -------      -------      -------    -------
                                                                       (Dollars in thousands)
              <S>                                   <C>           <C>          <C>          <C>        <C>
              EBITDA..........................      $58,262       $54,306      $56,603      $42,991    $17,620
              Adjustments - increase (decrease):
                Certain non-recurring items...                        500                     2,400     22,083
                Amortization of restricted
                 Common Stock award...........          260            51          170          260        290
                Other expense (income), net...           24            96           35         (121)       (71)
                Minority interests............           68            75           73           79        193
                                                    -------       -------      -------      -------    -------
              Adjusted EBITDA.................      $58,614       $55,028      $56,881      $45,609    $40,115
                                                    =======       =======      =======      =======    =======
</TABLE>



         (6)  Short-term obligations consists primarily of the Company's
              borrowings under bank lines of credit and the current portion of
              long-term debt.

         (7)  On March 30, 2001, the Board of Directors authorized 500 of its
              preferred stock, $0.10 par value, and designated 100 shares as
              Series A Redeemable Convertible Preferred Stock ("Series A
              Redeemable Convertible Preferred Stock"). Also on March 30, 2001,
              the Company issued 40 shares of Series A Redeemable Convertible
              Preferred Stock to GSCP, for proceeds of $6.0 million. Dividends
              are cumulative and shall be payable annually beginning March 30,
              2002, at 6% per annum. Such dividends payable on or prior to March
              30, 2004, shall be payable in additional shares of Series A
              Redeemable Convertible Preferred Stock. Subsequent to March 30,
              2004, dividends shall be payable, at the option of the Company,
              either in cash or additional shares of Series A Redeemable
              Convertible Preferred Stock. As of December 31, 2001, accrued but
              unpaid dividends aggregated $270,000 and are included in
              redeemable convertible preferred stock on the consolidated balance
              sheet.

              Each share of the Series A Redeemable Convertible Preferred Stock
              is convertible at the option of the holder at any time into shares
              of Common Stock of the Company, $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. At December 31, 2001, there were 40 shares of
              Company Common Stock reserved for such conversion.

         (8)  Under the terms of the Company's stockholders' agreement dated
              December 19, 1997, as amended (the "Stockholders' Agreement"), the
              Company can purchase all of the shares held by the employee
              stockholders and, under certain circumstances, the employees can
              require the Company to purchase all of the shares held by the
              employee stockholders. The purchase price as prescribed in the
              Stockholders' Agreement 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 the Company to employee stockholders
              based on fully paid and vested shares has been classified as
              redeemable Common Stock. Prior to December 31, 1998, the
              obligation to purchase employee shares was assignable to GSCP at a
              cost of up to $15 million.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

           Over the past several years, the party goods industry has experienced
significant changes in both distribution channels and product offerings. Despite
consolidation in the party goods superstore


                                       13
<PAGE>


channel, the retail distribution of party goods continues to shift from smaller
independent stores and designated departments within drug, discount or
department store chains to superstores dedicated to retailing party goods. In
part due to the success of the superstore channel, party goods manufacturers
broadened their product lines to support the celebration of a greater number of
occasions. The industry's growth has been directly affected by these changes.

         Amscan's revenues are generated from sales of approximately 40,000
SKU's consisting of paper and plastic tableware, accessories and novelties for
all occasions. Tableware (plates, cups, cutlery, napkins and tablecovers) is the
Company's core product category, generating approximately 44% of revenues in
2001. Coordinated accessories (e.g., balloons, banners, gifts and stationery)
and novelties (e.g., party favors) are offered to complement the Company's
tableware products. To serve its customers better, the Company has made
significant additions to its product line including the introduction of expanded
gift lines. The gift lines encompass home, baby, and wedding products for
general gift giving or self-purchase. Through increased spending on internal
product development as well as through acquisitions, the Company has had a net
increase of approximately 32,300 SKU's since 1991. Amscan's revenue growth
reflects the growth in the party goods superstore channel (new stores and
increased same-store sales), the expansion of the Company's product lines and
price increases.

         Amscan's gross profit is principally influenced by its product mix and
paper costs. Products manufactured by the Company, primarily tableware and
metallic balloons, represented nearly 60% of the Company's sales in 2001. Amscan
has made significant additions to its manufacturing capacity which have allowed
it to increase manufacturing efficiencies and improve gross margins. The Company
believes that its manufacturing capabilities enable it to lower product cost,
ensure product quality and be more responsive to customer demands. The Company
has historically been able to adjust its prices in response to changes in paper
prices.


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                           -----------------------
                                                                             2001            2000
                                                                             -----          -----
<S>                                                                          <C>            <C>
Net sales .............................................................      100.0%         100.0%
Cost of sales..........................................................       64.8           63.5
                                                                             -----          -----
    Gross profit.......................................................       35.2           36.5
Operating expenses:
    Selling expenses...................................................        9.6            9.4
    General and administrative expenses................................        9.6            9.8
    Provision for doubtful accounts....................................        1.1            2.2
    Art and development costs..........................................        2.5            2.6
    Restructuring charges..............................................                       0.2
                                                                             -----          -----
Total operating expenses...............................................       22.8           24.2
                                                                             -----          -----
     Income from operations............................................       12.4           12.3
Interest expense, net..................................................        7.0            8.1
Other expense, net.....................................................
                                                                             -----          -----
     Income before income taxes and minority interests.................        5.4            4.2
Income tax expense.....................................................        2.1            1.7
Minority interests.....................................................
                                                                             -----          -----
   Net income.........................................................         3.3%           2.5%
                                                                             =====          =====
</TABLE>


         Net sales for the year ended December 31, 2001 of $347.1 million, were
$21.5 million or 6.6% higher than for the year ended December 31, 2000. During
2001, the Company's sales of printed ensembles, solid color tableware and other
party goods to the national superstore channel grew by 16.4%, despite further
channel consolidation during the year. In addition, the Company's specialty


                                       14
<PAGE>

sales force, which brings party goods and related gift products to the
independent retail channel, experienced 40% sales growth, including a 66%
increase in gift sales, to $10.3 million. These sales gains were partially
offset by: an 8% decrease in sales of party goods to regional party stores,
craft stores and mass merchants, a 28% decrease in revenue from contract
manufacturing and the negative impact of foreign currency fluctuations in
Europe.

         Gross profit for the year ended December 31, 2001 was $122.1 million,
or 35.2% of net sales, as comparable to $118.7 million, or 36.5% for the year
2000 as incremental margins achieved as a result of higher sales were more than
offset by the impact of product mix, particularly solid color tableware, higher
effective sales incentive rates and unabsorbed overhead as result of lower
contract manufacturing.

         Selling expenses of $33.3 million for the year ended December 31, 2001
were $2.7 million higher than in 2000 but remained relatively constant at 9.6%
of net sales versus 9.4% for the year 2000. The increase in selling expenses
reflects the continued development of a specialty sales force, which has more
than doubled since its creation in 1999, and increased marketing initiatives
relating to gift product lines.

         General and administrative expenses of $33.3 million for the year ended
December 31, 2001 represents an increase of $1.4 million as compared to the
year 2000. The increase in general and administrative expenses principally
reflects higher employee wages and benefits and professional fees. As a
percentage of sales, general and administrative expenses decreased by 0.2%, to
9.6%.

         The provision for doubtful accounts for the year ended December 31,
2001 decreased by $3.4 million to $3.8 million and from 2.2% to 1.1% of net
sales. During 2001, a superstore customer filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. The Company charged $2.5
million to the provision for doubtful accounts during the second half of 2001 to
fully provide for the accounts receivable balance due from this customer. This
customer accounted for approximately 2.1% of the Company's net sales in 2001.
The Company does not believe the potential loss of sales to this customer will
have a material adverse effect on the Company's future results of operations or
its financial condition. During the year ended December 31, 2000, two of the
Company's customers filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code. As a result of those filings, the Company
charged $3.4 million and $1.0 million to the provision for doubtful accounts
during the second and fourth quarters of 2000, respectively, to fully provide
for the accounts receivable balances due from these customers. The Company also
charged $1.6 million to the provision for doubtful accounts during the fourth
quarter of 2000, which represented the remaining accounts receivable balance
from a customer that filed for bankruptcy during 1999.

         Art and development costs of $8.8 million for the year ended December
31, 2001 were $0.3 million higher than in 2000 but remained relatively
consistent at 2.5% of sales versus 2.6% for 2000.

         During the fourth quarter of the year ended December 31, 2000, the
Company recorded charges of $0.3 million relating to the restructuring of its
distribution operations begun in 1998 and $0.2 million in connection with the
consolidation of certain manufacturing operations.

         Interest expense, net, of $24.1 million for the year ended December 31,
2001 was $2.3 million lower than in 2000, and reflects a lower average interest
rate (8.4% in 2001 versus 9.26% in 2000) and the capitalization of approximately
$1.0 million of interest expense in 2001, partially offset by the impact of
higher average borrowings.

         Income taxes for the years ended December 31, 2001 and 2000 were
provided for at a consolidated effective income tax rate of 39.50%. The
effective income tax rate exceeds the federal statutory income tax rate
primarily due to state income taxes.




                                       15
<PAGE>



YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                           -----------------------
                                                                            2000            1999
                                                                            ----            ----
<S>                                                                         <C>             <C>

Net sales .............................................................      100.0%         100.0%
Cost of sales..........................................................       63.5           63.6
                                                                             -----          -----
     Gross profit......................................................       36.5           36.4
Operating expenses:
    Selling expenses...................................................        9.4            8.0
    General and administrative expenses................................        9.8           10.0
    Provision for doubtful accounts....................................        2.2            1.0
    Art and development costs..........................................        2.6            2.8
    Non-recurring charges..............................................                       0.3
    Restructuring charges..............................................        0.2
                                                                             -----          -----
Total operating expenses...............................................       24.2           22.1
                                                                             -----          -----
     Income from operations............................................       12.3           14.3
Interest expense, net..................................................        8.1            8.6
Other expense, net.....................................................
                                                                             -----          -----
     Income before income taxes and minority interests.................        4.2            5.7
Income tax expense.....................................................        1.7            2.4
Minority interests.....................................................
                                                                             -----          -----
    Net income.........................................................        2.5%           3.3%
                                                                             =====          =====
</TABLE>


         Net sales for the year ended December 31, 2000 of $325.5 million, were
$19.4 million higher than for the year ended December 31, 1999. The increase in
net sales principally reflects increased sales of printed ensembles, accessories
and gift items to independent party goods and specialty stores, as well as
increased sales of solid color tableware to superstores. These gains were
partially offset by: lower fourth quarter sales of New Year related theme
products as 1999 benefited from the celebration of the Millennium; a reduction
in sales to international customers; and a decline in sales of licensed products
to mass merchant distributors. Increased sales to independent party goods and
specialty stores are attributable to a realignment of the Company's independent
sales force begun in the first quarter of 1999.

         Gross profit for the year ended December 31, 2000 of $118.7 million, or
36.5% of net sales, was comparable to the corresponding period in 1999 as
incremental margins achieved as a result of higher sales were offset by lower
margins attributable to product mix, particularly the solid color tableware.

         Selling expenses of $30.6 million for the year ended December 31, 2000
were $6.2 million higher than those of the corresponding period in 1999 and
increased to 9.4% of net sales from 8.0% of net sales. The increase in selling
expenses reflects the continued development of a specialty sales force, which
has doubled since the beginning of 1999, and increased marketing initiatives
relating to gift product lines.

         General and administrative expenses of $32.0 million for the year ended
December 31, 2000 increased by $1.3 million as compared to 1999, yet decreased
by 0.2% to 9.8% of net sales. The increase of $1.3 million reflects additional
depreciation and amortization associated with new data processing equipment,
increased professional service fees and increased costs associated with the
development of e-commerce business opportunities.

         The provision for doubtful accounts for the year ended December 31,
2000 increased by $4.2 million to $7.1 million and from 1.0% to 2.2% of net
sales. During the second quarter of 2000, two of the Company's customers filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code. As a result of the filings, the Company charged $3.4 million and $1.0
million to the provision for doubtful accounts during the second and fourth
quarters of 2000, respectively, to fully




                                       16
<PAGE>

provide for the accounts receivable balances due to the Company from these
customers. On a combined basis, these two customers accounted for approximately
1.9% of the Company's consolidated net sales for the year ended December 31,
2000. The Company also charged $1.6 million to the provision for doubtful
accounts during the fourth quarter of 2000 which represented the remaining
accounts receivable balance from a customer that filed for bankruptcy during
1999.

         Art and development costs of $8.5 million for the year ended December
31, 2000 were $0.2 million lower than in 1999. The art and development costs for
the year ended December 31, 1999 included higher levels of certain start-up
costs associated with the development of new product lines. As a percentage of
net sales, art and development costs were 2.6% for the year ended December 31,
2000 as compared to 2.8% for 1999.

         During the fourth quarter of 2000, the Company recorded charges of $0.3
million relating to the restructuring of its distribution operations begun in
1998 and $0.2 million in connection with the consolidation of certain
manufacturing operations.

         During the fourth quarter of 1999, the Company recorded non-recurring
charges of $1.0 million in association with the proposed construction of a new
distribution facility. The non-recurring charges represented building costs
written-off due to the relocation of the proposed site.

         Interest expense, net, of $26.4 million for the year ended December 31,
2000 was comparable to 1999, principally as a result of a higher average
interest rate (9.26% in 2000 versus 8.16% in 1999), offset by the impact of
lower average borrowings.

         Income taxes for the years ended December 31, 2000 and 1999 were
provided for at consolidated effective income tax rates of 39.50% and 40.85%,
respectively. The effective income tax rates exceed the federal statutory income
tax rate primarily due to state income taxes.


LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2001, the Company had an outstanding Term Loan of
$149.7 million provided under a bank credit agreement (the "Bank Credit
Facilities"), together with senior subordinated notes of $110.0 million (the
"Notes") (collectively, the "Financings"). The Term Loan matures in December
2004 and provides for amortization (in quarterly installments) of one percent of
the principal amount thereof per year for the first five years and 32.3% and
62.7% of the principal amount thereof in the sixth and seventh years,
respectively. The Term Loan bears interest, at the option of the Company, at the
lenders' customary base rate plus 1.625% per annum or at the lenders' customary
reserve adjusted Eurodollar rate plus 2.625% per annum. At December 31, 2001,
the floating interest rate on the Term Loan was 4.56%. The Notes bear interest
at a rate of 9.875% per annum and mature in December 2007. The Company is
required to make prepayments on the Bank Credit Facilities under certain
circumstances, including upon certain asset sales and issuance of debt or equity
securities and based on cash flows, as defined.

         The Bank Credit Facilities also provide for revolving loan borrowings
of up to $50 million (the "Revolving Credit Facility"). The Revolving Credit
Facility, expires on December 31, 2002, bears interest, at the option of the
Company, at the lenders' customary base rate plus, based on certain terms, a
range of 1.00% to 1.50% per annum or at the lenders' customary reserve adjusted
Eurodollar rate plus, based on certain terms, a range of 2.00% to 2.50% per
annum. Interest on balances outstanding under the Revolving Credit Facility are
subject to adjustment in the future based on the Company's performance. At
December 31, 2001, the Company had borrowing capacity of approximately $43.0
million under the Revolving Credit Facility.

         In addition to the Revolving Credit Facility, the Company has a
$400,000 Canadian dollar denominated revolving credit facility which bears
interest at the Canadian prime rate and expires on June 15, 2002, $1.0 million
a British Pound Sterling denominated revolving credit facility which bears



                                       17
<PAGE>


interest at the U.K. base rate plus 1.75% and expires on June 1, 2002 and a
$1.0 million revolving credit facility which bears interest at LIBOR plus 1.0%
and expires on January 31, 2003. No borrowings were outstanding under these
revolving credit facilities at December 31, 2001 and 2000.

         In October 2000, in connection with a plan to consolidate distribution
facilities, the Company purchased property for $4.9 million and entered into a
contract for the design and construction of a new domestic facility. At December
31, 2000, the Company had incurred construction costs of $3.0 million. At
December 31, 2001, the construction of the new facility was completed at a cost
of $24.8 million, including $1.2 million of capitalized interest costs. The
Company expects the facility to be fully operational in the latter half of 2002.
The planned consolidation may result in additional restructuring charges in
subsequent periods.

        The Company refinanced the purchase of the property and the costs to
construct the facility using borrowings under its revolving credit facility,
the proceeds from the issuance of the Series A Redeemable Convertible Preferred
Stock of $6.0 million (noted below) and long-term borrowings consisting of a
first and second lien mortgage note of $10.0 million each with a financial
institution and the New York State Job Development Authority, respectively. The
first lien mortgage note bears interest at LIBOR plus 2.75%. However, the
Company has utilized an interest rate swap agreement to effectively fix the
loan rate at 8.40% for the term of the loan. The second lien mortgage note
bears interest at a rate 4.75%, subject to change under certain conditions.
Both notes are for a term of 96 months and require monthly payments based on a
180-month amortization period with balloon payments upon maturity in January
2010. The Company has amended and restated its Bank Credit Facilities to
provide for, among other things, the additional borrowings and capital
expenditures for the construction of the facility.

         On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as Series A
Redeemable Convertible Preferred Stock. Also on March 30, 2001, the Company
issued 40 shares of Series A Redeemable Convertible Preferred Stock to GSCP for
proceeds of $6.0 million.

         The Company has several non-cancelable operating leases principally for
office, distribution and manufacturing facilities, showrooms, and warehouse
equipment. These leases expire on various dates through 2017 and generally
contain renewal options and require the Company to pay real estate taxes,
utilities and related insurance. Rent expense for the year ended December 31,
2001, totaled $9.5 million. The minimum lease payments currently required under
non-cancelable operating leases for the year end December 31, 2002, approximates
$12.2 million.

         On July 26, 2001, Amscan and American Greetings Corporation ("American
Greetings") signed a letter of intent pursuant to which Amscan would acquire
American Greetings' subsidiary, M&D Balloons Inc., a Manteno, Illinois-based
manufacturer of metallic and plastic balloons. On February 19, 2002, the Company
completed the acquisition for $27.5 million, borrowing $12.5 million under its
revolving credit facility and issuing 96.774 shares of its Common Stock to
American Greetings, at a value of $155,000 per share. American Greetings will
continue to distribute metallic balloons under a supply agreement with Amscan.

         Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the Revolving Credit Facility will be adequate to meet its
anticipated future requirements for working capital and operating expenses for
the next twelve months. Scheduled debt payments for the years ended December 31,
2002 and 2003 total $3.5 million and $52.3 million, respectively, with
increasing amounts thereafter. The Company is exploring a number of options to
repay or refinance these debt maturities. The Company has had good access to
capital markets and expects to repay or refinance these debt maturities as they
become due. However, the Company's ability to make scheduled payments of
principal of, or to pay interest on, or to refinance its indebtedness and to
satisfy its other obligations will depend upon several factors including the
volatility of capital markets and the Company's future performance, which, to a
certain extent, will be subject to general economic, financial, competitive,
business and other factors beyond its control.

         The Financings may affect the Company's ability to make future capital
expenditures and



                                       18
<PAGE>


potential acquisitions. However, management believes that current asset levels
provide adequate capacity to support its operations for at least the next 12
months. At December 31, 2001, except for the pending acquisition of M&D
Balloons Inc., the Company did not have material commitments for capital
expenditures or other acquisitions.

CASH FLOW DATA - YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER
31, 2000

         Net cash provided by operating activities for the year ended December
31, 2001, totaled $25.3 million, or $6.0 million higher than for the year ended
December 31, 2000. Net cash flow provided by operating activities before changes
in operating assets and liabilities for the years ended December 31, 2001 and
2000, was $33.3 million and $32.9 million, respectively. Changes in operating
assets and liabilities for the years ended December 31, 2001 and 2000, resulted
in the use of cash of $8.1 million and $13.7 million, respectively. The changes
in operating assets and liabilities principally reflect an increase in accounts
receivable and inventory, net of a corresponding increase in accounts payable,
consistent with the growth in operations.

         Net cash used in investing activities during the year ended December
31, 2001 consisted of $37.4 million of capital expenditures, including the costs
to complete the construction of the Company's new distribution facility and to
acquire related distribution equipment. During the year ended December 31, 2000,
net cash used in investing activities of $18.5 million included payments of $7.9
million associated with the purchase of property for and the construction of a
new distribution facility and additional investments principally in
manufacturing equipment.

         During the year ended December 31, 2001, net cash provided by financing
activities of $11.9 million included the proceeds of $6.0 million from the
issuance of 40 shares of Series A Redeemable Convertible Preferred Stock to
GSCP and the net proceeds from the two $10.0 million mortgage loans noted
above. During 2001, the Company also repaid short-term borrowings under its
Revolving Credit Facility and long-term borrowings under its Term Loan and
other obligations totaling $13.5 million. During the year ended December 31,
2000, net cash provided by financing activities of $0.9 million primarily
consisted of proceeds from net short-term borrowings under the Revolving Credit
Facility for working capital needs and the new distribution facility, partially
offset by the scheduled repayment and a $1.3 million prepayment of the Term
Loan, and repayment of other long-term obligations.

CASH FLOW DATA - YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER
31, 1999

         For the year ended December 31, 2000, net cash provided by operating
activities totaled $19.3 million, or $0.2 million lower than for the year ended
December 31, 1999. Net cash flow provided by operating activities before changes
in other operating assets and liabilities for the years ended December 31, 2000
and 1999, was $32.9 million and $31.9 million, respectively. Net cash used as a
result of changes in other operating assets and liabilities for the year ended
December 31, 2000 and 1999, was $13.7 million and $12.5 million, respectively,
and reflects a growth in accounts receivable and inventory consistent with the
growth in operations.

         During the year ended December 31, 2000, net cash used in investing
activities of $18.5 million included payments of $7.9 million associated with
the purchase of property for and the construction of a new domestic distribution
facility and additional investments principally in manufacturing equipment. Net
cash used in investing activities during the year ended December 31, 1999
consisted of $11.4 million of capital expenditures including an upgrade of the
Company's data processing systems and investment in additional manufacturing
equipment.

         During the year ended December 31, 2000, net cash provided by financing
activities of $0.9 million primarily consisted of proceeds from net short-term
borrowings under the Revolving Credit Facility for working capital needs and the
new distribution facility, partially offset by the scheduled repayment and a
$1.3 million prepayment of the Term Loan, and repayment of other long-term
obligations. During the year ended December 31, 1999, net cash used in financing
activities of $8.8


                                       19
<PAGE>

million principally consisted of scheduled payments of long-term obligations
partially offset by the proceeds from short-term working capital borrowings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the U.S., which
require the Company to make estimates and assumptions. The Company believes that
of its significant accounting policies, the following may involve a higher
degree of judgment and complexity.

Revenue Recognition

         The Company recognizes revenue on product sales at the time of
shipment. The Company records estimated reductions to revenue for various
customer incentive programs and allowances. Should customers earn higher
incentives than estimated by the Company, additional reductions to revenue may
be required.

Royalty Agreements

         Commitments for minimum payments under royalty agreements, a portion of
which may be paid in advance, are charged to expense ratably, based on the
Company's estimate of total sales of related products. If all or a portion of
the minimum guarantee subsequently appears not to be recoverable, the
unrecoverable portion is charged to expense at that time.

Bad Debt

         The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
A considerable amount of judgment is required in assessing the ultimate
realization of these receivables including the current credit-worthiness of
customers. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Inventory

         Our policy requires that the Company state its inventories at the lower
of cost or market. In assessing the ultimate realization of inventories, we are
required to make judgments regarding, among other things, future demand and
market conditions, current inventory levels and the impact of the possible
discontinuation of product designs. If actual conditions are less favorable than
those projected by the Company, additional inventory write-downs to market value
may be required.

Long-Lived Assets

         The Company has significant property, plant and equipment; goodwill and
other acquired intangibles. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant judgments.
Changes in strategy and/or market conditions could significantly impact these
judgments and require adjustments to recorded asset balances.



                                       20








<PAGE>

LEGAL PROCEEDINGS

         The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these proceedings will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or future results of operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS")No. 141, Business
Combinations" which supersedes Accounting Principles Board ("APB") Opinion No.
16, "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and modifies the application of
the purchase accounting method. SFAS No. 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported separately from goodwill. The elimination of the
pooling-of-interests method is effective for transactions initiated after June
30, 2001. The remaining provisions of SFAS No. 141 will be effective for
transactions accounted for using the purchase method that are completed after
June 30, 2001. Management does not anticipate the adoption of this statement
will have a significant effect on the Company's results of operations or
financial position.

         In June 2001, the FASB also issued SFAS No. 142, "Goodwill and
Intangible Assets" which supersedes APB Opinion No. 17, "Intangible Assets."
SFAS No. 142 eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
effective date. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
Application of the non-amortization provisions of SFAS 142 is expected to result
in an estimated increase in net income of approximately $1.6 million for the
year ended December 31, 2002. During 2002, the Company will perform the first of
the required impairment tests of goodwill and indefinite lived intangible assets
as of January 1, 2002 and has not yet determined what the effect of these tests
will be on the earnings and financial position of the Company.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which provides a single accounting
model for long-lived assets to be disposed of. Provisions outlined in this
statement supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and certain provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." These new rules significantly
change the criteria that would have to be met to classify an asset as
held-for-sale. This is significant as assets classified as held-for-sale are
stated at the lower of carrying value or fair value and depreciation is no
longer recognized. This statement will also allow for more dispositions to
qualify for discontinued operations treatment in the income statement. SFAS No.
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001. The provisions of this statement are effective for
disposal activities initiated by an entity's commitment to a plan after the
effective date of the statement. The Company will adopt this statement effective
January 1, 2002, as required. Management does not anticipate the adoption of
this statement will have a significant effect on the Company's results of
operations or financial position.

         In November 2001, the Emerging Issues Task Force (the "EITF") issued
EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF's 00-14,
00-22, and 00-25. EITF 01-09 will require the Company to reclassify certain
selling expenses as a reduction of revenues. These reclassifications will take
place in the first quarter of 2002 and prior periods will be reclassified. The
effect of these reclassifications on 2001 will be a decrease to sales and
selling expenses of $1.6 million. These




                                       21
<PAGE>


reclassifications will decrease gross profit margin as a percentage of sales
from 35.2% to 34.9% and decrease operating expenses as a percentage of sales
from 22.8% to 22.5% in 2001. These reclassifications will not impact net income.

         Other pronouncements issued by the FASB or other authoritative
accounting standards groups with future effective dates are either not
applicable or not significant to the financial statements of the Company.

"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         This report includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this report
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, including any changes to operations, goals, expansion and
growth of the Company's business and operations, plans, references to future
success and other such matters are forward-looking statements. These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. Actual results may differ materially from
those discussed. Whether actual results and developments will conform with the
Company's expectations and predictions is subject to a number of risks and
uncertainties, including, but not limited to (1) the concentration of sales by
the Company to party goods superstores where the reduction of purchases by a
small number of customers could materially reduce the Company's sales and
profitability, (2) the concentration of the Company's credit risk in party goods
superstores, several of which are privately held and have expanded rapidly in
recent years, (3) the failure by the Company to anticipate changes in tastes and
preferences of party goods retailers and consumers, (4) the introduction by the
Company of new product lines, (5) the introduction of new products by the
Company's competitors, (6) the inability of the Company to increase prices to
recover fully future increases in raw material prices, especially increases in
paper prices, (7) the loss of key employees, (8) changes in general business
conditions, (9) other factors which might be described from time to time in the
Company's filings with the Commission, and (10) other factors which are beyond
the control of the Company. Consequently, all of the forward-looking statements
made in this report are qualified by these cautionary statements, and the actual
results or developments anticipated by the Company may not be realized or, even
if substantially realized, may not have the expected consequences to or effects
on the Company or its business or operations. Although the Company believes that
it has the product offerings and resources needed for continued growth in
revenues and margins, future revenue and margin trends cannot be reliably
predicted. Changes in such trends may cause the Company to adjust its operations
in the future. Because of the foregoing and other factors, recent trends should
not be considered reliable indicators of future financial results. In addition,
the highly leveraged nature of the Company may impair its ability to finance its
future operations and capital needs and its flexibility to respond to changing
business and economic conditions and business opportunities.


QUARTERLY RESULTS (UNAUDITED)

         As a result of the seasonal nature of certain of the Company's
products, the quarterly results of operations may not be indicative of those for
a full year. Third and fourth quarter sales are generally the highest of the
year due to a combination of increased sales to consumers of the Company's
products during summer months, as well as the initial shipment of seasonal
merchandise to retailers, as they build inventories for the holidays celebrated
during the fourth and first quarters of the year. Promotional activities,
including special dating terms, particularly with respect to Halloween and
Christmas products sold in the third quarter, result in higher accounts
receivables balances and higher interest costs to support these balances, which
generally causes a lower profitability in the fourth quarter. The following
table sets forth historical net sales, gross profit, income from operations and
net income of the Company for 2001 and 2000 by quarter.



                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTHS ENDED
                                             ----------------------------------------------------------------
                                             MARCH 31          JUNE 30       SEPTEMBER 30         DECEMBER 31
                                             --------          -------       ------------         -----------
                                                                  (Dollars in thousands)
<S>                                          <C>               <C>            <C>                 <C>
2001
Net sales..............................       $87,506          $83,363         $88,010             $88,210
Gross profit...........................        32,189           28,837          30,594              30,433
Income from operations.................        13,083            9,773           9,977(a)           10,053(a)
Net income.............................         3,875            2,209           2,391(a)            2,827(a)

2000
Net sales..............................       $77,377          $78,758         $83,365             $86,048
Gross profit...........................        30,261           28,198          30,343              29,874
Income from operations.................        12,839            7,335(b)       11,675               8,141(b)
Net income.............................         3,709              448(b)        3,009                 950(b)
</TABLE>


(a)      During the third quarter of 2001, one of the Company's customers filed
         a voluntary petition for relief under Chapter 11 of the United States
         Bankruptcy Code and, as a result, the Company charged $1.5 million and
         $1.0 million to the provision for doubtful accounts during the third
         and fourth quarters of 2001, respectively, to fully provide for the
         accounts receivable balances due to the Company. This customer
         accounted for approximately 2.1% of the Company's consolidated net
         sales for the year ended December 31, 2001. The Company does not
         believe the potential loss of sales to this customer will have a
         material adverse effect on the Company's future results of operations
         or its financial condition.

(b)      During the second quarter of 2000, two of the Company's customers filed
         voluntary petitions for relief under Chapter 11 of the United States
         Bankruptcy Code. As a result of the filings, the Company charged $3.4
         million and $1.0 million to the provision for doubtful accounts during
         the second and fourth quarters of 2000, respectively, to fully provide
         for the accounts receivable balances due to the Company from these
         customers. On a combined basis, these two customers accounted for
         approximately 1.9% of the Company's consolidated net sales for the year
         ended December 31, 2000. The Company also charged $1.6 million to the
         provision for doubtful accounts during the fourth quarter of 2000 which
         represented the remaining accounts receivable balance from a customer
         that filed for bankruptcy during 1999.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's earnings are affected by changes in interest rates as a
result of its issuance of variable rate indebtedness. However, the Company
utilizes interest rate swap agreements to manage the market risk associated with
fluctuations in interest rates. If market interest rates for the Company's
variable rate indebtedness averaged 2% more than the interest rate actually paid
for the years ended December 31, 2001, 2000 and 1999, the Company's interest
expense, after considering the effects of its interest rate swap agreements,
would have increased, and income before income taxes would have decreased, by
$2.2 million, $0.9 million and $1.4 million, respectively. This amount is
determined by considering the impact of the hypothetical interest rates on the
Company's borrowings and interest rate swap agreements. This analysis does not
consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in the Company's financial structure.

         The Company's earnings are also affected by fluctuations in the value
of the U.S. dollar as compared to foreign currencies, predominately in European
countries, as a result of the sales of its products in foreign markets. Foreign
currency forward contracts are used periodically to hedge against the earnings
effects of such fluctuations. A uniform 10% strengthening in the value of the
dollar relative to the currencies in which the Company's foreign sales are
denominated would have resulted in



                                       23
<PAGE>



a decrease in gross profit of $1.4 million, $1.6 million and $1.6 million for
the years ended December 31, 2001, 2000 and 1999, respectively. This calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar. In addition to the direct effects of changes in exchange rates,
which could change the U.S. dollar value of the resulting sales, changes in
exchange rates may also affect the volume of sales or the foreign currency sales
price as competitors' products become more or less attractive. The Company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in a potential change in sales levels or local currency
prices.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See the consolidated financial statements and supplementary data listed
in the accompanying Index to Financial Statements and Schedule on page F-1
herein.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names, ages and positions with the Company of
the persons who are currently serving as directors and executive officers of the
Company.


<TABLE>
<CAPTION>
         NAME                     AGE      POSITION
         ----                     ---      --------
         <S>                      <C>      <C>
         Terence M. O'Toole       43       Director, Chairman of the Board
         Sanjeev K. Mehra         43       Director
         Joseph P. DiSabato       35       Director
         Gerald C. Rittenberg     49       Chief Executive Officer and Director
         James M. Harrison        50       President, Chief Financial Officer, Treasurer
                                             and Director
         Garry Kieves             53       Senior Vice President
         James F. Flanagan        50       Executive Vice President
</TABLE>


         Terence M. O'Toole is a Managing Director of Goldman, Sachs & Co.
("Goldman Sachs") in the Principal Investment Area. He joined Goldman Sachs in
1983. He is a member of Goldman Sachs' Principal Investment Area Investment
Committee and its Stone Street Fund Investment Committee. Mr. O'Toole serves on
the Boards of Directors of Western Wireless Corporation and several privately
held companies on behalf of Goldman Sachs. He holds a B.S. degree from Villanova
University and an M.B.A. from the Stanford Graduate School of Business.

         Sanjeev K. Mehra is a Managing Director of Goldman Sachs in the
Principal Investment Area. He joined Goldman Sachs in 1986. He is a member of
Goldman Sachs' Principal Investment Area Investment Committee and its Stone
Street Fund Investment Committee. Mr. Mehra serves on the Boards of Directors of
Promedco Management Company, Hexcel Corporation, Endwave Corporation, and
several privately held companies on behalf of Goldman Sachs. He holds an A.B
from Harvard University and an M.B.A. from the Harvard Graduate School of
Business Administration.

         Joseph P. DiSabato is a Managing Director of Goldman Sachs in the
Principal Investment Area. He joined Goldman Sachs in 1988, worked as a
Financial Analyst until 1991, and returned in 1994 as an Associate. Mr. DiSabato
serves on the Boards of Directors of several privately held companies on behalf
of Goldman Sachs. He holds a B.S. from the Massachusetts Institute of



                                       24
<PAGE>


Technology and an M.B.A. from the Anderson Graduate School of Management at
UCLA.

         Gerald C. Rittenberg became Chief Executive Officer in December 1997.
Prior to that time, Mr. Rittenberg served as the President of the predecessor to
the Company, Amscan Inc., from April 1996 to October 1996, and as President of
the Company from the time of its formation in October 1996. From May 1997 until
December 1997, Mr. Rittenberg served as Acting Chairman of the Board.

         James M. Harrison became President, Chief Financial Officer and
Treasurer in December 1997. Prior to that time, Mr. Harrison served as the Chief
Financial Officer of the predecessor to the Company, Amscan Inc., from August
1996 to February 1997 and as Chief Financial Officer and Secretary of the
Company from February 1997 to December 1997. From 1993 to 1995, Mr. Harrison was
the Executive Vice President, Chief Operating Officer, Secretary, Treasurer and
a member of the Board of Directors of The C.R. Gibson Company, a manufacturer
and distributor of paper gift products.

         Garry Kieves became a Senior Vice President of the Company in September
1998 when the Company acquired Anagram. Mr. Kieves has served as President of
Anagram for more than five years.

         James F. Flanagan became ST&T Vice President of the Company in July
2001 and became an Executive Vice President in January 2002. From 1975 to July
2001, Mr. Flanagan was employed at Hallmark Cards, Inc. where he most recently
served as Vice President-Sales.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Because the Company Common Stock is not registered under the Exchange
Act, none of the Company's directors, officers or stockholders is obligated to
file reports of beneficial ownership of Company Common Stock pursuant to Section
16 of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth information concerning the compensation
earned for the past three years for the Company's Chief Executive Officer and
all other executive officers of the Company as of December 31, 2001 whose
aggregate salary and bonus for 2001 exceeded $100,000. The amounts shown include
compensation for services in all capacities that were provided to the Company or
its subsidiaries. Amounts shown were paid by the Company's principal subsidiary,
Amscan Inc., except for payments to or on behalf of Garry Kieves, which were
paid by Anagram. Prior to the Merger in 1997, the Company granted stock options
on shares of Company Common Stock ("Company Stock Options") pursuant to the 1996
Stock Option Plan for Key Employees (the "Prior Stock Plan"). Following the
Merger, Company stock options ("New Options") were granted pursuant to a new
stock incentive plan and related option agreement (together, the "Option
Documents") adopted by the Company. At the time of the Merger, certain employees
converted Company Stock Options into options to purchase shares of Common Stock
("Rollover Options").




                                       25
<PAGE>


<TABLE>
<CAPTION>
                                                                                    Long Term
                                                                                   Compensation
                                                                             No. of Securities Under-      All Other
Name and Principal Position       Year          Salary       Bonus(a)         lying Options Granted     Compensation(b)
---------------------------       ----          ------       ---------       -------------------------  ----------------
<S>                               <C>          <C>            <C>                      <C>                 <C>
Gerald C. Rittenberg              2001         $309,750       $500,000                                     $  7,249
  Chief Executive Officer         2000          295,000        500,000                                        8,505
                                  1999          295,000        450,000                                        7,255

James M. Harrison                 2001         $288,750       $450,000                                     $  7,382
  President, Chief Financial      2000          275,000        450,000                                        9,027
  Officer and Treasurer           1999          275,000        400,000                                        5,399

Garry Kieves                      2001         $240,000                                                    $ 14,806
  Senior Vice President           2000          240,000                                                      16,388
                                  1999          240,000                                                      13,289

James F. Flanagan                 2001          $74,000(c)    $125,000(c)               2.5(d)             $      -
  Executive Vice President
</TABLE>


(a)      Represents amounts earned with respect to the years indicated, whether
         paid or accrued.

(b)      Represents contributions by the Company under a profit sharing and
         savings plan, as well as insurance premiums paid by the Company with
         respect to term life insurance for the benefit of the named executive
         officer.

(c)      Mr. Flanagan became an employee of the Company on July 16, 2001. Under
         terms of Mr. Flanagan's employment agreement, he received a signing
         bonus of $50,000 and will receive a year end bonus of $75,000.

(d)      Represents New Options granted to Mr. Flanagan in 2001.


OPTION GRANTS TABLE

         The following table sets forth information concerning stock options
which were granted during 2001 to the executive officers named in the Summary
Compensation Table. Information with respect to options relates to options on
the Company Common Stock at December 31, 2001.


<TABLE>
<CAPTION>
                                      % OF                                                   POTENTIAL REALIZABLE VALUE AT
                  NUMBER OF       TOTAL OPTIONS                                                 ASSUMED ANNUAL RATES OF
                  SECURITIES       GRANTED TO                     MARKET                      STOCK PRICE APPRECIATION FOR
                  UNDERLYING      EMPLOYEES IN                   PRICE AT                             OPTION TERM
                   OPTIONS           FISCAL        EXERCISE      DATE OF      EXPIRATION     ------------------------------
NAME              GRANTED(1)          YEAR          PRICE        GRANT(2)        DATE            5%                  10%
----             -----------      -------------    --------      ---------    ----------     ---------             --------
<S>                 <C>               <C>          <C>           <C>          <C>            <C>                   <C>
James F.
Flanagan            2.5               100%         $150,000      $150,000      July 16,       $235,836             $597,654
                                                                                 2011


</TABLE>

(1)      All New Options listed in this column become exercisable ratably over
         five years beginning one year from the date of grant and expire ten
         years after the date of grant. To the extent permitted under the
         Internal Revenue Code, such options were incentive stock options.

(2)      Assumes a fair market value of the Company Common Stock underlying the
         New Options of


                                       26
<PAGE>

         $150,000 based on the valuation of Company Common Stock at July 16,
         2001.


FISCAL 2001 YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                                     Number of Securities                   Value of Unexercised In the Money
                                Underlying Unexercised Options                  Options at Fiscal Year End
                                -------------------------------             ----------------------------------
Name                            Exercisable       Unexercisable             Exercisable          Unexercisable
----                            -----------       -------------             -----------          -------------
<S>                               <C>                <C>                    <C>                    <C>
Gerald C. Rittenberg              13.318             3.330                  $1,065,440             $266,400

James M. Harrison                 13.014             3.254                   1,080,291              270,118

Garry Kieves                       3.989             2.659                     119,670               79,770

James F. Flanagan                      -             2.500                           -               12,500
</TABLE>


         The valuation of unexercised in the money options is based on a
valuation of Company Common Stock of $155,000 per share at December 31, 2001. No
New Options or Rollover Options were exercised in the most recent fiscal year.

         For a further description of the New Options and Rollover Options
granted to the executives named in the Summary Compensation Table, see
"Employment Arrangements" below.


EMPLOYMENT ARRANGEMENTS

         Employment Agreement with Gerald C. Rittenberg. Under the Employment
Agreement between the Company and Gerald C. Rittenberg, dated August 10, 1997,
as amended, (the "Rittenberg Employment Agreement"), Mr. Rittenberg serves as
Chief Executive Officer of the Company for a term expiring December 31, 2004.
During 2001, Mr. Rittenberg received an annual base salary of $309,750, which
will increase by 5% annually for the term of the Rittenberg Employment
Agreement. Mr. Rittenberg will be eligible for an annual bonus for each calendar
year comprised of (i) a non-discretionary bonus equal to 50% of his annual base
salary if certain operational and financial targets determined by the Board of
Directors in consultation with Mr. Rittenberg are attained and (ii) a
discretionary bonus awarded in the sole discretion of the Board of Directors.
The Rittenberg Employment Agreement also provides for other customary benefits
including incentive, savings and retirement plans, paid vacation, health care
and life insurance plans, and expense reimbursement.

         Under the Rittenberg Employment Agreement, if Mr. Rittenberg's
employment were to be terminated by the Company other than for cause, death or
disability, the Company would be obligated to pay Mr. Rittenberg a lump sum cash
payment in an amount equal to the sum of (1) accrued unpaid salary, earned but
unpaid bonus for any prior year, any deferred compensation and accrued but
unpaid vacation pay (collectively, "Accrued Obligations") plus (2) severance pay
equal to his annual base salary, provided, however, that in connection with a
termination by the Company other than for cause following a Sale Event (as
defined below), such severance pay will be equal to Mr. Rittenberg's annual base
salary multiplied by the number of years the Company elects as the Restriction
Period (as defined below) in connection with the non-competition provisions.
Upon termination of Mr. Rittenberg's employment by the Company for cause, death,
disability or if he terminates his employment, Mr. Rittenberg will be entitled
to his unpaid Accrued Obligations. Additionally, upon termination of Mr.
Rittenberg's employment during the current term or any additional term (1) by
the Company other than for cause or (2) by reason of his death or disability, or
if the current term or any additional term is not renewed at its expiration
(other than for cause), the Rittenberg Employment Agreement provides for payment
of a prorated portion of the bonus to which Mr. Rittenberg would otherwise have
been entitled.



                                       27
<PAGE>



         The Rittenberg Employment Agreement also provides that during his
current term, any additional term and during the three-year period following any
termination of his employment (the "Restriction Period"), Mr. Rittenberg shall
not participate in or permit his name to be used or become associated with any
person or entity that is or intends to be engaged in any business which is in
competition with the business of the Company, or any of its subsidiaries or
controlled affiliates, in any country in which the Company or any of its
subsidiaries or controlled affiliates operate, compete or are engaged in such
business or at such time intend to so operate, compete or become engaged in such
business (a "Competitor"), provided, however, that if Mr. Rittenberg's
employment is terminated by the Company other than for cause following a Sale
Event, the Restriction Period will be instead a one, two or three-year period at
the election of the Company. For purposes of the Rittenberg Employment
Agreement, "Sale Event" means either (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")) that is a Competitor,
other than GSCP, of a majority of the outstanding voting stock of the Company or
(2) the sale or other disposition (other than by way of merger or consolidation)
of all or substantially all of the assets of the Company and its subsidiaries
taken as a whole to any person or group of persons that is a Competitor,
provided, however, that an underwritten initial public offering of shares of
Company Common Stock pursuant to a registration statement under the Securities
Act of 1933 (the "Securities Act") will not constitute a Sale Event. The
Rittenberg Employment Agreement also provides for certain other restrictions
during the Restriction Period in connection with (a) the solicitation of persons
or entities with business relationships with the Company and (b) inducing any
employee of the Company to terminate their employment or offering employment to
such persons, in each case subject to certain conditions.

         Pursuant to the Rittenberg Employment Agreement, Mr. Rittenberg
contributed to Confetti Acquisition, Inc. ("Confetti") immediately prior to the
Merger in 1997, 272,728 shares of Company Common Stock in exchange for 60.0
shares of Common Stock of Confetti ("Confetti Common Stock"), having an
aggregate value equal to approximately $4.5 million, which shares of Confetti
Common Stock were valued at the purchase price for which GSCP purchased common
shares of Confetti immediately prior to the Merger (the "New Purchase Price").
At the time of the Merger, such shares of Confetti Common Stock were converted
into 60.0 shares of the Company's Common Stock as the surviving company in the
Merger (as converted, the "Rollover Stock").

         Also pursuant to the Rittenberg Employment Agreement in 1997, Mr.
Rittenberg was granted New Options to purchase 16.648 shares of Company Common
Stock at $75,000 per share. Such New Options vest in equal annual installments
over a five-year period and are subject to forfeiture upon termination of Mr.
Rittenberg's employment if not vested and exercised within certain time periods
specified in the Option Documents. Unless sooner exercised or forfeited as
provided in the Option Documents, the New Options will expire on the tenth
anniversary in 2007.

         Mr. Rittenberg is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Rollover Stock or shares of Common
Stock acquired upon exercise of the New Options, except as provided in the
Stockholders' Agreement and the Option Documents, and the shares of Rollover
Stock and shares of Common Stock acquired upon exercise of the New Options are
subject to the terms of the Stockholders' Agreement.

         Employment Agreement with James M. Harrison. Under the Employment
Agreement between the Company and James M. Harrison dated August 10, 1997, as
amended, (the "Harrison Employment Agreement"), Mr. Harrison serves as President
of the Company for a term expiring December 31, 2004. During 2001, Mr. Harrison
received an annual base salary of $288,750, which will increase by 5% annually
during the term of the Harrison Employment Agreement. The Harrison Employment
Agreement contains provisions for additional terms, salary increases during
additional terms, non-discretionary and discretionary bonus payments, severance,
other benefits, definitions of cause and disability, and provisions for
non-competition and non-solicitation similar to those in the Rittenberg
Employment Agreement, with the exception of the provision for an election by the
Company of a one, two or three-year Restriction Period following a Sale Event.
Under the Harrison Employment



                                       28
<PAGE>

Agreement, the Restriction Period is fixed at three years and severance pay is
fixed at one year's annual base salary.

         Pursuant to the Harrison Employment Agreement, Mr. Harrison was granted
New Options to purchase 13.874 shares of Company Common Stock at $75,000 per
share. Such New Options were granted on terms similar to those granted pursuant
to the Rittenberg Employment Agreement.

         Additionally, under the Harrison Employment Agreement, Mr. Harrison
converted, as of the time of the Merger in 1997, his Company Stock Options to
purchase 50,000 shares of Company Common Stock into Rollover Options to purchase
2.394 shares of Company Common Stock. The Rollover Options have an exercise
price per share (the "Rollover Exercise Price") equal to $54,545. Mr. Harrison
also received at the time of the Merger a cash bonus equal to $176,041 in
connection therewith. The Rollover Options were granted pursuant to the Option
Documents and on the same terms as the New Options other than the exercise
price.

         Pursuant to the Harrison Employment Agreement, Mr. Harrison was granted
immediately prior to the Merger in 1997, 15.0 shares of Confetti Common Stock
(the "Restricted Stock"), having an aggregate value of $1,125,000, based on the
then new purchase price, which shares were converted in the Merger in 1997 into
15.0 shares of Company Common Stock. During the Stock Restricted Period (as
defined below), the Restricted Stock will be forfeitable and may not be sold,
assigned, transferred, pledged or otherwise encumbered by Mr. Harrison. For
purposes of the Harrison Employment Agreement, the "Stock Restricted Period"
means the period beginning on the date of grant of the Restricted Stock and
ending on the earliest of (i) the occurrence of an IPO (as such term is defined
in the Stockholders' Agreement); (ii) immediately prior to the consummation of a
transaction or series of transactions, approved by the Board of Directors,
pursuant to which a person, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, other than Goldman Sachs or any of its
affiliates, acquires a majority of the outstanding voting stock of the Company;
and (iii) the termination of Mr. Harrison's employment with the Company (1)
because of his death, (2) by the Company without cause, (3) by Mr. Harrison
because of the Company's material breach of its obligations under the Harrison
Employment Agreement, (4) by Mr. Harrison if the Company imposes on him duties
or work conditions materially burdensome to him which are inconsistent with his
prior duties and work conditions or (5) because of Mr. Harrison's disability;
provided, however, that the Stock Restricted Period ended with respect to 25% of
the shares of Restricted Stock on January 1, 1998, with respect to 8.34% of the
shares of Restricted Stock on January 1, 1999 and with respect to the remaining
66.66%, in three equal installments of 22.22% on June 30 of each of the years
2001 through 2003. Pursuant to the Harrison Employment Agreement, upon the
voluntary or involuntary termination of Mr. Harrison's employment during the
Stock Restricted Period for any reason other than a reason listed in clause
(iii) of the preceding sentence, all shares of Restricted Stock (with respect to
which the Stock Restricted Period has not then ended) will be forfeited and
returned to the Company without payment.

         Mr. Harrison is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of Restricted Stock
or shares of Company Common Stock acquired upon exercise of the New Options or
Rollover Options (in either case, "Option Shares"), except as provided in the
Stockholders' Agreement and the Option Documents, and the shares of Restricted
Stock and Option Shares will be subject to the terms of the Stockholders'
Agreement.

         Employment Agreement with Garry Kieves. Under the Employment Agreement
between the Company and Garry Kieves dated August 6, 1998, (the "Kieves
Employment Agreement"), Mr. Kieves is employed as a Senior Vice President of the
Company and President of Anagram for an initial term of three years at an annual
base salary of $250,000. The Kieves Employment Agreement automatically extends
for additional successive periods of one year each (each such period, an
"Additional Term") unless the Company or Mr Kieves gives notice of the intent
not to extend the employment period. Mr. Kieves' salary will increase by 5% at
the beginning of each Additional Term. The Kieves Employment Agreement contains
provisions for discretionary bonus payments, severance and other benefits, and
definitions of disability. The Kieves Employment Agreement also provides that
upon termination of employment he may not, for a period of three years, be
employed by, or associated in any manner with,



                                       29
<PAGE>


any business which is in competition with the Company. The Kieves Employment
Agreement may be terminated by the Company upon the permanent disability of Mr.
Kieves, or with or without cause.

         Pursuant to the terms of the Kieves Employment Agreement, Mr. Kieves
was granted New Options to purchase 6.648 shares of Company Common Stock for
$125,000 per share, on terms similar to those granted pursuant to the Rittenberg
Employment Agreement. Mr. Kieves will not be permitted to sell, assign,
transfer, pledge or otherwise encumber any New Options, shares of Common Stock
or Option Shares, except as provided in the Stockholders' Agreement and the
Option Documents and the shares of Common Stock and Option Shares are subject to
the terms of the Stockholders' Agreement.

         Employment Agreement with James F. Flanagan. Under the Employment
Agreement between the Company and James F. Flanagan dated July 1, 2001, as
amended, (the "Flanagan Employment Agreement"), Mr. Flanagan serves as an
Executive Vice President of the Company for a term expiring December 31, 2004.
For the period from July 5, 2001 to December 31, 2001, Mr. Flanagan received an
annual base salary of $175,000. For the remaining term of the agreement, Mr.
Flanagan will receive an annual salary of $250,000. Mr. Flanagan received a
signing bonus of $50,000 in July 2001 and will receive a year-end bonus of
$75,000 for the year ended December 31, 2001. During the term from January 1,
2002, to December 31, 2004, Mr. Flanagan will receive annual bonuses of
$125,000. The Flanagan Employment Agreement contains provisions for additional
terms, severance and other benefits, and definitions of cause and disability.
The Flanagan Employment Agreement also provides that upon termination of
employment he may not, for a period of one year, be employed by, or associated
in any manner with, any business that is in competition with the Company. The
Flanagan Employment Agreement may be terminated by the Company upon the
permanent disability of Mr. Flanagan or with or without cause.

         Pursuant to the terms of the Flanagan Employment Agreement, on July 16,
2001, Mr. Flanagan was granted New Options to purchase 2.5 shares of Company
Common Stock at $150,000 per share and, on January 1, 2002, he was granted
additional New Options to purchase 2.5 shares of Company Common Stock at
$155,000 per share, on terms similar to those granted pursuant to the Rittenberg
Employment Agreement. Mr. Flanagan will not be permitted to sell, assign,
transfer, pledge or otherwise encumber any New Options, shares of Common Stock
or Option Shares, except as provided in the Stockholders' Agreement and the
Option Documents, and the shares of Common Stock and Option Shares are subject
to the terms of the Stockholders' Agreement.

         In addition, pursuant to the terms of the Flanagan Employment
Agreement, Mr. Flanagan was granted 3.0 shares of Company Restricted Stock on
January 1, 2002, with an aggregate value of $465,000 based on the market value
per share on the date of grant. The Restricted Stock is granted under terms
similar to those granted pursuant to the Harrison Employment Agreement, with the
exception of the scheduled vesting provisions. The Restricted Stock granted to
Mr. Flanagan will vest in full on December 31, 2004, provided Mr. Flanagan is
employed by the Company on that date.

         Mr. Flanagan is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of Restricted Stock
or shares of Company Common Stock acquired upon exercise of the New Options,
except as provided in the Stockholders' Agreement and the Option Documents, and
the shares of Restricted Stock and Option Shares will be subject to the terms of
the Stockholders' Agreement.

AMSCAN HOLDINGS, INC. 1997 STOCK INCENTIVE PLAN

         In 1997, the Company adopted the Amscan Holdings, Inc. 1997 Stock
Incentive Plan (the "Stock Incentive Plan") under which the Company may grant
incentive awards in the form of shares of Company Common Stock ("Restricted
Stock Awards"), options to purchase shares of Company Common Stock ("Company
Stock Options") and stock appreciation rights ("Stock Appreciation Rights") to
certain directors, officers, employees and consultants ("Participants") of the
Company and its affiliates. The total number of shares of Company Common Stock
reserved and available for grant under the Stock Incentive Plan, as amended, is
150. A committee of the Company's board of directors



                                       30
<PAGE>



(the "Committee"), or the board itself in the absence of a Committee, is
authorized to make grants and various other decisions under the Stock Incentive
Plan. Unless otherwise determined by the Committee, any Participant granted an
award under the Stock Incentive Plan must become a party to, and agree to be
bound by, the Stockholders' Agreement.

         Company Stock Option awards under the Stock Incentive Plan may include
incentive stock options, nonqualified stock options, or both types of Company
Stock Options, in each case with or without Stock Appreciation Rights. Company
Stock Options are nontransferable (except under certain limited circumstances)
and, unless otherwise determined by the Committee, have a term of ten years.
Upon a Participant's death or when the Participant's employment with the Company
or the applicable affiliate of the Company is terminated for any reason, such
Participant's previously unvested Company Stock Options are forfeited and the
Participant or his or her legal representative may, within three months (if
termination of employment is for any reason other than death) or one year (in
the case of the Participant's death), exercise any previously vested Company
Stock Options. Stock Appreciation Rights may be granted in conjunction with all
or part of any Company Stock Option award, and are exercisable, subject to
certain limitations, only in connection with the exercise of the related Company
Stock Option. Upon termination or exercise of a Company Stock Option, any
related Stock Appreciation Rights terminate and are no longer exercisable. Stock
Appreciation Rights are transferable only with the related Company Stock
Options.

         Unless otherwise provided in the related award agreement or, if
applicable, the Stockholders' Agreement, immediately prior to certain change of
control transactions described in the Stock Incentive Plan, all outstanding
Company Stock Options and Stock Appreciation Rights will, subject to certain
limitations, become fully exercisable and vested and any restrictions and
deferral limitations applicable to any Restricted Stock Awards will lapse.

         The Stock Incentive Plan will terminate ten years after its effective
date; however, awards outstanding as of such date will not be affected or
impaired by such termination. The Company's board of directors and the Committee
has authority to amend the Stock Incentive Plan and awards granted thereunder,
subject to the terms of the Stock Incentive Plan.

COMPENSATION OF DIRECTORS

         The Company currently does not compensate its directors other than for
expense reimbursement.

STOCK PERFORMANCE GRAPH

         The Company Common Stock has not traded publicly since December 19,
1997. For this reason a graph indicating the relative performance of the Company
Common Stock price to other standard measures has not been included since it
would provide no meaningful information.

COMPENSATION COMMITTEE POLICIES

         During 2001, the compensation of executive officers of the Company,
with the exception of Mr. Flanagan, was paid pursuant to the terms of existing
employment agreements. The compensation to be paid to Mr. Flanagan pursuant to
the Flanagan Employment Agreement dated July 1, 2001 was based on competitive
salaries observed within the labor market.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         To the knowledge of the Company, no relationship of the type described
in Item 402(j)(3) of Regulation S-K existed during 2001 with respect to the
Company.





                                       31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information concerning ownership
of shares of Company Common Stock by: (i) persons who are known by the Company
to own beneficially more than 5% of the outstanding shares of Company Common
Stock; (ii) each director of the Company; (iii) each executive officer of the
Company named in the Summary Compensation table; and (iv) all directors and
executive officers named in the Summary Compensation table of the Company as a
group.


<TABLE>
<CAPTION>
                                                    SHARES OF COMPANY             PERCENTAGE
                                                       COMMON STOCK                OF CLASS
NAME OF BENEFICIAL OWNER                            BENEFICIALLY OWNED          OUTSTANDING(a)
------------------------                            ------------------          --------------
<S>                                                       <C>                       <C>
Gerald C. Rittenberg(b)........................           73.318                     5.9%
James M. Harrison(c)...........................           28.014                     2.2
James F. Flanagan(d)...........................            3.000                     0.2
Garry Kieves, Garry Kieves Retained
  Annuity Trust and Garry Kieves
  Irrevocable Trust, in aggregate(e)...........          133.989                    10.7
Terence M. O'Toole(f)..........................             --                       --
Sanjeev K. Mehra(g)............................             --                       --
Joseph P. DiSabato(h)..........................             --                       --
Estate of John A. Svenningsen..................          100.000                     8.1
  c/o Kurzman & Eisenberg LLP
  One North Broadway, Suite 1004
  White Plains, New York 10601
American Greetings Corporation(i)..............           96.774                     7.8
The Goldman Sachs Group, Inc.
  and affiliates(j)............................          865.000                    67.9
  85 Broad Street
  New York, New York 10004
All directors, and executive officers
  as a group (7 persons)(k)....................          238.321                    18.7
</TABLE>


(a)      The amounts and percentage of Company Common Stock beneficially owned
         are reported on the basis of regulations of the Commission governing
         the determination of beneficial ownership of securities. Under the
         rules of the Commission, a person is deemed to be a "beneficial owner"
         of a security if that person has or shares "voting power," which
         includes the power to vote or to direct the voting of such security, or
         "investment power," which includes the power to dispose of or to direct
         the disposition of such security. A person is also deemed to be a
         beneficial owner of any securities of which that person has a right to
         acquire beneficial ownership within 60 days. Under these rules, more
         than one person may be deemed a beneficial owner of the same securities
         and a person may be deemed to be a beneficial owner of securities as to
         which he has no economic interest.

(b)      Includes 13.318 shares which could be acquired by Mr. Rittenberg within
         60 days upon exercise of options.

(c)      Includes 13.014 shares which could be acquired by Mr. Harrison within
         60 days upon exercise of options.

(d)      On July 16, 2001, Mr. Flanagan was granted New Options to purchase 2.5
         shares of Company Common Stock at $150,000 per share and, on January 1,
         2002 he was granted additional New Options to purchase 2.5 shares of
         Company Common Stock at $155,000 per share. None of the options is
         currently exercisable. In addition, on January 1, 2002, Mr. Flanagan
         was granted 3.0 shares of Restricted Stock.

(e)      Includes 3.989 shares which could be acquired by Mr. Kieves within 60
         days upon exercise of options and 10 shares that could be acquired upon
         exercise of warrants.




                                       32
<PAGE>


(f)      Mr. O'Toole, who is a Managing Director of Goldman Sachs, disclaims
         beneficial ownership of the shares of Company Common Stock that are
         owned by The Goldman Sachs Group, Inc. and its affiliates, except to
         the extent of his pecuniary interest therein, if any.

(g)      Mr. Mehra, who is a Managing Director of Goldman Sachs, disclaims
         beneficial ownership of the shares of Company Common Stock that are
         owned by The Goldman Sachs Group, Inc. and its affiliates, except to
         the extent of his pecuniary interest therein, if any.

(h)      Mr. DiSabato, who is a Managing Director of Goldman Sachs, disclaims
         beneficial ownership of the shares of Company Common Stock that are
         owned by The Goldman Sachs Group, Inc. and its affiliates, except to
         the extent of his pecuniary interest therein, if any.

(i)      On February 19, 2002, the Company issued 96.774 shares of its Common
         Stock, at a value of $155,000 per share, to American Greetings
         Corporation in connection with the acquisition of M&D Balloon Inc.

(j)      The Goldman Sachs Group, Inc. may be deemed to own beneficially and
         indirectly in the aggregate 825.0 shares of Company Common Stock and
         40.0 shares of Series A Redeemable Convertible Preferred Stock through
         the investment partnerships GS Capital Partners II, L.P. (which owns
         approximately 517.6 shares of Company Common Stock and 25.1 shares of
         Series A Redeemable Convertible Preferred Stock), GS Capital Partners
         II Offshore, L.P. (which owns approximately 205.8 shares of Company
         Common Stock and 9.976 shares of Series A Redeemable Convertible
         Preferred Stock), Goldman Sachs & Co. Verwaltungs GmbH as nominee for
         GS Capital Partners II (Germany) C.L.P. (which owns approximately 19.1
         shares of Company Common Stock and 0.924 shares of Series A Redeemable
         Convertible Preferred Stock), Stone Street Fund 1997, L.P. (which owns
         approximately 55.5 shares of Company Common Stock and 2.692 shares of
         Series A Redeemable Convertible Preferred Stock) and Bridge Street Fund
         1997, L.P. (which owns approximately 27.0 shares of Company Common
         Stock and 1.308 shares of Series A Redeemable Convertible Preferred
         Stock) (collectively the "Limited Partnerships"), of each of which
         affiliates of The Goldman Sachs Group, Inc. are the general partner or
         managing general partner. Each share of Series A Redeemable Convertible
         Preferred Stock is convertible at any time at the option of the holder
         into one share of Company Common Stock. The Goldman Sachs Group, Inc.
         disclaims beneficial ownership of the shares reported herein as
         beneficially owned by the Limited Partnerships except to the extent of
         its pecuniary interest therein. The Limited Partnerships share voting
         and investment power with The Goldman Sachs Group, Inc.

(k)      Includes 30.321 shares which could be acquired by the executive
         officers within 60 days upon exercise of options and 10 shares which
         could be acquired by Mr. Kieves upon exercise of warrants.

STOCKHOLDERS' AGREEMENT

         As of December 19, 1997, the Company entered into the Stockholders'
Agreement with GSCP and the Estate and certain employees of the Company listed
as parties thereto (including the Estate, the "Non-GSCPInvestors"). The
Stockholders' Agreement was subsequently amended in connection with the
Company's acquisitions of Anagram in 1998 and M&D in 2002 and the issuance of
Series A Redeemable Convertible Preferred Stock in 2001. The following
discussion summarizes the terms of the Stockholders' Agreement which the
Company believes are material to an investor in the debt or equity securities
of the Company. This summary is qualified in its entirety by reference to the
full text of the Stockholders' Agreement, a copy of which is filed with the
Commission, and which is incorporated herein by reference. The Stockholders'
Agreement provides, among other things, for (i) the right of the Non-GSCP
Investors to participate in, and the right of GSCP to require the Non-GSCP
Investors to participate in, certain sales of Company Common Stock by GSCP,
(ii) prior to an initial public offering of the stock of the Company (as
defined in the Stockholders' Agreement), certain rights of the Company to
purchase, and certain rights of the Non-GSCP Investors (other than the Estate)
to require the Company to purchase (except in the case of termination of
employment by such Non-GSCP Investors) all,



                                       33
<PAGE>



but not less than all, of the shares of Company Common Stock owned by a Non-GSCP
Investor (other than the Estate) upon the termination of employment or death of
such Non-GSCP Investor, at prices determined in accordance with the
Stockholders' Agreement and (iii) certain additional restrictions on the rights
of the Non-GSCP Investors to transfer shares of Company Common Stock. The
Stockholders' Agreement also contains certain provisions granting GSCP and the
Non-GSCP Investors certain rights in connection with registrations of Company
Common Stock in certain offerings and provides for indemnification and certain
other rights, restrictions and obligations in connection with such
registrations. The Stockholders' Agreement will terminate (i) with respect to
the rights and obligations of and restrictions on GSCP and the Non-GSCP
Investors in connection with certain restrictions on the transfer of shares of
Company Common Stock, when GSCP and its affiliates no longer hold at least 40%
of the outstanding shares of Company Common Stock, on a fully diluted basis;
provided that the Stockholders' Agreement will terminate in such respect in any
event if the Company enters into certain transactions resulting in GSCP, its
affiliates, the Non-GSCP Investors, and each of their respective permitted
transferees, owning less than a majority of the outstanding voting power of the
entity surviving such transaction; and (ii) with respect to the registration of
Company Common Stock in certain offerings, with certain exceptions, on the
earlier of (1) the date on which there are no longer any registrable securities
outstanding (as determined under the Stockholders' Agreement) and (2) the
twentieth anniversary of the Stockholders' Agreement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On September 30, 1998, Amscan entered into a three year interest rate
swap contract with GSCM for a notional amount of $35,000,000 at an interest rate
of 4.808% plus a spread based on certain defined ratios. On September 17, 1999,
Amscan entered into a two year interest rate swap contract with GSCM for a
notional amount of $31,000,000 at an interest rate of 6.424% plus a spread based
on certain defined ratios. Net settlements paid to GSCM under the swap contracts
for the year ended December 31, 2001 totaled $252,000. At December 31, 2001,
Amscan had no interest rate swap contracts outstanding with GSCM.

         On October 1, 1999, Amscan granted a $1.0 million line of credit to Mr.
Rittenberg. During 2001, the line of credit was increased to $1.4 million.
Amounts borrowed under the line are evidenced by a limited recourse secured
promissory note, secured by a lien on the equity interests that Mr. Rittenberg
has in Amscan. The line expires on June 15, 2004. The note requires that all
principal payments be made only from the equity pledged as collateral. Amounts
borrowed under the line bear interest at 6.0% per annum, with interest payable
annually. At December 31, 2001, borrowings under this line totaled $1.4 million.

         On June 15, 2001, the Company entered into a limited recourse secured
promissory note with Mr. Harrison. The note evidences loans made or to be made
to Mr. Harrison at his request, in connection with the payment of any federal,
state or local income taxes due and payable by Mr. Harrison upon and in respect
of the vesting of his Restricted Stock (see "Item 11. Executive Compensation").
The Company's obligation to extend loans under the note is limited to the amount
of such taxes Mr. Harrison is actually required to pay subsequent to June 15
2001. Amounts borrowed under the note and any interest thereon are secured by a
lien on the equity interests that Mr. Harrison has in Amscan. The note bears
interest at 5.43% per annum and is payable, together with interest, on January
1, 2010. The note requires that all payments of principal and interest due there
under be made only from the equity pledged as collateral. At December 31, 2001,
the amount borrowed under the note totaled $176,563.

         Under the agreement providing for the Merger in 1997, Amscan has agreed
to indemnify for six years after the Merger all former directors, officers,
employees and agents of the Company, to the fullest extent currently provided in
the Company's Certificate of Incorporation and By-laws consistent with
applicable law, for acts or omissions occurring prior to the Merger to the
extent such acts or omissions are uninsured and will, subject to certain
limitations, maintain for six years its prior directors' and officers' liability
insurance.


                                       34
<PAGE>


         During the first quarter of 2001, 100 shares of the authorized shares
of preferred stock, $0.10 par value, were designated as Series A Redeemable
Convertible Preferred Stock. On March 30, 2001, the Company issued 40 shares of
Series A Redeemable Convertible Preferred Stock for proceeds of $6.0 million, to
Goldman Sachs and its affiliates.

         Goldman Sachs and its affiliates have certain interests in the Company.
Messrs. O'Toole, Mehra and DiSabato are Managing Directors of Goldman Sachs, and
each of them is a director of the Company. GSCP currently owns beneficially
approximately 67.9% of the outstanding shares of Company Common Stock.
Accordingly, the general and managing partners of each of the GSCP Fund
Partners, which are affiliates of Goldman Sachs and The Goldman Sachs Group,
Inc. may each be deemed to be an "affiliate" of GSCP and the Company. See
"Ownership of Capital Stock." Pursuant to the Stockholder's Agreement, Goldman
Sachs has the exclusive right (if it so elects) to perform certain investment
banking and similar services for the Company on customary terms. Goldman Sachs
may from time to time receive customary fees for services rendered to the
Company.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this report:

              1. and 2. Financial Statements and Schedule.

                  See Index to Consolidated Financial Statements and Financial
                  Statement Schedule which appears on page F-1 herein.

              3.  Exhibits

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>      <C>
2(a)     Agreement and Plan Merger, by and among Amscan Holdings, Inc. and
         Confetti Acquisition, Inc., dated as of August 10, 1997 (incorporated
         by reference to Exhibit 2.1 to the Registrant's Registration Statement
         on Form S-4 (Registration No. 333-45457))

2(b)     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 Current Report on Form 8-K
         dated August 6, 1998 (Commission File No. 000-21827))

3(a)     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(b)     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(c)     Amended Articles of Incorporation of Anagram International, Inc.
         (incorporated by reference to Exhibit 3.1 to the Registrant's Current
         Report on Form 8-K dated September 17, 1998 (Commission File No.
         000-21827))
</TABLE>



                                       35
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>      <C>
3(d)     By-laws of Anagram International, Inc. (incorporated by reference to
         Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated
         September 17, 1998 (Commission File No. 000-21827))

3(e)     Articles of Incorporation of Anagram International Holdings, Inc.
         (incorporated by reference to Exhibit 3.3 to the Registrant's Current
         Report on Form 8-K dated September 17, 1998 (Commission File No.
         000-21827))

3(f)     By-laws of Anagram International Holdings, Inc. (incorporated by
         reference to Exhibit 3.4 to the Registrant's Current Report on Form 8-K
         dated September 17, 1998 (Commission File No. 000-21827))

3(g)     Articles of Organization of Anagram International, LLC (incorporated by
         reference to Exhibit 3.5 to the Registrant's Current Report on Form 8-K
         dated September 17, 1998 (Commission File No. 000-21827))

3(h)     Operating Agreement of Anagram International, LLC (incorporated by
         reference to Exhibit 3.6 to the Registrant's Current Report on Form 8-K
         dated September 17, 1998 (Commission File No. 000-21827))

3(i)     Certificate of Formation of Anagram Eden Prairie Property Holdings LLC
         (incorporated by reference to Exhibit 3.7 to the Registrant's Current
         Report on Form 8-K dated September 17, 1998 (Commission File No.
         000-21827))

4(a)     Indenture, dated as of December 19, 1997, by and among the Company, the
         Guarantors named therein and IBJ Schroder Bank & Trust Company with
         respect to the Senior Subordinated Notes (incorporated by reference to
         Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
         (Registration No. 333-45457))

4(b)     Supplemental Indenture, dated as of September 17, 1998, by and among
         Anagram International, Inc., Anagram International Holdings, Inc.,
         Anagram International, LLC, Anagram Eden Prairie Property Holdings LLC
         and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by
         reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
         dated September 17, 1998 (Commission File No. 000-21827))

4(c)     Warrant Agreement, dated as of August 6, 1998, by and between Amscan
         Holdings, Inc. and Garry Kieves Retained Annuity Trust (incorporated by
         reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
         dated August 6, 1998 (Commission File No. 000-21827))

4(d)     Senior Subordinated Guarantee, dated as of September 17, 1998, by
         Anagram International, Inc., Anagram International Holdings, Inc.,
         Anagram International, LLC, and Anagram Eden Prairie Property Holdings
         LLC (incorporated by reference to Exhibit 4.2 to the Registrant's
         Current Report on Form 8-K dated September 17, 1998 (Commission File
         No. 000-21827))

4(e)     Amended and Restated Revolving Loan Credit Agreement, dated as of
         September 17, 1998, by and among the Registrant, the financial
         institutions parties thereto, Goldman, Sachs Credit Partners L.P., as
         arranger and syndication agent, and Fleet National Bank, as
         administrative agent (incorporated by reference to Exhibit 10.1 to the
         Registrant's Current Report on Form 8-K dated September 17, 1998
         (Commission File No. 000-21827))

4(f)     Amended and Restated AXEL Credit Agreement, dated as of September 17,
         1998, by and among the Registrant, the financial institutions parties
         thereto, Goldman,
</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>      <C>
         Sachs Credit Partners L.P., as arranger and syndication agent, and
         Fleet National Bank, as administrative agent (incorporated by reference
         to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
         September 17, 1998 (Commission File No. 000-21827))

4(g)     Second Amendment and Limited Waiver to Amended and Restated Revolving
         Loan Credit Agreement, dated as of September 19, 2000, by and among the
         Registrant, the financial institutions parties thereto, Goldman, Sachs
         Credit Partners L.P., as arranger and syndication agent, and Fleet
         National Bank, as administrative agent (incorporated by reference to
         Exhibit 4(a) to the Registrant's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 2000 (Commission File No. 000-21827)).

4(h)     First Amendment and Limited Waiver to Amended and Restated AXEL Credit
         Agreement, dated as of September 19, 2000, by and among the Registrant,
         the financial institutions parties thereto, Goldman, Sachs Credit
         Partners L.P., as arranger and syndication agent, and Fleet National
         Bank, as administrative agent (incorporated by reference to Exhibit
         4(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 2000 (Commission File No. 000-21827)).

9        Voting Agreement, dated August 10, 1997 among Confetti Acquisition,
         Inc., the Estate of John A. Svenningsen and Christine Svenningsen
         (incorporated by reference to Exhibit 2.2 to the Registrant's
         Registration Statement on Form S-4 (Registration No. 333-45457))

10(a)    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(b)    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(c)    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(d)    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(e)    Exchange and Registration Agreement, dated as of December 19, 1997, by
         and among the Company and Goldman, Sachs & Co. (incorporated by
         reference to Exhibit 10.1 to the Registrant's Registration Statement on
         Form S-4 (Registration No. 333-45457))

10(f)    Stockholders' Agreement, dated as of December 19, 1997, by and among
         the Company and the Stockholders thereto (incorporated by reference to
         Exhibit 10.4 to the Registrant's Registration Statement on Form S-4
         (Registration No. 333-45457))
</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                            Description
-------                           -----------
<S>      <C>
10(g)    Employment Agreement, dated as of August 10, 1997, by and among the
         Company and Gerald C. Rittenberg (incorporated by reference to Exhibit
         10.5 to the Registrant's Registration Statement on Form S-4
         (Registration No. 333-45457))

10(h)    Employment Agreement, dated as of August 10, 1997, by and among the
         Company and James M. Harrison (incorporated by reference to Exhibit
         10.6 to the Registrant's Registration Statement on Form S-4
         (Registration No. 333-45457))

10(i)    Amendment dated December 1, 1999 to the Employment Agreement between
         Amscan Holdings, Inc. and James M. Harrison (incorporated by reference
         to Exhibit 10.15 to Post-Effective Amendment No. 3 to the Registrant's
         Registration Statement on Form S-4 (Registration No. 333-45457))

10(j)    Amscan Holdings, Inc. 1997 Stock Incentive Plan (incorporated by
         reference to Exhibit 10.7 Registrant's Registration Statement on Form
         S-4 (Registration No. 333-45457))

10(k)    Amendment No. 1 to the Stockholders' Agreement, dated as of August 6,
         1998 by and among Amscan Holdings, Inc. and certain stockholders of
         Amscan Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the
         Registrant's Current Report on Form 8-K dated August 6, 1998
         (Commission File No. 000-21827))

10(l)    Employment Agreement, dated as of August 6, 1998, by and among the
         Company and Garry Kieves (incorporated by reference to Exhibit 99.1 to
         the Regsitrant's Current Report on Form 8-K dated August 6, 1998
         (Commission File No. 000-21827))

10(m)    Line of Credit Agreement, dated October 1, 1999, by and among the
         Company and Gerald C. Rittenberg (incorporated by reference to Exhibit
         10(m) to the Registrant's Annual Report on Form 10-K for the year ended
         December 31, 1999 (Commission File No. 000-21827))

10(n)    Agreement dated as of September 14, 2000 by and between Amscan, Inc.
         and CLAYCO Construction Company, Inc. (incorporated by reference to
         Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 2000 (Commission File No. 000-21827))

10(o)    Amendment No. 2 to the Stockholders' Agreement, dated as of March 30,
         2001 by and among Amscan Holdings, Inc. and certain stockholders of
         Amscan Holdings, Inc. (incorporated by reference to Exhibit 10(a) to
         the Registrant's Annual Report on Form 10-K for the year ended
         December 31,2000 (Commission File No. 000-21827))

10(p)    Employment Agreement, dated January 1, 2002, by and among the Company
         and James F. Flanagan.

12       Statement re: computation of ratio of earnings to fixed charges

21       Subsidiaries of the Registrant (incorporated by reference to Exhibit
         21.1 to Post- Effective Amendment No. 2 to the Registrant's
         Registration Statement on Form S-4 (Registration No. 333-45457))

23.1     Consent of Ernst & Young LLP
</TABLE>

(b) Reports on Form 8-K.
      Not applicable.





                                       38
<PAGE>
                                  SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                                                  AMSCAN HOLDINGS, INC.

                                                  By: /s/ James M. Harrison
                                                      ---------------------
                                                      James M. Harrison

Date: March 28, 2002

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
             Signature                      Title                            Date
             ---------                      -----                            -----
<S>                             <C>                                         <C>
/s/ Terence M. O'Toole          Chairman of the Board of                    March 28, 2002
----------------------          Directors
Terence M. O'Toole


/s/ Sanjeev K. Mehra            Director                                    March 28, 2002
--------------------
Sanjeev K. Mehra


/s/ Joseph P. DiSabato          Director                                    March 28, 2002
----------------------
Joseph P. DiSabato


/s/ Gerald C. Rittenberg        Chief Executive Officer and                 March 28, 2002
------------------------        Director
Gerald C. Rittenberg


/s/ James M. Harrison           President, Chief Financial Officer,         March 28, 2002
---------------------           Treasurer and Director
James M. Harrison               (principal financial officer)



/s/ Michael A. Correale         Vice President                              March 28, 2002
-----------------------         (principal accounting officer)
Michael A. Correale
</TABLE>

                                       39
<PAGE>


                                    FORM 10-K
                           ITEM 8, ITEM 14(a) 1 AND 2


                              AMSCAN HOLDINGS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE
                          YEAR ENDED DECEMBER 31, 2001



Consolidated Financial Statements as of December 31, 2001 and 2000 and for each
of the years in the three-year period ended December 31, 2001:

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Auditors............................................  F-2

Consolidated Balance Sheets...............................................  F-3

Consolidated Statements of Income.........................................  F-4

Consolidated Statements of Stockholders' Deficit..........................  F-5

Consolidated Statements of Cash Flows.....................................  F-6

Notes to Consolidated Financial Statements................................  F-7



Financial Statement Schedule for the three years ended December 31, 2001:


Schedule II - Valuation and Qualifying Accounts...........................  F-33
</TABLE>




All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.




                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To The Board of Directors and Stockholders
Amscan Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Amscan Holdings,
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of income, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amscan Holdings,
Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.




Stamford, Connecticut
March 14, 2002                                   /s/ ERNST & YOUNG LLP




                                      F-2
<PAGE>


                              AMSCAN HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                     ----------------------
                                                                                       2001          2000
                                                                                     --------      --------

<S>                                                                                  <C>           <C>
                                             ASSETS
Current assets:
  Cash and cash equivalents.....................................................     $  1,016      $  1,469
  Accounts receivable, net of allowances of $3,937 and $5,246, respectively.....       65,039        62,678
  Inventories...................................................................       72,582        71,539
  Prepaid expenses and other current assets.....................................       13,659         9,272
                                                                                     --------      --------
      Total current assets......................................................      152,296       144,958
Property, plant and equipment, net..............................................       94,589        69,198
Intangible assets, net..........................................................       55,985        59,360
Other assets, net...............................................................        7,604         7,111
                                                                                     --------      --------
      Total assets..............................................................     $310,474      $280,627
                                                                                     ========      ========

              LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK AND
                                 STOCKHOLDERS' DEFICIT

Current liabilities:
  Loans and notes payable.......................................................     $    700      $ 10,335
  Accounts payable..............................................................       33,083        28,820
  Accrued expenses..............................................................       16,047        17,091
  Income taxes payable..........................................................        2,298         1,198
  Current portion of long-term obligations......................................        3,455         3,754
                                                                                     --------      --------
      Total current liabilities.................................................       55,583        61,198
Long-term obligations, excluding current portion................................      278,443       261,815
Deferred income tax liabilities.................................................       15,181        13,314
Other...........................................................................        2,353         2,413
                                                                                     --------      --------
      Total liabilities.........................................................      351,560       338,740

Redeemable convertible preferred stock..........................................        6,270
Redeemable Common Stock.........................................................       29,949        28,768

Commitments and Contingencies

Stockholders' deficit:
  Common Stock..................................................................            -         -
  Additional paid-in capital....................................................          299           233
  Unamortized restricted Common Stock award, net................................          (94)         (354)
  Notes receivable from stockholders............................................         (601)         (548)
  Deficit ......................................................................      (74,016)      (83,867)
  Accumulated other comprehensive loss..........................................       (2,893)       (2,345)

                                                                                     --------      --------
      Total stockholders' deficit...............................................      (77,305)      (86,881)
                                                                                     --------      --------
      Total liabilities, redeemable convertible preferred and Common Stock
         and stockholders' deficit..............................................     $310,474      $280,627
                                                                                     ========      ========

</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>



                              AMSCAN HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                    FOR THE YEARS ENDED DECEMBER 31,
                                                                                ---------------------------------------
                                                                                  2001           2000            1999
                                                                                --------        --------       --------
<S>                                                                             <C>             <C>            <C>
Net sales..................................................................     $347,089        $325,548       $306,112
Cost of sales..............................................................      225,036         206,872        194,632
                                                                                --------        --------       --------
         Gross profit......................................................      122,053         118,676        111,480

Operating expenses:
   Selling expenses........................................................       33,320          30,642         24,455
   General and administrative expenses.....................................       33,317          31,958         30,694
   Provision for doubtful accounts.........................................        3,758           7,133          2,906
   Art and development costs...............................................        8,772           8,453          8,650
   Non-recurring charges...................................................                                         995
   Restructuring charges...................................................                          500
                                                                                --------        --------       --------
         Total operating expenses..........................................       79,167          78,686         67,700
                                                                                --------        --------       --------
         Income from operations............................................       42,886          39,990         43,780

Interest expense, net......................................................       24,069          26,355         26,365
Other expense, net.........................................................           24              96             35
                                                                                --------        --------       --------
Income before income taxes and minority interests..........................       18,793          13,539         17,380

Income tax expense.........................................................        7,423           5,348          7,100
Minority interests.........................................................           68              75             73
                                                                                --------        --------       --------
         Net income........................................................       11,302           8,116         10,207
         Dividend requirement on redeemable convertible
            preferred stock................................................         (270)
                                                                                --------        --------       --------
         Net income applicable to common shares............................     $ 11,032        $  8,116       $ 10,207
                                                                                ========        ========       ========
</TABLE>






          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>


                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          UNAMORTIZED
                                                           RESTRICTED      NOTES                     ACCUMULATED
                                             ADDITIONAL      COMMON       RECEIVABLE                    OTHER
                                    COMMON    PAID-IN     STOCK AWARD,       FROM                   COMPREHENSIVE
                                    STOCK     CAPITAL         NET        STOCKHOLDERS     DEFICIT       LOSS          TOTAL
                                    ------   ----------   ------------   ------------    --------   -------------     -----
<S>                                 <C>         <C>         <C>           <C>            <C>           <C>           <C>
Balance at December 31, 1998        $  -        $225         $(575)        $(718)        $(92,969)     $(1,250)      $(95,287)
  Net income.................... ..                                                        10,207                      10,207
  Net change in cumulative
    translation adjustment.........                                                                        362            362
                                                                                                                     --------
      Comprehensive income.........                                                                                    10,569
  Accretion in redeemable
      Common Stock.................                                                        (4,035)                     (4,035)
  Amortization of restricted
      Common Stock award...........                            170                                                        170
  Payments received on notes
      receivable from stockholders                                            54                                           54
                                    ------      ----         -----         -----         --------       -------      --------
Balance at December 31, 1999           -         225          (405)         (664)         (86,797)        (888)       (88,529)
  Net income.......................                                                         8,116                       8,116
  Net change in cumulative
    translation adjustment.........                                                                     (1,457)        (1,457)
                                                                                                                      --------
      Comprehensive income.........                                                                                     6,659
  Accretion in redeemable
      Common Stock and other.......                8                                       (5,186)                     (5,178)
  Amortization of restricted
      Common Stock award...........                             51                                                         51
  Payments received on notes
    receivable from stockholders                                             116                                          116
                                    ------      ----         -----         -----         --------       -------      --------
Balance at December 31, 2000.......    -         233          (354)         (548)         (83,867)      (2,345)       (86,881)
  Net income.......................                                                        11,302                      11,302
  Net change in cumulative
    translation adjustment.........                                                                       (434)          (434)
  Cumulative effect of a change in
    accounting  principle, net of
    taxes (see Notes 16 and 17)....                                                                       (227)          (227)
  Change in fair value of interest
    rate swaps and foreign
    exchange contracts, net of
      taxes (see Notes 16 and 17)                                                                          113            113
                                                                                                                       ------
        Comprehensive income.......                                                                                    10,754
  Accretion in redeemable
      Common Stock.................                                                        (1,181)                     (1,181)
  Redeemable convertible
      preferred stock dividends....                                                          (270)                       (270)
   Exercise of stock options.......               66                         (25)                                          41
   Payments received on notes
      receivable from  stockholders                                            9                                            9
   Other...........................                                          (37)                                         (37)
   Amortization of restricted
      Common Stock award...........                            260                                                        260
                                    ------      ----         -----         -----         --------      --------      --------
Balance at December 31, 2001....... $  -        $299         $ (94)        $(601)        $(74,016)    $ (2,893)      $(77,305)
                                    ======      ====         =====         =====         ========      ========      ========
</TABLE>



          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>


                              AMSCAN HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                                              ---------------------------------------
                                                                                2001            2000           1999
                                                                              --------       ---------       --------
<S>                                                                           <C>            <C>              <C>
Cash flows from operating activities:
  Net income..............................................................    $ 11,302       $   8,116       $ 10,207
    Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization.........................................      15,468          14,487         12,931
    Amortization of deferred financing costs..............................         998             902            870
    (Gain) loss on disposal of property and equipment.....................         (13)             (9)            86
    Provision for doubtful accounts.......................................       3,758           7,133          2,906
    Restructuring and other non-recurring charges.........................                         500            995
    Amortization of restricted Common Stock award.........................         260              51            170
    Deferred income tax provision.........................................       1,620           1,761          3,764
    Changes in operating assets and liabilities, net of acquisitions:
      Increase in accounts receivable.....................................      (6,162)        (12,895)       (14,297)
      Increase in inventories.............................................      (1,234)        (12,346)        (4,612)
      (Increase) decrease in prepaid expenses, other current assets
        and other, net....................................................      (5,141)          2,989         (2,164)
      Increase in accounts payable, accrued expenses
        and income taxes payable..........................................       4,443           8,569          8,579
                                                                               -------       ---------       --------
         Net cash provided by operating activities........................      25,299          19,258         19,435

Cash flows from investing activities:
  Capital expenditures....................................................     (37,479)        (18,576)       (11,632)
  Proceeds from disposal of property, plant and equipment.................          55             101            216
                                                                               -------       ---------       --------
         Net cash used in investing activities............................     (37,424)        (18,475)       (11,416)

Cash flows from financing activities:
  Proceeds from issuance of redeemable convertible preferred stock........       6,000
  Proceeds from the exercise of Common Stock options......................          41
  Proceeds from loans, notes payable and long-term obligations,
    net of debt issuance costs of $557 in 2001............................      19,443           5,647            450
  Repayment of loans, notes payable and long-term obligations.............     (13,495)         (4,884)        (9,242)
  Other...................................................................         (66)            103             25
                                                                               -------       ---------       --------
         Net cash provided by (used in) financing activities..............      11,923             866         (8,767)

Effect of exchange rate changes on cash...................................        (251)         (1,029)           480
                                                                               -------       ---------       --------
         Net (decrease) increase in cash and cash equivalents.............        (453)            620           (268)
Cash and cash equivalents at beginning of year............................       1,469             849          1,117
                                                                               -------       ---------       --------
Cash and cash equivalents at end of year..................................     $ 1,016        $  1,469       $    849
                                                                               =======       =========       ========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
         Interest.........................................................     $25,189        $ 26,047        $25,278
         Income taxes.....................................................     $ 6,020        $  5,352        $   950
</TABLE>


Supplemental information on non-cash activities (dollars in thousands):

Capital lease obligations of $144 and $651 were incurred in 2001 and 1999,
respectively. There were no capital lease obligations incurred in 2000.



          See accompanying notes to consolidated financial statements.



                                      F-6
<PAGE>


                              AMSCAN HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

         Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "AHI" or the "Company") was incorporated on October 3, 1996 for
the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities in connection with an initial public offering of its Common
Stock ("IPO"). The IPO involved the sale of 4,000,000 shares of the Company's
Common Stock at $12.00 per share on December 18, 1996. On January 8, 1997, an
additional 422,400 shares of Common Stock were sold at $12.00 per share to cover
the over-allotments as provided for in the underwriting agreement between the
Company and the underwriters associated with the IPO.

         On December 19, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into a merger pursuant to an
agreement (the "Merger Agreement") providing for a recapitalization of Amscan
Holdings in which Confetti was merged with and into Amscan Holdings (the
"Merger"), with Amscan Holdings as the surviving corporation. Pursuant to
certain employment arrangements, certain employees of the Company, at that time,
purchased an aggregate of 10 shares of Company Common Stock following the Merger
(see Note 12). The Merger was accounted for as a recapitalization and,
accordingly, the historical basis of the Company's assets and liabilities was
not impacted by the Merger.

         Amscan Holdings and its subsidiaries design, manufacture, contract for
manufacture and distribute party goods and accessories principally in North
America, South America, Europe, Asia and Australia.

Basis of Presentation

         The consolidated financial statements include the accounts of Amscan
Holdings and its subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

         Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

Inventories

         Substantially all inventories of the Company are valued at the lower of
cost (principally on the first-in, first-out method) or market.

Long-Lived Assets

         Property, plant and equipment are stated at cost. Machinery and
equipment under capital leases are stated at the present value of the minimum
lease payments at the inception of the lease. Depreciation is calculated
principally on the straight-line method over the estimated useful lives of the
assets. Machinery and equipment held under capital leases and leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or estimated useful life of the asset.

         Intangible assets of $55,985,000 and $59,360,000 at December 31, 2001
and 2000, respectively, are comprised principally of goodwill, net of
amortization. Goodwill represents the excess of the purchase price of acquired
companies over the estimated fair value of the net assets acquired. Goodwill is
being amortized on a straight-line basis over periods ranging from 25 to 30
years. Accumulated amortization was $13,202,000 and $9,898,000 at December 31,
2001 and 2000, respectively.


                                      F-7
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001



The Company systematically reviews the recoverability of its long-lived and
intangible assets by comparing the unamortized carrying value of such assets to
the related anticipated undiscounted future cash flows. Any impairment related
to long-lived assets is measured by reference to the assets' fair market value
and any impairment related to goodwill is measured against discounted cash
flows. Impairments are charged to expense when such determination is made.

Deferred Financing Costs

         Deferred financing costs (included in other assets) are amortized to
interest expense using the interest method over the lives of the related debt.

Revenue Recognition

         The Company recognizes revenue from product sales when the goods are
shipped to the customer. The Company records estimated reductions to revenue
for various customer incentive programs and allowances.

Shipping and Handling

         Outbound shipping and handling costs billed to customers are included
in revenue. The costs of shipping and handling incurred by the Company are
included in cost of sales.

Royalty Agreements

         Commitments for minimum payments under royalty agreements, a portion of
which may be paid in advance, are charged to expense ratably, based on the
Company's estimate of total sales of related products. If all or a portion of
the minimum guarantee subsequently appears not to be recoverable, the
unrecoverable portion is charged to expense at that time.

Catalogue Costs

         The Company expenses costs associated with the production of annual
catalogues when incurred.

Art and Development Costs

         Art and development costs are primarily internal costs that are not
easily associated with specific designs which may not reach commercial
production. Accordingly, the Company expenses these costs as incurred.

Derivative Financial Instruments

         The Company uses interest rate swap agreements and foreign currency
exchange contracts to manage and reduce risk to the Company from increases in
the interest rates on floating rate debt obligations and the effects of changes
in foreign exchange rates on certain foreign currency transactions (see Notes 16
and 17).

Income Taxes

         The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities and operating loss
and tax credit carryforwards applying enacted statutory tax rates in effect for
the year in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance when, in the judgment of management, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized.

Stock-Based Compensation

         The Company accounts for stock based awards in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 permits entities to recognize as expense, over the vesting period, the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 allows entities to apply the provisions of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," which
requires the recognition of compensation expense at the date of grant only if
the current market price of the underlying stock exceeds the exercise price, and
to provide pro forma net income disclosures for employee stock option grants as
if the fair-value-based method defined in SFAS No. 123 had been applied. The




                                      F-8
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001



Company has elected to apply the recognition provisions of APB No. 25 and has
provided the pro forma disclosures required by SFAS No. 123 (see Note 10).

Accumulated Other Comprehensive Loss

         Accumulated other comprehensive loss at December 31, 2001, 2000, and
1999 consisted of the Company's foreign currency translation adjustment and the
fair value of interest rate swap and foreign exchange contracts qualifying as
hedges (see Note 17).

Foreign Currency Transactions and Translation

         The functional currencies of the Company's foreign operations are the
local currencies in which they operate. Realized foreign currency exchange gains
or losses, which result from the settlement of receivables or payables in
currencies other than the functional currencies, are credited or charged to
operations. Unrealized gains or losses on foreign currency exchanges are
insignificant. The balance sheets of foreign subsidiaries are translated into
U.S. dollars at the exchange rates in effect on the balance sheet date. The
results of operations of foreign subsidiaries are translated into U.S. dollars
at the average exchange rates effective for the periods presented. The
differences from historical exchange rates are recorded as comprehensive income
(loss) and are included as a component of accumulated other comprehensive loss.

Concentration of Credit Risk

         While the Company's customers are geographically dispersed throughout
North America, South America, Europe, Asia and Australia, there is a
concentration of sales made to and accounts receivable from the stores that
operate in the party goods superstore channel of distribution. At December 31,
2001 and 2000, Party City Corporation ("Party City"), the Company's largest
customer with 470 corporate and franchise stores, accounted for 19% of
consolidated accounts receivable, net. For the years ended December 31, 2001,
2000, and 1999, sales to Party City's corporate stores represented 13%, 12% and
10% of consolidated net sales, respectively. For the years ended December 31,
2001, 2000, and 1999, sales to Party City's franchise stores represented 15%,
13% and 9% of consolidated net sales, respectively. No other group or
combination of customers subjected the Company to a concentration of credit
risk. Although the Company believes its relationships with Party City and its
franchisees are good, if they were to reduce their volume of purchases from the
Company significantly, the Company's financial condition and results of
operations could be materially adversely affected.

Use of Estimates

         The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Recently Issued Accounting Standards

         In June 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141," Business Combinations" which supersedes APB Opinion No.
16, Business Combinations." SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and modifies the application of
the purchase accounting method. SFAS No. 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported separately from goodwill. The elimination of the
pooling-of-interests method is effective for transactions initiated after June
30, 2001. The remaining provisions of SFAS No. 141 will be effective for
transactions accounted for using the purchase method that are completed after
June 30, 2001. Management does not anticipate the adoption of this statement
will have a significant effect on the Company's results of operations or
financial position.

         In June 2001, the FASB also issued SFAS No. 142, "Goodwill and
Intangible Assets" which supersedes APB Opinion No. 17, "Intangible Assets."
SFAS No. 142 eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
effective date. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
Application of the non-amortization




                                      F-9
<PAGE>

                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001



provisions of SFAS No. 142 is expected to result in an estimated increase in net
income of approximately $1.6 million for the year ended December 31, 2002.
During 2002, the Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which provides a single accounting
model for long-lived assets to be disposed of. Provisions outlined in this
statement supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and certain provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." These new rules significantly
change the criteria that would have to be met to classify an asset as
held-for-sale. This is significant as assets classified as held-for-sale are
stated at the lower of carrying value or fair value and depreciation is no
longer recognized. This statement will also allow for more dispositions to
qualify for discontinued operations treatment in the income statement.

         SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001. The provisions of this statement are
effective for disposal activities initiated by an entity's commitment to a plan
after the effective date of the statement. The Company will adopt this statement
effective January 1, 2002, as required. Management does not anticipate the
adoption of this statement will have a significant effect on the Company's
results of operations or financial position.

         In November 2001, the Emerging Issues Task Force (the "EITF") issued
EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF's 00-14,
00-22, and 00-25. EITF 01-09 will require the Company to reclassify certain
selling expenses as a reduction of revenues. These reclassifications will take
place in the first quarter of 2002 and prior periods will be reclassified. The
effect of these reclassifications on 2001 will be a decrease to sales and a
decrease in selling expenses of $1,600,000. These reclassifications will
decrease gross profit margin as a percentage of sales from 35.2% to 34.9% and
decrease operating expenses as a percentage of sales from 22.8% to 22.5% in
2001. These reclassifications will not impact net income.

         Other pronouncements issued by the FASB or other authoritative
accounting standards groups with future effective dates are either not
applicable or not significant to the financial statements of the Company.

NOTE 3 - INVENTORIES

         Inventories at December 31, 2001 and 2000 consisted of the following
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                            2001            2000
                                                                           -------         -------
     <S>                                                                   <C>             <C>
     Finished goods...................................................     $65,376         $61,680
     Raw materials....................................................       5,992           7,614
     Work-in process..................................................       4,520           4,677
                                                                           -------         -------
                                                                            75,888          73,971
     Less:  reserve for slow moving and obsolete inventory............      (3,306)         (2,432)
                                                                           -------         -------
                                                                           $72,582         $71,539
                                                                           =======         =======
</TABLE>




                                      F-10
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

         Major classifications of property, plant and equipment at December 31,
2001 and 2000 consisted of the following (dollars in thousands):


<TABLE>
<CAPTION>
                                                                                                  ESTIMATED
                                                                      2001            2000      USEFUL LIVES
                                                                    --------        --------    ------------
         <S>                                                        <C>             <C>            <C>
         Machinery and equipment..................................  $ 78,520        $ 69,909         3-15
         Buildings................................................    36,860          11,984        31-40
         Data processing equipment................................    21,701          20,985            5
         Leasehold improvements...................................     9,576           4,198         2-20
         Furniture and fixtures...................................     4,856           5,529           10
         Construction in progress.................................     1,113           2,976
         Land.....................................................     7,123           7,123
                                                                    --------        --------
                                                                     159,749         122,704
         Less: accumulated depreciation and amortization..........   (65,160)        (53,506)
                                                                    --------        --------
                                                                    $ 94,589        $ 69,198
                                                                    ========        ========
</TABLE>



         Depreciation and amortization expense was $12,164,000, $10,882,000 and
$9,271,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

         In October 2000, the Company purchased property for the construction of
a new domestic distribution facility for $4,872,000 and entered into a contract
for the design and construction of the new facility. At December 31, 2000, the
Company had incurred construction costs of $2,976,000. At December 31, 2001, the
construction of the new facility was completed at a cost of $24,752,000,
including $1,204,000 of capitalized interest costs. The Company expects the
facility to be fully operational in the latter half of 2002.

NOTE 5 - LOANS AND NOTES PAYABLE

         Loans and notes payable outstanding at December 31, 2001 and 2000
consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                          2001         2000
                                                                                         ------      -------
         <S>                                                                            <C>         <C>
         Revolving credit line with interest at the Eurodollar rate plus 2.00%
              (8.78%, at December 31, 2000)..........................................                $ 6,000
         Revolving credit line with interest at the prime rate plus 0.625% to 1.25%
              (weighted average rate of 5.38% and 10.43% at December 31, 2001
              and 2000, respectively)................................................    $ 700         4,335
                                                                                         -----       -------
                                                                                         $ 700       $10,335
                                                                                         =====       =======
</TABLE>


         On December 19, 1997, the Company entered into Bank Credit Facilities
(see Note 6) which include a $50,000,000 revolving credit facility (the
"Revolving Credit Facility"). The Revolving Credit Facility expires on December
31, 2002 and bears interest, at the option of the Company, at the lenders'
customary base rate plus, based on certain terms, a range of 0.625% to 1.50% per
annum or at the lenders' customary reserve adjusted Eurodollar rate plus, based
on certain terms, a range of 2.00% to 2.50% per annum. Interest on balances
outstanding under the Revolving Credit Facility is subject to adjustment in the
future based on the Company's performance. Amounts drawn on the Revolving Credit
Facility are also subject to an agreed upon borrowing base and periodic
reduction of outstanding balances. All borrowings under the Revolving Credit
Facility are guaranteed by the Company's domestic subsidiaries and are subject
to mandatory prepayments upon the occurrence of certain events (see Note 6). The
Company had outstanding standby letters of credit under the Revolving Credit
Facility of $6,321,000 and $4,946,000 at December 31, 2001 and 2000,
respectively.

         In October 2000, the Company amended and restated its Bank Credit
Facilities to provide for, among other things, the additional borrowings and
capital expenditures for the construction of the new domestic distribution
facility (see Note 4).



                                      F-11
<PAGE>


                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001


         In addition to the Revolving Credit Facility, the Company has a
$400,000 Canadian dollar denominated revolving credit facility which bears
interest at the Canadian prime rate and expires on June 15, 2002, a $1,000,000
British Pound Sterling denominated revolving credit facility which bears
interest at the U.K. base rate plus 1.75% and expires on June 1, 2002 and a
$1,000,000 revolving credit facility which bears interest at LIBOR plus 1.0% and
expires on January 31, 2003. No borrowings were outstanding under these
revolving credit facilities at December 31, 2001 and 2000.

         The weighted average interest rates on loans and notes payable
outstanding at December 31, 2001 and 2000 were 5.38% and 9.47%, respectively.

NOTE 6 - LONG-TERM OBLIGATIONS

         Long-term obligations at December 31, 2001 and 2000 consisted of the
following (dollars in thousands):


<TABLE>
<CAPTION>
                                                                                           2001              2000
                                                                                           ----              ----
         <S>                                                                            <C>               <C>
         Senior subordinated notes(a)...............................................    $110,000          $110,000
         Term loan(b)...............................................................     149,675           151,234
         Mortgage obligations(c)....................................................      21,628             2,222
         Notes payable(d)...........................................................         258               486
         Capital lease obligations(e)...............................................         337             1,627
                                                                                        --------          --------
              Total long-term obligations...........................................     281,898           265,569
         Less: current portion......................................................      (3,455)           (3,754)
                                                                                        --------          --------
         Long-term obligations, excluding current portion............................   $278,443          $261,815
                                                                                        ========          ========
</TABLE>



         On December 19, 1997, the Company issued $110,000,000 aggregate
principal amount of 9 7/8% senior subordinated notes due in 2007 (the "Notes")
and entered into bank credit agreements (the "Bank Credit Facilities") providing
for borrowings in the aggregate principal amount of approximately $117,000,000
under a term loan (the "Term Loan") and revolving loan borrowings of up to
$50,000,000 under the Revolving Credit Facility (see Note 5) (collectively, the
"Financings"). The Company is required to make prepayments on the Bank Credit
Facilities under certain circumstances, including upon certain asset sales and
issuance of debt or equity securities, subject to certain exceptions. Such
mandatory prepayments will be applied to prepay the Term Loan first (on a pro
rata basis) and thereafter to prepay the Revolving Credit Facility and to reduce
the commitments thereunder. The Company may prepay, in whole or in part,
borrowings under the Term Loan. During the first quarter of 2000, the Company
prepaid $1,300,000 on the Term Loan, as required based on its cash flows for the
year ended December 31, 1999. Call protection provisions apply to certain
mandatory prepayments of borrowings under the Term Loan. The Company may prepay
borrowings under or reduce commitments for the Revolving Credit Facility, in
whole or in part, without penalty. The Bank Credit Facilities are guaranteed by
the Company's domestic subsidiaries (the "Guarantors") (see Note 19). Subject to
certain exceptions, all extensions of credit to the Company and all guarantees
are secured by all existing and after-acquired personal property of the Company
and the Guarantors, including, subject to certain exceptions, a pledge of all of
the stock of all subsidiaries owned by the Company or any of the Guarantors and
first priority liens on after-acquired real property and leasehold interests of
the Company and the Guarantors. The guarantees are joint and several guarantees,
irrevocable and full and unconditional, limited to the largest amount that would
not render such guarantee obligations under the guarantee subject to avoidance
under any applicable federal or state fraudulent conveyance or similar law. The
Company has amended and restated its credit agreements to provide for, among
other things, the additional borrowings and capital expenditures for the
construction of the new domestic distribution facility (see Note 4).

(a)  The Notes bear interest at a rate equal to 9 7/8% per annum. Interest is
     payable semi-annually on June 15 and December 15 of each year. The Notes
     are redeemable at the option of the Company, in whole or in part, at any
     time on or after December 15, 2002, at redemption prices ranging from
     104.937% to 100%, plus accrued and unpaid interest to the date of
     redemption. In addition, at any time on or prior to December 15, 2002, the
     Notes may also be redeemed as a whole but not in part at the option of the
     Company upon the occurrence of a Change of Control, as defined in the note
     indenture, at a redemption price equal to 100% of the principal amount
     thereof plus the Applicable Premium, as defined in the note indenture,
     together with accrued and unpaid interest, if any, to the





                                      F-12
<PAGE>



                              AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2001



      date of redemption. If the Company does not redeem the Notes upon a Change
      of Control, the Company will be obligated to make an offer to purchase the
      Notes, in whole or in part, at a price equal to 101% of the aggregate
      principal amount of the Notes, plus accrued and unpaid interest, if any,
      to the date of purchase. If a Change of Control were to occur, the Company
      may not have the financial resources to repay all of its obligations under
      the Bank Credit Facilities, the note indenture and the other indebtedness
      that would become payable upon the occurrence of such Change of Control.

(b)   The Term Loan matures in December 2004 and provides for amortization (in
      quarterly installments) of one percent of the principal amount thereof per
      year for the first five years and 32.3% and 62.7% of the principal amount
      thereof in the sixth and seventh years, respectively. The Term Loan bears
      interest, at the option of the Company, at the lenders' customary base
      rate plus 1.625% per annum or at the lenders' customary reserve adjusted
      Eurodollar rate plus 2.625% per annum. At December 31, 2001 and 2000, the
      floating interest rate on the Term Loan was 4.56% and 9.28%, respectively.
      The Company was involved in three interest rate swap transactions with
      Goldman Sachs Capital Markets, L.P. ("GSCM") and a financial institution
      covering a portion of the outstanding borrowings under the Term Loan all
      of which have expired in 2001. The interest rate swap contracts required
      the Company to settle the difference in interest obligations quarterly.
      Net payments (receipts) to (from) the counterparty under the swap
      contracts for the years ended December 31, 2001, 2000 and 1999,
      respectively, which have been recorded as (reduction of) additional
      interest expense, were as follows (dollars in thousands):



<TABLE>
<CAPTION>
                                                                                  (REDUCTION OF) ADDITIONAL
                                                                                       INTEREST EXPENSE
                                  NOTIONAL                                     -------------------------------
      DATE OF CONTRACT             AMOUNT         TERM       FIXED RATE          2001        2000         1999
      ----------------            --------      --------     ----------        ------       -----         ----
      <S>                         <C>           <C>           <C>             <C>           <C>           <C>
      December 31, 1997........   $57,330        3 years       8.36%           $   -         $167         $868
      September 30, 1998.......   $35,000        3 years       7.68%              56         (592)        (203)
      September 17, 1999.......   $31,000        2 years       9.30%            (308)          (8)          74
      January 3, 2001..........   $10,000       9 months       6.03%             (76)
                                                                               -----        -----         ----
                                                                               $(328)       $(433)        $739
                                                                               =====        =====         ====
</TABLE>



(c)   In conjunction with the construction of a new distribution facility, on
      December 21, 2001, the Company borrowed $10,000,000 each from a financial
      institution and the New York State Job Development Authority, pursuant to
      the terms of a first and second lien mortgage note, respectively. The
      first lien mortgage note bears interest at LIBOR plus 2.75%. However, the
      Company has utilized an interest rate swap agreement to effectively fix
      the loan rate at 8.40% for the term of the loan. The second lien mortgage
      note bears interest at a rate of 4.75%, subject to change under certain
      conditions. Both loans are for a term of 96 months and require monthly
      payments based on a 180 month amortization period with balloon payments
      upon maturity in January 2010. The new facility has a carrying value of
      $29,624,000 at December 31, 2001. The Company has amended and restated its
      Bank Credit Facilities to provide for, among other things, these
      additional borrowings and capital expenditures for the construction of the
      facility.

      At December 31, 2001 and 2000, the Company had a mortgage obligation
      payable to a financial institution of $1,628,000 and $2,222,000,
      respectively, due September 13, 2004. The mortgage is related to a
      distribution facility and is collateralized by the related real estate
      asset ($4,531,000 carrying value at December 31, 2001) of the Company and
      bears interest at 8.51%.

(d)   In conjunction with the acquisition of the remaining 25% interest in its
      subsidiary, Amscan Holdings Limited, in 1998, the Company issued a
      non-interest bearing note to the former shareholder which is payable
      through April 2004. At December 31, 2001 and 2000, the note to the former
      shareholder was $228,000 and $347,000, respectively. Prior to the
      acquisition of all the capital stock of Anagram International, Inc., and
      certain related companies (collectively, "Anagram") in 1998 (the
      "Acquisition"), Anagram issued a note payable to a former employee of
      Anagram which is payable through March 2002 at a fixed interest rate of
      10%. At December 31, 2001 and 2000, the note to the former employee was
      $30,000 and $139,000, respectively.

(e)   The Company has entered into various capital leases for machinery and
      equipment with implicit interest rates ranging from 4.85% to 9.20% which
      extend to 2006.



                                      F-13
<PAGE>

                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001



          At December 31, 2001, maturities of long-term obligations consisted of
the following (dollars in thousands):

<TABLE>
<CAPTION>

                                                         MORTGAGE, NOTES             CAPITAL
                                                            AND LOANS           LEASE OBLIGATIONS          TOTAL
                                                         ---------------        -----------------       ----------
         <S>                                             <C>                    <C>                      <C>

         2002..........................................      $  3,266              $201                 $  3,467
         2003..........................................        52,262                78                   52,340
         2004..........................................        99,410                36                   99,446
         2005..........................................         1,205                36                    1,241
         2006..........................................         1,231                23                    1,254
         Thereafter....................................       124,187                 -                  124,187
                                                             --------              ----                 --------
                                                              281,561               374                  281,935
         Amount representing interest..................                             (37)                     (37)
                                                             --------              ----                 --------
         Long-term obligations.........................      $281,561              $337                 $281,898
                                                             ========              ====                 ========
</TABLE>

NOTE 7 - PROVISION FOR DOUBTFUL ACCOUNTS

         During the third quarter of 2001, one of the Company's customers filed
a voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code and, as a result, the Company charged $1.5 million and $1.0 million to the
provision for doubtful accounts during the third and fourth quarters of 2001,
respectively, to fully provide for the accounts receivable balances due to the
Company. This customer accounted for approximately 2.1% of the Company's
consolidated net sales for the year ended December 31, 2001. The Company does
not believe the potential loss of this customer will have a material adverse
effect on the Company's future results of operations or its financial condition.

         During the second quarter of 2000, two of the Company's customers filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code. As a result of the filings, the Company charged $3.4 million and $1.0
million to the provision for doubtful accounts during the second and fourth
quarters of 2000, respectively, to fully provide for the accounts receivable
balances due to the Company from these customers. On a combined basis, these two
customers accounted for approximately 1.9% of the Company's consolidated net
sales for the year ended December 31, 2000.The Company also charged $1.6 million
to the provision for doubtful accounts during the fourth quarter of 2000, which
represented the remaining accounts receivable balance from a customer that filed
for bankruptcy during 1999.

NOTE 8 - NON-RECURRING ITEMS

         During 2000, the Company incurred charges of $0.2 million in connection
with the consolidation of certain manufacturing operations and an additional
$0.3 million in connection with the restructuring of its distribution operations
that occurred in 1998. During the fourth quarter of 1999, the Company recorded
non-recurring charges of $1.0 million in association with the proposed
construction of a new distribution facility. The non-recurring charges
represented building costs written-off due to the relocation of the proposed
site.




                                      F-14
<PAGE>


                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


NOTE 9 - EMPLOYEE BENEFIT PLANS

         Certain subsidiaries of the Company maintain profit-sharing plans for
eligible employees providing for annual discretionary contributions to a trust.
Eligible employees are full-time domestic employees who have completed a certain
length of service, as defined, and attained a certain age, as defined. The plans
require the subsidiaries to match 25% to 100% of voluntary employee
contributions to the plan, up to the first 6% of an employee's annual salary.
Profit sharing expense for the years ended December 31, 2001, 2000 and 1999
totaled $2,462,000, $2,220,000 and $1,906,000, respectively.


NOTE 10 - STOCK OPTION PLAN

         The Company adopted the Amscan Holdings, Inc. Stock Incentive Plan (the
"1997 Stock Incentive Plan") in 1997. The 1997 Stock Incentive Plan is
administered by the Board of Directors. Under the terms of the 1997 Stock
Incentive Plan, as amended, the Board may award Company Common Stock, stock
options and stock appreciation rights to certain directors, officers, employees
and consultants of the Company and its affiliates. The vesting periods for
awards are determined by the Board at the time of grant. As of December 31,
2001, there were 150 shares of Company Common Stock reserved for issuance under
the 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan will terminate ten
years after its effective date; however, awards outstanding as of such date will
not be affected or impaired by such termination.

         The options granted under the 1997 Stock Incentive Plan vest in equal
installments on each of the first five anniversaries of the grant date. The
options are non-transferable (except under certain limited circumstances) and
have a term of ten years. The following table summarizes the changes in
outstanding options under the 1997 Stock Incentive Plan for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                 Average         Average Fair Market
                                                         Options             Exercise Price      Value at Grant Date
                                                         -------             --------------      -------------------
         <S>                                             <C>                 <C>                 <C>
         Outstanding at December 31, 1998.........        111.719
                  Granted.........................         20.680               $125,000               $44,562
                  Canceled........................         (2.444)                93,387
                                                          -------
         Outstanding at December 31, 1999.........        129.955
                  Granted.........................          3.750                125,000                44,562
                  Granted.........................          4.500                150,000                53,474
                  Exercised.......................         (0.096)                54,545
                  Exercised.......................         (0.037)                75,000
                  Canceled........................         (0.143)                54,545
                  Canceled........................         (0.962)                75,000
                                                          -------
         Outstanding at December 31, 2000.........        136.967
                  Granted.........................          2.500                150,000                53,474
                  Exercised.......................         (0.666)                75,000
                  Exercised.......................         (0.287)                55,102
                  Canceled........................         (0.191)                55,102
                  Canceled........................         (0.444)                75,000
                  Canceled........................         (4.500)               125,000
                                                          -------
         Outstanding at December 31, 2001.........        133.379

         Exercisable at December 31, 1999.........         42.018                 73,713
         Exercisable at December 31, 2000.........         67.267                 77,256
         Exercisable at December 31, 2001.........         91.290                 78,977

</TABLE>

         The average exercise price for options outstanding as of December 31,
2001 was $86,372 with exercise prices ranging from $54,545 to $150,000. The
average remaining contractual life of those options was 6.6 years.




                                      F-15
<PAGE>


                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


         The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized in connection with the
issuance of options under the 1997 Stock Incentive Plan as all options were
granted with exercise prices equal to the estimated fair market value of the
Common Stock on the date of grant. Had the Company determined stock-based
compensation based on the fair value of the options granted at the grant date,
consistent with the method prescribed under SFAS No. 123, the Company's net
income would have been reduced to amounts indicated below (dollars in
thousands):

<TABLE>
<CAPTION>

                                                                                      YEARS ENDED DECEMBER 31,
                                                                                 ----------------------------------
                                                                                  2001           2000        1999
                                                                                 -------        ------      -------
         <S>                                                                     <C>            <C>         <C>
         Net income:
                  As reported..........................................          $11,302        $8,116      $10,207
                  SFAS No. 123 pro forma...............................          $10,794        $7,606      $ 9,793

</TABLE>

         It has been assumed that the estimated fair value of the options
granted in 2001, 2000 and 1999 under the 1997 Stock Incentive Plan is amortized
on a straight line basis to compensation expense, net of taxes, over the vesting
period of the grant, which is five years. The estimated fair value of each
option on the date of grant was determined using the minimum value method with
the following assumptions: dividend yield of 0%; risk-free interest rate of
6.50%; and expected lives of seven years.

NOTE 11- INCOME TAXES

         A summary of domestic and foreign pre-tax income follows (dollars in
thousands):

<TABLE>
<CAPTION>

                                                                                      YEARS ENDED DECEMBER 31,
                                                                                 ----------------------------------
                                                                                  2001           2000        1999
                                                                                 -------        ------      -------
         <S>                                                                     <C>            <C>         <C>
         Domestic  ........................................................      $17,350        $ 9,639     $14,035
         Foreign  .........................................................        1,443          3,900       3,345
                                                                               ---------        --------    -------
         Total  ...........................................................      $18,793        $13,539     $17,380
                                                                                 =======        =======     =======
</TABLE>


         The provision for income taxes consisted of the following (dollars in
thousands):


<TABLE>
<CAPTION>

                                                                                      YEARS ENDED DECEMBER 31,
                                                                                 ----------------------------------
                                                                                   2001         2000        1999
                                                                                  ------       ------      ------
         <S>                                                                     <C>           <C>         <C>
         Current:
                Federal ..................................................        $4,266       $1,551      $1,734
                State.....................................................         1,101          688         490
                Foreign...................................................           436        1,348       1,112
                                                                                  ------        -----      ------
                  Total current provision.................................         5,803        3,587       3,336
         Deferred:
                Federal...................................................         1,400        1,528       2,745
                State.....................................................           143          233         772
                Foreign...................................................            77            -         247
                                                                                  ------      -------      ------
                  Total deferred provision................................         1,620        1,761       3,764
                                                                                  ------       ------      ------
         Income tax expense...............................................        $7,423       $5,348      $7,100
                                                                                  ======       ======      ======
</TABLE>




                                      F-16
<PAGE>


                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001



         Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred income
tax assets and liabilities from domestic jurisdictions consisted of the
following at December 31 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                             2001            2000
                                                                                            -------         -------
<S>                                                                                         <C>             <C>
Current deferred tax assets:
         Allowance for doubtful accounts..............................................      $ 1,216         $ 1,196
         Accrued liabilities..........................................................          322             256
         Inventories..................................................................        2,202           1,247
         Charitable contributions carryforward........................................          166           1,016
         Other........................................................................          279             146
                                                                                            -------         -------
              Current deferred tax assets (included in prepaid expenses and other
                current assets).......................................................      $ 4,185         $ 3,861
                                                                                            =======         =======
</TABLE>


<TABLE>
<CAPTION>
                                                                                             2001            2000
                                                                                            -------         -------
<S>                                                                                         <C>             <C>
Non-current deferred tax liabilities, net:
         Property, plant and equipment................................................      $14,433         $13,076
         Future taxable income resulting from a change in
              accounting method for tax purposes......................................          721             433
         Royalty reserves.............................................................           (9)            (95)
         Other........................................................................           36            (100)
                                                                                            -------        --------
              Non-current deferred tax liabilities, net...............................      $15,181         $13,314
                                                                                            =======         =======
</TABLE>

         A non-current foreign deferred tax asset of $456,000 and $464,000 at
December 31, 2001 and 2000, respectively, is attributable to non-current
obligations recognized in connection with the Acquisition and is included in
non-current assets, net.

         The difference between the Company's effective income tax rate and the
federal statutory income tax rate is reconciled below:

<TABLE>
<CAPTION>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                                ---------------------------------
                                                                                2001           2000          1999
                                                                                ----           ----          ----
         <S>                                                                    <C>            <C>           <C>
         Provision at federal statutory income tax rate..................       35.0%          34.0%         35.0%

         State income tax, net of federal tax benefit....................        4.7            4.5           4.8
         Other...........................................................       (0.2)           1.0           1.1
                                                                                ----           ----          ----
         Effective income tax rate.......................................       39.5%          39.5%         40.9%
                                                                                ====           ====          ====
</TABLE>


         At December 31, 2001, the Company's share of the cumulative
undistributed earnings of foreign subsidiaries was approximately $14,933,000. No
provision has been made for U.S. or additional foreign taxes on the
undistributed earnings of foreign subsidiaries because such earnings are
expected to be reinvested indefinitely in the subsidiaries' operations. It is
not practical to estimate the amount of additional tax that might be payable on
these foreign earnings in the event of distribution or sale; however, under
existing law, foreign tax credits would be available to substantially reduce
incremental U.S. taxes payable on amounts repatriated.

NOTE 12 - CAPITAL STOCK

         At December 31, 2001 and 2000, the Company's authorized capital stock
consisted of 3,000 shares of common stock, $0.10 par value, of which 1,133.49
and 1,132.54 shares, respectively, were issued and outstanding.

         At December 31, 2001, the Company held notes receivable from a former
officer and a former employee in the amounts of $576,000 and $25,000,
respectively. At December 31, 2000, the Company held notes receivable from a
current officer and a former officer totaling $548,000. These notes arose in
connection with the issuance of shares of Common Stock to the officers and
employee. The notes held at December 31, 2001 bear interest at 6.65% and LIBOR
plus 2% and mature in March 2009 and January 2004, respectively. The notes
receivable are shown on the




                                      F-17
<PAGE>



                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001

balance sheets as an increase in stockholders' deficit.

         At December 31, 2001, there were 199.97 shares of Common Stock held by
employees, of which 6.67 shares (the "Restricted Stock") are subject to the
vesting provisions of an employment agreement with the President of the Company.
The shares of Restricted Stock will vest in two equal installments on June 30,
2002 and 2003. Under the terms of a stockholders' agreement (the "Stockholders'
Agreement"), the Company can purchase all of the shares held by the employee
stockholders, and the employees can require the Company to purchase all of the
shares held by the employee stockholders, under certain circumstances. The
purchase price as prescribed in the Stockholders' Agreement is to be determined
through a market valuation of the minority-held shares or, under certain
circumstances, based on cost. At December 31, 2001, and 2000, the aggregate
amount that may be payable by the Company to employee stockholders based on
fully paid and vested shares, was approximately $29,949,000 and $28,768,000,
respectively, and has been classified as redeemable Common Stock.

         On March 30, 2001, the Board of Directors authorized 500 shares of
preferred stock, $0.10 par value, and designated 100 shares as Series A
Redeemable Convertible Preferred Stock ("Series A Redeemable Convertible
Preferred Stock"). Also on March 30, 2001, the Company issued 40 shares of
Series A Redeemable Convertible Preferred Stock to GSCP for proceeds of $6.0
million. Dividends are cumulative and shall be payable annually beginning March
30, 2002, at 6% per annum. Such dividends payable on or prior to March 30, 2004,
shall be payable in additional shares of Series A Redeemable Convertible
Preferred Stock. Subsequent to March 30, 2004, dividends shall be payable, at
the option of the Company, either in cash or additional shares of Series A
Redeemable Convertible Preferred Stock.

         Each share of the Series A Redeemable Convertible Preferred Stock is
convertible at the option of the holder at any time into shares of Common Stock
of the Company, $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. As of March 30, 2001, there were 40
shares of Company Common Stock reserved for such conversion.

         The Series A Redeemable Convertible Preferred Stock is not redeemable
on or prior to March 30, 2004. To the extent the Company shall have funds
legally available to redeem these shares, the Company may redeem these shares,
in whole or, with the consent of the holders of a majority of the outstanding
Series A Redeemable Convertible Preferred Stock, in part, at a redemption of
$150,000 per share, in cash, together with accrued and unpaid dividends. To the
extent the Company shall have funds legally available to redeem these shares on
March 30, 2008, the Company is required to redeem all outstanding shares of
Series A Redeemable Convertible Preferred Stock at a redemption price per share
equal to $150,000 in cash, together with accrued and unpaid dividends. The
holders of the Series A Redeemable Convertible Preferred Stock have liquidation
rights equal to their original investment plus accrued but unpaid dividends.

       The Company has not paid any dividends on the Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for working capital, repayment of
indebtedness, capital expenditures and general corporate purposes. In addition,
the Company's current credit facility and the indenture governing its notes
contain restrictive covenants which have the effect of limiting the Company's
ability to pay dividends or distributions to its stockholders.




                                      F-18
<PAGE>

                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001



NOTE 13 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Lease Agreements
                  The Company is obligated under various capital leases for
certain machinery and equipment which expire on various dates through October 1,
2006 (see Note 6). At December 31, 2001 and 2000, the amount of machinery and
equipment and related accumulated amortization recorded under capital leases and
included with property, plant and equipment consisted of the following (dollars
in thousands):


<TABLE>
<CAPTION>
                                                                                           2001           2000
                                                                                          ------         ------
       <S>                                                                                <C>            <C>
       Machinery and equipment  ....................................................       $7,291         $7,147
       Less: accumulated amortization  .............................................       (4,111)        (3,938)
                                                                                           ------         ------
                                                                                           $3,180         $3,209
                                                                                           ======         ======
</TABLE>

         Amortization of assets held under capitalized leases is included in
depreciation expense.

         The Company has several non-cancelable operating leases principally for
office, distribution and manufacturing facilities, showrooms, and warehouse
equipment that expire on various dates through 2017. These leases generally
contain renewal options and require the Company to pay real estate taxes,
utilities and related insurance.

         At December 31, 2001, future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):

<TABLE>

                  <S>                                                            <C>
                  2002  ...................................................      $11,832
                  2003  ...................................................        8,913
                  2004  ...................................................        7,238
                  2005  ...................................................        6,696
                  2006  ...................................................        5,529
                  Thereafter  .............................................       11,636
                                                                                 -------
                                                                                 $51,844
                                                                                 =======
</TABLE>

         Rent expense for the years ended December 31, 2001, 2000 and 1999 was
$9,450,000 $9,040,000, and $9,038,000, respectively, of which $166,000 for the
year 1999, related to leases with related parties.

         During 1999, the Company terminated its operating lease with related
parties for warehouse space that expired on December 31, 2000. As an incentive
to terminate the lease prior to its expiration, the Company received a fee of
$200,000, which is included in cost of sales on the Company's statement of
income.

Royalty Agreements
         In conjunction with the Acquisition, the Company has entered into
royalty agreements with various licensers of copyrighted and trademarked
characters and designs used on the Company's balloons which require royalty
payments based on sales of the Company's products, or in some cases, annual
minimum royalties.

         At December 31, 2001 future minimum royalties payable was as follows
(dollars in thousands):


<TABLE>
                  <S>                                                            <C>

                  2002.....................................................       $1,170
                  2003.....................................................          566
                  2004.....................................................          300
                                                                                  ------
                                                                                  $2,036
                                                                                  ======
</TABLE>

                                      F-19
<PAGE>

                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


Legal Proceedings

         The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these proceedings will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or future results of operations.

Related Party Transactions
         On October 1, 1999, the Company granted a $1.0 million line of credit
to the Chief Executive Officer. Borrowings under the line bore interest at a
variable rate of interest. During 2001, the line of credit was amended to
increase the amount to $1,400,000 and to fix the interest rate at 6% per annum
payable annually. The line expires on June 15, 2004. Amounts borrowed under the
line are evidenced by a limited recourse secured promissory note, secured by a
lien on the equity interests that the Chief Executive Officer has in the
Company. The note requires that all principal payments be made only from the
equity pledged as collateral. At December 31, 2001 and 2000, borrowings under
this line totaled $1,400,000 and $620,000, respectively, and have been included
in other assets.

         On June 15, 2001, the Company entered into a limited recourse secured
promissory note with the President of the Company. The note evidences loans made
or to be made to the President at his request, in connection with the payment of
any federal, state or local income taxes due and payable by the President upon
and in respect of the vesting of his Restricted Stock (see "Note 12 - Capital
Stock"). The Company's obligation to extend loans under the note is limited to
the amount of such taxes the President is actually required to pay subsequent to
June 15 2001. Amounts borrowed under the note and any interest thereon is
secured by a lien on the equity interests that the President has in the Company.
The note bears interest at 5.43% per annum and is payable, together with
interest, on January 1, 2010. The note requires that all payments of principal
and interest due there under be made only from the equity pledged as collateral.
At December 31, 2001, the amount borrowed under the note totaled $176,563 and
has been included in other assets.

         Pursuant to the Stockholder's Agreement, Goldman Sachs has the
exclusive right (if it so elects) to perform certain investment banking and
similar services for the Company on customary terms. Goldman Sachs may from time
to time receive customary fees for services rendered to the Company. For the
years ended December 31, 2000, and 1998, Amscan paid Goldman Sachs and its
affiliates service fees of $350,000, and $400,000, respectively. No fees were
paid to Goldman Sachs in 1999.

       On March 30, 2001, the Company issued 40 shares of Series A Redeemable
Convertible Preferred Stock to GSCP, for proceeds of $6.0 million (see Note 12).

NOTE 14 - SEGMENT INFORMATION

Industry Segments
         The Company operates in one operating segment which involves the
design, manufacture, contract for manufacture and distribution of party goods.

Geographic Segments
         The Company's export sales, other than those intercompany sales
reported below as sales between geographic areas, are not material. Sales
between geographic areas primarily consist of sales of finished goods for
distribution in the foreign markets. No single foreign operation is significant
to the Company's consolidated operations. Intersegment sales between geographic
areas are made at cost plus a share of operating profit.



                                      F-20

<PAGE>


                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001





         The Company's geographic area data for each of the three years ended
December 31, 2001, 2000 and 1999 were as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                  DOMESTIC       FOREIGN      ELIMINATIONS      CONSOLIDATED
                                                                  --------       -------      ------------      ------------
         <S>                                                      <C>            <C>          <C>                <C>
         2001
         Sales to unaffiliated customers.....................     $299,389       $47,700                          $347,089
         Sales between geographic areas......................       24,051                       $(24,051)
                                                                  --------       -------         ---------        --------
         Net sales...........................................     $323,440       $47,700         $(24,051)        $347,089
                                                                  ========       =======         =========        ========

         Income from operations..............................     $ 40,456       $ 2,430                          $ 42,886
                                                                  ========       =======
         Interest expense, net...............................                                                       24,069
         Other expense, net..................................                                                           24
                                                                                                                  --------
         Income before income taxes and minority interests...                                                     $ 18,793
                                                                                                                  ========

         Long-lived assets...................................     $151,578      $  6,600                          $158,178
                                                                  ========      ========                          ========

</TABLE>

<TABLE>
<CAPTION>

                                                                  DOMESTIC       FOREIGN      ELIMINATIONS      CONSOLIDATED
                                                                  --------       -------      ------------      ------------
         <S>                                                      <C>            <C>          <C>                <C>
         2000
         Sales to unaffiliated customers.....................     $280,461       $45,087                          $325,548
         Sales between geographic areas......................       20,408                       $(20,408)               -
                                                                  --------       -------         ---------        --------
         Net sales...........................................     $300,869       $45,087         $(20,408)        $325,548
                                                                  ========       =======         =========        ========


         Income from operations..............................     $ 35,415       $ 4,575                          $ 39,990
                                                                  ========       =======
        Interest expense, net...............................                                                        26,355
         Other expense, net..................................                                                           96
                                                                                                                  --------
         Income before income taxes and minority interests...                                                     $ 13,539
                                                                                                                  ========

         Long-lived assets...................................     $128,635       $ 7,034                          $135,669
                                                                  ========       =======                          ========

</TABLE>

<TABLE>
<CAPTION>

                                                                  DOMESTIC       FOREIGN      ELIMINATIONS      CONSOLIDATED
                                                                  --------       -------      ------------      ------------
         <S>                                                      <C>            <C>          <C>                <C>
         1999
         Sales to unaffiliated customers.....................     $258,304       $47,808                          $306,112
         Sales between geographic areas......................       20,977                       $(20,977)               -
                                                                  --------       -------         --------         --------
         Net sales...........................................     $279,281       $47,808         $(20,977)        $306,112
                                                                  ========       =======         ========         ========

         Income from operations..............................     $ 39,609       $ 4,171                          $ 43,780
                                                                  ========       =======
         Interest expense, net...............................                                                       26,365
         Other expense, net..................................                                                           35
                                                                                                                  --------
         Income before income taxes and minority interests...                                                     $ 17,380
                                                                                                                  ========

         Long-lived assets...................................     $127,062      $  7,685                          $134,747
                                                                  ========      ========                          ========

</TABLE>




                                      F-21
<PAGE>

                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying amounts for cash and cash equivalents, accounts
receivables, deposits and other current assets, loans and notes payable,
accounts payable, accrued expenses and other current liabilities approximate
fair value at December 31, 2001 and 2000 because of the short-term maturity of
those instruments or their variable rates of interest.

         The carrying amount of the Company's Notes approximates fair value at
December 31, 2001 and 2000, based on the quoted market price of similar debt
instruments. The carrying amounts of the Company's borrowings under its Bank
Credit Facilities and other revolving credit facilities approximate fair value
because such obligations generally bear interest at floating rates. The carrying
amounts for other long-term debt approximate fair value at December 31, 2001 and
2000, based on the discounted future cash flow of each instrument at rates
currently offered for similar debt instruments of comparable maturity.

NOTE 16 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

         The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and SFAS No. 137 and No. 138 as
amendments thereto, effective January 1, 2001. These statements require that all
derivative financial instruments that qualify for hedge accounting, such as
interest rate swaps and foreign currency exchange agreements, be recognized on
the balance sheet at fair value and that changes in fair value be recognized
periodically in either income or shareholders' deficit (as a component of other
comprehensive income. For derivative financial instruments that are designated
and qualify as a cash flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings.
The remaining gain or loss on the derivative financial instrument in excess of
the cumulative change in the present value of future cash flows of the hedged
item, if any, is recognized in current earnings during the period of change. As
long as hedge effectiveness is maintained, the Company's interest rate swap
arrangements and foreign currency exchange agreements qualify for hedge
accounting as cash flow hedges. The adoption of SFAS No. 133, as amended, did
not have a significant effect on Company's consolidated financial statements,
but did reduce comprehensive income in 2001 by $114,000.

Interest Rate Risk Management

         As part of the Company's risk management strategy, the Company uses
interest rate swap agreements to hedge the variability of cash flows on floating
rate debt obligations (see Note 6). Accordingly, the interest rate swap
agreements are reflected in the consolidated balance sheet at fair value and the
related gains and losses on these contracts are deferred in stockholders'
deficit and recognized in interest expense over the same period in which the
related interest payments being hedged are recognized in income. The Company was
involved in three interest rate swap transactions, with Goldman Sachs Capital
Markets, L.P. ("GSCM") and a financial institution, that expired during 2001.
These agreements covered portions of the outstanding borrowings under the
Company's Term Loan. Net payments to (receipts from) the counterparty under
these swap agreements have been recorded as additions to (reductions of)
interest expense. To effectively fix the interest rate of its $10,000,000
mortgage note, (see Note 6), the Company entered into an interest rate swap
agreement with a financial institution for a notional amount of $10,000,000,
agreeing to receive 30 day LIBOR and to pay 5.65%. At December 31, 2001, the
fair value of the interest rate swap agreement was immaterial.



                                      F-22
<PAGE>


                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001



Foreign Exchange Risk Management

         A portion of the Company's cash flows is derived from transactions
denominated in foreign currencies. The United States dollar value of
transactions denominated in foreign currencies fluctuates as the United States
dollar strengthens or weakens relative to these foreign currencies. In order to
reduce the uncertainty of foreign exchange rate movements on transactions
denominated in foreign currencies, principally the British Pound Sterling, the
Company enters into foreign exchange contracts with major international
financial institutions. These forward contracts, which typically mature within
one year, are designed to hedge anticipated foreign currency transactions,
primarily inter-company inventory purchases. No components of the contracts are
excluded in the measurement of hedge effectiveness. The critical terms of the
foreign exchange contracts are the same as the underlying forecasted
transactions; therefore, changes in the fair value of foreign contracts should
be highly effective in offsetting changes in the expected cash flows from the
forecasted transactions. At December 31, 2001, the Company had contracts in the
notional amounts of $10.4 million of foreign currency exchange contracts. The
foreign currency exchange contracts are reflected in the consolidated balance
sheet at fair value and the relate gains and losses on these contracts are
deferred in stockholders' deficit. The fair value adjustment at December 31,
2001, is an unrealized loss $114,000, net of taxes of $76,000, and is included
as a separate component of accumulated other comprehensive loss in 2001. The
Company anticipates that all gains and losses in accumulated other comprehensive
loss related to foreign exchange contracts will be reclassified into earnings by
December 2002.

NOTE 17 - COMPREHENSIVE INCOME

          Comprehensive income consisted of the following (dollars in
thousands):

<TABLE>
<CAPTION>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                                 --------------------------------
                                                                                  2001         2000         1999
                                                                                 ------     --------     --------
          <S>                                                                    <C>        <C>          <C>
           Net income..................................................          $11,302      $8,116      $10,207
           Net change in cumulative translation adjustment.............             (434)     (1,457)         362
           Cumulative effect of a change in accounting principle......
              to recognize the fair value of the Company's interest
              rate swap contracts, net of taxes of $148 (see Note 16)..             (227)
           Change in fair value of the Company's interest rate
              swap contracts, net of taxes of $148 (see Note 16).......              227
           Change in fair value of the Company's foreign
              exchange contracts, net of taxes of $76 (see Note 16)....             (114)
                                                                                 -------      ------      -------
                                                                                 $10,754      $6,659      $10,569
                                                                                 =======      ======      =======
</TABLE>

         Accumulated other comprehensive loss consisted of the following at
         December 31 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                  2001         2000
                                                                                 -------      -------
           <S>                                                                   <C>          <C>
           Cumulative translation adjustment...........................          $(2,779)     $(2,345)
           Foreign exchange contracts qualifying as hedges,
             net of taxes of $76 (see Note 16).....................                 (114)
                                                                                 -------      -------
                                                                                 $(2,893)     $(2,345)
                                                                                 =======      =======
</TABLE>

NOTE 18 - SUBSEQUENT EVENT

         On July 26, 2001, Amscan and American Greetings Corporation ("American
Greetings") signed a letter of intent pursuant to which Amscan would acquire
American Greetings' subsidiary, M&D Balloons Inc., a Manteno, Illinois-based
manufacturer of metallic and plastic balloons. On February 19, 2002, the Company
completed the acquisition for $27,500,000, borrowing $12,500,000 under its
revolving credit facility and issuing 96.774 shares of its Common Stock, at a
value of $155,000 per share, to American Greetings. American Greetings will
continue to distribute metallic balloons under a supply agreement with Amscan.




                                      F-23
<PAGE>

                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001



NOTE 19 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)

         The Notes and borrowings under the Bank Credit Facilities are
guaranteed jointly and severally, fully and unconditionally, by the Guarantors
(see Notes 5 and 6).

         Non-guarantor companies ("Non-guarantors") include the following:
       o   Amscan Distributors (Canada) Ltd.
       o   Amscan Holdings Limited
       o   Amscan (Asia-Pacific) Pty. Ltd.
       o   Amscan Partyartikel GmbH
       o   Amscan Svenska AB
       o   Amscan de Mexico, S.A. de C.V.
       o   Anagram International (Japan) Co., Ltd.
       o   Anagram Mexico S. de R.L. de C.V.
       o   Anagram Espana, S.A.
       o   Anagram France S.C.S.

         The following consolidating information presents consolidating balance
sheets as of December 31, 2001 and 2000, and the related consolidating
statements of income and cash flows for each of the years in the three-year
period ended December 31, 2001 for the combined Guarantors and the combined
Non-guarantors and elimination entries necessary to consolidate the entities
comprising the combined companies.



                                      F-24






<PAGE>
                              AMSCAN HOLDINGS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                           CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2001
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
ASSETS
Current assets:
     Cash and cash equivalents.........................        $     60        $   956                       $  1,016
     Accounts receivable, net..........................          56,408          8,631                         65,039
     Inventories.......................................          65,939          7,414        $   (771)        72,582
     Prepaid expenses and other current assets.........          12,339          1,320                         13,659
                                                               --------        -------        --------       --------
     Total current assets..............................         134,746         18,321            (771)       152,296
Property, plant and equipment, net.....................          93,420          1,169                         94,589
Intangible assets, net.................................          51,136          4,849                         55,985
Other assets, net......................................          24,499          4,880         (21,775)         7,604
                                                               --------        -------        --------       --------
     Total assets......................................        $303,801        $29,219        $(22,546)      $310,474
                                                               ========        =======        ========       ========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND
  COMMON STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
     Loans and notes payable...........................        $    700             --                       $    700
     Accounts payable..................................          32,127            956                         33,083
     Accrued expenses .................................          12,178          3,869                         16,047
     Income taxes payable .............................           2,225             73                          2,298
     Current portion of long-term
       obligations.....................................           3,318            137                          3,455
                                                               --------        -------        --------       --------
     Total current liabilities  .......................          50,548          5,035                         55,583
Long-term obligations, excluding
  current portion......................................         278,198            245                        278,443
Deferred income tax liabilities........................          15,181                                        15,181
Other. ................................................             189         14,236        $(12,072)         2,353
                                                               --------        -------        --------       --------
Total liabilities......................................         344,116         19,516         (12,072)       351,560

Redeemable convertible preferred stock.................           6,270                                         6,270
Redeemable Common Stock................................          29,949                                        29,949

Commitments and Contingencies..........................

Stockholders' (deficit) equity:
     Common Stock......................................                            339            (339)            --
     Additional paid-in capital..........................           299            658            (658)           299
     Unamortized restricted Common Stock
        award, net.....................................             (94)                                          (94)
     Notes receivable from stockholders................            (601)                                         (601)
     (Deficit) retained earnings.......................         (73,245)        11,082         (11,853)       (74,016)
     Accumulated other comprehensive loss..............          (2,893)        (2,376)          2,376         (2,893)
                                                               --------        -------        --------       --------
         Total stockholders' (deficit) equity..........         (76,534)         9,703         (10,474)       (77,305)
                                                               --------        -------        --------       --------
         Total liabilities, redeemable convertible
             preferred and Common Stock and
             stockholders' (deficit) equity............        $303,801        $29,219        $(22,546)      $310,474
                                                               ========        =======        ========       ========

</TABLE>

                                      F-25
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001

                           CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
ASSETS
Current assets:
     Cash and cash equivalents.........................        $    610        $   859                       $  1,469
     Accounts receivable, net..........................          53,833          8,845                         62,678
     Inventories.......................................          65,674          6,332        $   (467)        71,539
     Prepaid expenses and other current assets.........           8,082          1,190                          9,272
                                                               --------        -------        --------       --------
     Total current assets..............................         128,199         17,226            (467)       144,958
Property, plant and equipment, net.....................          67,991          1,207                         69,198
Intangible assets, net.................................          54,220          5,140                         59,360
Other assets, net......................................          25,296          7,216         (25,401)         7,111
                                                               --------        -------        --------       --------
     Total assets......................................        $275,706        $30,789        $(25,868)      $280,627
                                                               ========        =======        ========       ========

LIABILITIES, REDEEMABLE COMMON STOCK
  AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities:
     Loans and notes payable...........................      $   10,335        $    --                       $ 10,335
     Accounts payable..................................          27,420          1,400                         28,820
     Accrued expenses .................................          13,229          3,862                         17,091
     Income taxes payable .............................             842            356                          1,198
     Current portion of long-term obligations..........           3,649            105                          3,754
                                                               --------        -------        --------       --------
     Total current liabilities  .......................          55,475          5,723                         61,198
Long-term obligations, excluding current portion.......         261,573            242                        261,815
Deferred income tax liabilities........................          13,314                                        13,314
Other. ................................................           2,990         14,689        $(15,266)         2,413
                                                               --------        -------        --------       --------
     Total liabilities.................................         333,352         20,654         (15,266)       338,740

Redeemable Common Stock................................          28,768                                        28,768

Commitments and Contingencies..........................

Stockholders' (deficit) equity:
     Common Stock......................................                            339            (339)            --
     Additional paid-in capital........................             233            658            (658)           233
     Unamortized restricted Common Stock award, net....            (354)                                         (354)
     Notes receivable from stockholders................            (548)                                         (548)
     (Deficit) retained earnings.......................         (83,400)        11,341         (11,808)       (83,867)
     Accumulated other comprehensive loss..............          (2,345)        (2,203)          2,203         (2,345)
                                                               --------        -------        --------       --------
         Total stockholders' (deficit) equity..........         (86,414)        10,135         (10,602)       (86,881)
                                                               --------        -------        --------       --------
         Total liabilities, redeemable Common
            Stock and stockholders' (deficit) equity...        $275,706        $30,789        $(25,868)      $280,627
                                                               ========        =======        ========       ========
</TABLE>


                                      F-26
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                        CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 2001
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Net sales..............................................        $323,131        $45,482        $(21,524)      $347,089
Cost of sales..........................................         214,505         31,751         (21,220)       225,036
                                                               --------        -------        --------       --------
      Gross profit.....................................         108,626         13,731            (304)       122,053
Operating expenses:
    Selling expenses...................................          28,159          5,161                         33,320
    General and administrative expenses................          28,728          5,972          (1,383)        33,317
    Provision for doubtful accounts....................           3,582            176                          3,758
    Art and development costs..........................           8,772                                         8,772
                                                               --------        -------        --------       --------
      Income from operations...........................          39,385          2,422           1,079         42,886
Interest expense, net .................................          23,442            627                         24,069
Other (income) expense, net............................          (2,611)            61           2,574             24
                                                               --------        -------        --------       --------
      Income before income taxes and
        minority interests.............................          18,554          1,734          (1,495)        18,793
Income tax expense.....................................           6,948            475                          7,423
Minority interests.....................................                             68                             68
                                                               --------        -------        --------       --------
      Net income.......................................          11,606          1,191          (1,495)        11,302
      Dividend requirement on redeemable
        convertible preferred stock....................            (270)                                         (270)
                                                               --------        -------        --------       --------
         Net income applicable to common shares                $ 11,336       $  1,191        $ (1,495)       $11,032
                                                               ========       ========        ========       ========
</TABLE>


                                      F-27
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                        CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                              ----------      ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Net sales..............................................        $301,600        $44,024        $(20,076)      $325,548
Cost of sales..........................................         198,582         28,399         (20,109)       206,872
                                                               --------        -------        --------       --------
      Gross profit.....................................         103,018         15,625              33        118,676
Operating expenses:
    Selling expenses...................................          25,019          5,623                         30,642
    General and administrative expenses................          27,014          5,136            (192)        31,958
    Provision for doubtful accounts....................           6,896            237                          7,133
    Art and development costs..........................           8,453                                         8,453
    Restructuring charges..............................             500                                           500
                                                               --------        -------        --------       --------
      Income from operations...........................          35,136          4,629             225         39,990
Interest expense, net .................................          25,725            630                         26,355
Other (income) expense, net............................          (2,642)           393           2,345             96
                                                               --------        -------        --------       --------
      Income before income taxes and
        minority interests.............................          12,053          3,606          (2,120)        13,539
Income tax expense.....................................           3,970          1,378                          5,348
Minority interests.....................................                             75                             75
                                                               --------        -------        --------       --------
      Net income....................................           $  8,083         $2,153        $ (2,120)      $  8,116
                                                               ========       ========        ========       ========
</TABLE>

                                      F-28
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                        CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Net sales..............................................        $279,988        $47,477        $(21,353)      $306,112
Cost of sales..........................................         184,031         31,952         (21,351)       194,632
                                                               --------        -------        --------       --------
      Gross profit.....................................          95,957         15,525              (2)       111,480
Operating expenses:
    Selling expenses...................................          19,015          5,440                         24,455
    General and administrative expenses................          25,599          5,287            (192)        30,694
    Provision for doubtful accounts....................           2,288            618                          2,906
    Art and development costs..........................           8,650                                         8,650
    Non-recurring charges..............................             995                                           995
                                                               --------        -------        --------       --------
      Income from operations...........................          39,410          4,180             190         43,780
Interest expense, net..................................          25,735            630                         26,365
Other (income) expense, net............................          (2,513)           193           2,355             35
                                                               --------        -------        --------       --------
      Income before income taxes and
        minority interests.............................          16,188          3,357          (2,165)        17,380
Income tax expense.....................................           5,979          1,121                          7,100
Minority interests.....................................                             73                             73
                                                               --------        -------        --------       --------
      Net income                                               $ 10,209        $ 2,163        $ (2,165)      $ 10,207
                                                               ========        =======        ========       ========
</TABLE>

                                      F-29
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2001
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Cash flows from operating activities:
   Net income...............................................    $11,606        $ 1,191        $ (1,495)      $ 11,302
   Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation and amortization.........................     14,863            605                         15,468
      Amortization of deferred financing costs..............        998                                           998
      Loss (gain) on disposal of property and equipment ....          7            (20)                           (13)
      Provision for doubtful accounts.......................      3,582            176                          3,758
      Amortization of restricted Common Stock award.........        260                                           260
      Deferred income tax provision.........................      1,543             77                          1,620
      Changes in operating assets and liabilities:
            (Increase) decrease in accounts receivable......     (6,165)             3                         (6,162)
            (Increase) decrease in inventories..............       (142)        (1,396)            304         (1,234)
            (Increase) decrease in prepaid expenses and other
               current assets and other, net................     (6,920)           588           1,191         (5,141)
            Increase (decrease) in accounts payable, accrued
               expenses and income taxes payable............      4,801           (358)                         4,443
                                                               --------        -------        --------       --------
            Net cash provided by operating activities.......     24,433            866              --         25,299

Cash flows from investing activities:

      Capital expenditures..................................    (37,033)          (446)                       (37,479)
      Proceeds from disposal of property and equipment......          3             52                             55
                                                               --------        -------        --------       --------
            Net cash used in investing activities...........    (37,030)          (394)                       (37,424)

Cash flows from financing activities:

      Proceeds from issuance of redeemable convertible
         preferred stock....................................      6,000                                         6,000
      Proceeds from the exercise of Common Stock options....         41                                            41
      Proceeds from loans, notes payable and long-term
         obligations, net of debt issuance costs of $557....     19,443                                        19,443
      Repayment of loans, notes payable and long-term
         obligations........................................    (13,341)          (154)                       (13,495)
      Other.................................................        (42)           (24)                           (66)
                                                               --------        -------        --------       --------
            Net cash provided by (used in) financing
               activities...................................     12,101           (178)             --         11,923

Effect of exchange rate changes on cash.....................        (48)          (203)                          (251)
                                                               --------        -------        --------       --------
            Net (decrease) increase in cash and
               cash equivalents.............................       (544)            91                           (453)

Cash and cash equivalents at beginning of year..............        604            865                          1,469
                                                               --------        -------        --------       --------
Cash and cash equivalents at end of year....................   $     60         $  956        $     --       $  1,016
                                                               ========        =======        ========       ========

</TABLE>

                                      F-30
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Cash flows from operating activities:
   Net income...............................................   $  8,191        $ 2,153        $ (2,228)      $  8,116
   Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation and amortization.........................     13,940            547                         14,487
      Amortization of deferred financing costs..............        902                                           902
      Loss (gain) on disposal of property and equipment ....          8            (17)                            (9)
      Provision for doubtful accounts.......................      6,896            237                          7,133
      Restructuring charges.................................        500                                           500
      Amortization of restricted Common Stock award.........         51                                            51
      Deferred income tax provision.........................      1,761                                         1,761
      Changes in operating assets and liabilities:
            (Increase) decrease in accounts receivable......    (14,553)         1,658                        (12,895)
            (Increase) decrease in inventories..............    (12,220)           (93)            (33)       (12,346)
            Decrease (increase) in prepaid expenses and
               other current assets and other, net..........      2,105         (1,377)          2,261          2,989
            Increase (decrease) in accounts payable,
               accrued expenses and income taxes payable....      9,660         (1,091)                         8,569
                                                               --------        -------        --------       --------
            Net cash provided by operating activities.......     17,241          2,017              --         19,258

Cash flows from investing activities:

   Capital expenditures.....................................    (18,092)          (484)                        18,576)
   Proceeds from disposal of property and equipment.........          9             92                            101
                                                               --------        -------        --------       --------
            Net cash used in investing activities...........    (18,083)          (392)                       (18,475)

Cash flows from financing activities:

   Proceeds from loans, notes payable and long-term
      obligations...........................................      5,750           (103)                         5,647
   Repayment of loans, notes payable and long-term
      obligations...........................................     (4,738)          (146)                        (4,884)
   Other....................................................        492           (389)                           103
                                                               --------        -------        --------       --------
            Net cash provided by (used in) financing
               activities...................................      1,504           (638)             --            866
Effect of exchange rate changes on cash.....................       (193)          (836)                        (1,029)
                                                               --------        -------        --------       --------
            Net increase in cash and cash equivalents.......        469            151                            620
Cash and cash equivalents at beginning of year..............        141            708                            849
                                                               --------        -------        --------       --------
Cash and cash equivalents at end of year....................   $    610         $  859        $     --       $  1,469
                                                               ========        =======        ========       ========
</TABLE>

                                      F-31
<PAGE>
                             AMSCAN HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2001


                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                AMSCAN
                                                             HOLDINGS AND      COMBINED
                                                               COMBINED          NON-
                                                              GUARANTORS      GUARANTORS    ELIMINATIONS   CONSOLIDATED
                                                             ------------     ----------    ------------   ------------
<S>                                                            <C>             <C>            <C>            <C>
Cash flows from operating activities:
   Cash flows from operating activities:
   Net income...............................................   $ 10,209        $ 2,163        $ (2,165)      $ 10,207
   Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
      Depreciation and amortization.........................     12,327            604                         12,931
      Amortization of deferred financing costs..............        870                                           870
      (Gain) loss on disposal of property and equipment ....         (2)            88                             86
      Provision for doubtful accounts.......................      2,288            618                          2,906
      Non-recurring charges.................................        995                                           995
      Amortization of restricted Common Stock award.........        170                                           170
      Deferred income tax provision.........................      3,517            247                          3,764
      Changes in operating assets and liabilities:
            Increase in accounts receivable ................     (9,701)        (4,596)                       (14,297)
            (Increase) decrease in inventories..............     (5,270)           656               2         (4,612)
            (Increase) decrease in prepaid expenses and other
               current assets and other, net................     (8,255)         3,928           2,163         (2,164)
            Increase (decrease) in accounts payable, accrued
               expenses and income taxes payable............     12,765         (4,186)                         8,579
                                                               --------        -------        --------       --------
            Net cash provided by (used in) operating
               activities...................................     19,913           (478)             --         19,435

Cash flows from investing activities:

   Capital expenditures.....................................    (11,459)          (173)                       (11,632)
   Proceeds from disposal of property and equipment.........        201             15                            216
                                                               --------        -------        --------       --------
            Net cash used in investing activities ..........    (11,258)          (158)                       (11,416)

Cash flows from financing activities:

   Proceeds from loans, notes payable and long-term
      obligations...........................................        375             75                            450

   Repayment of loans, notes payable and long-term
         obligations........................................     (9,116)          (126)                        (9,242)

   Other....................................................        700           (675)                            25
                                                               --------        -------        --------       --------
            Net cash used in financing activities...........     (8,041)          (726)             --         (8,767)
Effect of exchange rate changes on cash.....................       (996)         1,476                            480
                                                               --------        -------        --------       --------
            Net (decrease) increase in cash and cash
              equivalents...................................       (382)           114                           (268)
Cash and cash equivalents at beginning of year..............        523            594                          1,117
                                                               --------        -------        --------       --------
Cash and cash equivalents at end of year....................   $    141         $  708        $     --       $    849
                                                               ========         ======        ========       ========
</TABLE>

                                      F-32
<PAGE>


                                   SCHEDULE II
                              AMSCAN HOLDINGS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                 BEGINNING                                         ENDING
                                                                  BALANCE       WRITE-OFFS      ADDITIONS          BALANCE
                                                                 ---------      ----------      ---------          -------
<S>                                                               <C>             <C>             <C>               <C>
Allowance for Doubtful Accounts:
    For the year ended:
       December 31, 1999....................................      $6,875          $3,609          $2,906            $6,172
       December 31, 2000....................................       6,172           8,059           7,133             5,246
       December 31, 2001....................................       5,246           5,067           3,758             3,937

</TABLE>

<TABLE>
<CAPTION>
                                                                 BEGINNING                                         ENDING
                                                                  BALANCE       WRITE-OFFS      ADDITIONS          BALANCE
                                                                 ---------      ----------      ---------          -------
<S>                                                               <C>             <C>             <C>               <C>
Inventory Reserves:

    For the year ended:
       December 31, 1999....................................      $1,592          $1,824          $2,261            $2,029
       December 31, 2000....................................       2,029           1,075           1,478             2,432
       December 31, 2001....................................       2,432             722           1,596             3,306

</TABLE>

                                     F-33