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, 2002

[ ] 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 ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).
                                      Yes        No  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, 2003 was
$32,577,745.

As of March 28, 2003,  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, 2002

                                Table of Contents

                                      Part I                                Page
                                      ------                                ----

Item 1   Business..........................................................   3

Item 2   Properties........................................................   8

Item 3   Legal Proceedings.................................................  10

Item 4   Submission of Matters to a Vote of Security Holders...............  10

                                     Part II
                                     -------

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

Item 6   Selected Consolidated Financial Data..............................  11

Item 7   Management's Discussion and Analysis of Financial Condition and
           Results of Operations...........................................  14

Item 7A  Quantitative and Qualitative Disclosures About Market Risk........  25

Item 8   Financial Statements and Supplementary Data.......................  25

Item 9   Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure............................................  25

                                    Part III
                                    --------

Item 10  Directors and Executive Officers of the Registrant................  26

Item 11  Executive Compensation ...........................................  27

Item 12  Security Ownership of Certain Beneficial Owners and Management....  33

Item 13  Certain Relationships and Related Transactions....................  35

Item 14  Controls and Procedures...........................................  36

                                     Part IV
                                     -------

Item 15  Exhibits, Financial Statements, Schedules and Reports on Form 8-K.  37

         Signatures........................................................  41

         Certification by Chief Executive Officer..........................  42

         Certification by Chief Financial Officer..........................  43


                                       2
<PAGE>


                                     PART I
                                     ------

ITEM 1.  BUSINESS

         We believe we are one of the largest  manufacturers and distributors of
decorative  party  goods in the United  States and the largest  manufacturer  of
metallic balloons in the world. We offer one of the broadest and deepest product
lines in the industry.  Our party products include paper and plastic  tableware,
metallic balloons,  accessories,  novelties,  gifts and stationery. Our gift and
stationery  product lines encompass home, baby and wedding  products for general
gift giving or  self-purchase.  We sell our products through party  superstores,
other party goods retailers,  independent card and gift stores,  other retailers
and distributors  throughout the world,  including North America, South America,
Europe,  Asia and  Australia.  We believe we are the  leading  supplier to party
superstores in the United States,  which  represented  approximately  44% of our
sales in 2002,  and we have  developed a specialty  sales force that  focuses on
card and gift  stores and other  independent  retailers.  We  manufacture  items
representing  over 60% of 2002 sales and purchase the remainder from third-party
manufacturers, many of whom are located in Asia.

         Amscan  Holdings,  Inc.  ("Amscan" or the "Company")  currently  offers
approximately  390 party  ensembles,  which range from  approximately  30 to 150
design-coordinated items spanning tableware, accessories, novelties, decorations
and gifts.  The  breadth  of these  ensembles  enables  retailers  to  encourage
additional sales for a single occasion.  Furthermore,  our ensembles span a wide
range of  lifestyle  events from  age-specific  birthdays  to theme  parties and
sporting events, as well as holidays.  Approximately 80% of our sales consist of
products designed for non-seasonal occasions.

         We design,  manufacture  and market  party goods for a wide  variety of
occasions including seasonal and religious  holidays,  special events and themed
celebrations.  Our 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.  Our special event ensembles include birthdays,  christenings,  first
communions, bar mitzvahs,  confirmations,  graduations,  bridal and baby showers
and anniversaries,  while our  theme-oriented  ensembles include Hawaiian Luaus,
Mardi Gras, Fifties Rock-and-Roll Parties, Summer Fun and Patriotic.

         In addition to our  long-standing  relationships  with independent card
and  party  retailers,  we  are a  leading  supplier  to  the  party  superstore
distribution  channel.  Despite  a  consolidation  in the  number  of  companies
operating  in the party  superstore  distribution  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  44% of total sales in 2002 and the Company's sales to superstores
have grown by a 11%  compounded  annual  growth rate during the past five years.
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 distribution channel.

        To strengthen  our position as a leader in the party goods  industry and
to broaden our product line, we acquired Anagram  International Inc. and certain
related  companies  ("Anagram") and M&D Balloons,  Inc. ("M&D Balloons") in 1998
and  2002,  respectively,  both  of  which  manufacture  metallic  balloons.  We
leveraged Anagram's strong presence in the grocery, gift and floral distribution
channels to bring additional party goods to these markets.

         Beginning in 1999,  we realigned  our sales force to create a specialty
sales force which, at December 31, 2002, had 135 sales  professionals  who focus
more closely on card and gift stores and other independent  retailers.  In order
to leverage our design,  marketing and  distribution  capabilities  further,  we
introduced an extensive gift line encompassing  home,  wedding and baby products
principally to service the independent  retail  distribution  channel's need for
additional  product lines and provide these  retailers  with the  opportunity to
"one-stop shop."

                                       3
<PAGE>


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." Despite a concentration of holidays in the fourth
quarter of the year,  as a result of our  expansive  product  lines and customer
base and increased  promotional  activities,  the impact of  seasonality  on our
quarterly  results of operations  in recent years has been limited.  Promotional
activities,  including  special  dating  terms,  particularly  with  respect  to
Halloween and Christmas products sold in the third quarter, and the introduction
of our new everyday  products and designs  during the fourth  quarter  result in
higher accounts  receivables and inventory balances and higher interest costs to
support these balances.

         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, 2002, is included in Note
15 to the Company's 2002 Consolidated Financial Statements which are included in
this report beginning on page F-2.


Our Strategy

         Our objective is to be the primary  source for  consumers'  party goods
requirements  as well as a recognized  supplier of quality  stationery  and gift
items. The key elements of our strategy are as follows:

      o  Build upon Position as a Leading  Provider to Party Goods  Retailers.
         We will continue to offer convenient "one-stop shopping" for both large
         superstores and smaller party goods retailers. We will seek to grow our
         sales to existing  stores by  increasing  our share of sales volume and
         shelf  space,  continuing  to develop  innovative  new  products and by
         helping  retailers  promote  coordinated  ensembles  that boost average
         purchase  volume per consumer  through  "add-on" or impulse  purchases.
         Given our position in the party superstore distribution channel and the
         strength of our  relationships  with major chains,  we expect our sales
         will also grow as new party superstores are opened.

      o  Increase  Penetration in Independent Retail  Distribution  Channel.  We
         also believe there is a significant  opportunity to expand our sales to
         card and gift stores and other independent retailers.  By introducing a
         new gift product line and increasing  our specialty  sales force to its
         current size of 135, our sales to this distribution  channel have grown
         from  approximately $15 million in 1999 to $38 million in 2002. We have
         made  significant  investments  by adding  management and expanding our
         customer service and marketing  infrastructure  to support the existing
         sales force as well as additional sales  representatives that we expect
         to hire.  As our  existing  representatives  become more  seasoned  and
         productive,  and as we add new  representatives,  we expect to increase
         sales and profitability from this distribution  channel as sales growth
         is achieved with relatively fixed support costs.

     o   Capitalize on Investments in Infrastructure.  We intend to increase our
         sales and profitability by leveraging the significant  investments that
         we  have  made in our  infrastructure.  In  addition  to  building  our
         specialty  sales force and  expanding  our gift product  offerings,  we
         invested  approximately  $30 million to construct a new 544,000  square
         foot distribution  facility that will enable us to consolidate  further
         our  distribution  capabilities  through  2003. We expect these changes
         will enable us to support  substantially  greater sales volume over the
         long  term.  We also  expect to  realize  additional  savings  from our
         integration of our recent  acquisition of M&D Balloons with our Anagram
         operations.

      o  Expand  International  Presence.  We believe there is an opportunity to
         expand our international business, which represented  approximately 14%
         of our  sales in each of the  years in the  three-
                                       4
<PAGE>


         year period ended  December 31, 2002.  We currently  have a presence in
         Mexico, Canada, Europe and Asia. We have our own sales force in Mexico,
         Canada, and the United Kingdom,  and operate through  third-party sales
         representatives  elsewhere.  The  market  for  decorative  party  goods
         outside  the U.S.  is less mature due to lower  consumer  awareness  of
         party products and less developed  retail  distribution  channels.  Our
         strategy  is  to  grow  our  international   sales  by  broadening  our
         distribution network,  increasing  accessorization and customization of
         our  products to local tastes and  holidays  and  continuing  to deepen
         retail penetration.  We have identified the U.K., Germany and Australia
         as the most attractive opportunities for expansion at the present time,
         based on their demographics,  celebratory customs and practices, recent
         recognition of the party superstore  concept and  use/acceptance of the
         English language.

      o  Continued Growth Through Targeted  Acquisitions.  We believe that there
         will  be  from  time to time  opportunities  to  make  acquisitions  of
         complementary businesses.  Through such businesses, we can leverage our
         existing marketing,  distribution and production  capabilities,  expand
         our  presence  in the various  retail  distribution  channels,  further
         broaden and deepen our product  line and increase  our  penetration  in
         international markets.


Innovative Product Development and Design Capabilities

         Our 114 person  in-house  design  staff  continuously  develops  fresh,
innovative  and  contemporary  product  designs  and  concepts.   Our  continued
investment  in art and design  results in a steady supply of fresh ideas and the
creation of complex,  unique  ensembles  that appeal to  consumers.  In 2002, we
introduced  over  4,000  new  products  and  more  than  65 new  ensembles.  Our
proprietary   designs  help  us  keep  our  products   differentiated  from  the
competition.


Party Product Lines

         The  percentage of sales for each product line for 2002,  2001 and 2000
are set forth in the following table:

                                          2002      2001      2000
                                         -----     -----     -----
            Party Goods................    65%       69%       70%
            Metallic Balloons..........    23        21        21
            Stationery.................     7         7         7
            Gift.......................     5         3         2
                                         ----      ----      ----
                                          100%      100%      100%
                                         ====      ====      ====

         The following  table sets forth the  principal  products in each of the
categories, excluding metallic balloons:

      Party Goods                    Stationery                    Gift
      -----------                    ----------                    ----
Decorative and Solid Color     Baby and Wedding Memory       Ceramic Giftware
  Tableware                      Books                       Decorative Candles
Candles                        Decorative Tissues            Decorative Frames
Cascades and Centerpieces      Gift Wrap, Bows and Bags      Mugs
Crepe                          Invitations, Notes and        Plush Toys
Cutouts                          Stationery                  Wedding Accessories
Flags and Banners              Photograph Albums               and Cake Tops
Guest Towels                   Ribbons
Latex Balloons                 Stickers and Confetti
Party Favors
Party Hats
Pinatas

                                       5
<PAGE>


         Our products  span a wide range of lifestyle  events from  age-specific
birthdays to theme  parties and  sporting  events,  as well as holidays  such as
Halloween  and New  Year's.  Approximately  80% of our  sales  consist  of items
designed for non-seasonal  occasions,  with the remaining 20% comprised of items
used for holidays and events  throughout the year. Our product  offerings  cover
the following:

          Seasonal                   Themes                  Everyday
      ----------------         ------------------          ------------
      New Year's               Card Night                  Birthdays
      Valentine's Day          Fiesta                      Graduations
      St. Patrick's Day        Fifties Rock and Roll       Weddings
      Easter                   Hawaiian Luau               Anniversaries
      Passover                 Mardi Gras                  Showers
      Fourth of July           Masquerade                  First Communions
      Halloween                Patriotic                   Confirmations
      Thanksgiving             Religious                   Retirements
      Hanukkah                 Sports                      Christenings
      Christmas                Summer Fun                  Bar Mitzvahs
                               Western


Manufactured Products

           Our vertically integrated manufacturing capability (i.e., our ability
to perform each of the steps in the process of converting raw materials into our
finished  products)  enables us to control costs,  monitor  product  quality and
manage inventory investment better and provide more efficient order fulfillment.
We manufacture items  representing over 60% of our 2002 sales. Our facilities in
New York,  Kentucky,  Rhode  Island,  Minnesota,  Illinois and Mexico are highly
automated  and produce  paper and  plastic  plates and cups,  napkins,  metallic
balloons and other party and novelty items. State-of-the art printing,  forming,
folding and packaging  equipment support these manufacturing  operations.  Given
our size and sales volume,  we are generally  able to operate our  manufacturing
equipment on the basis of at least two shifts per day thus  lowering  production
costs per unit. In addition,  we manufacture  products for third parties,  which
allows us to maintain a satisfactory level of equipment utilization.

Purchased Products

          We try to  outsource  items that  require  labor-intensive  production
processes. We purchased products representing approximately 39% of sales in 2002
from  independently-owned  manufacturers,  many of whom are  located in Asia and
with whom we have long-standing relationships.  We have relationships of over 15
years with our two largest  suppliers.  We believe that the quality and price of
the products manufactured by these suppliers provides a significant  competitive
advantage.  Our business,  however,  is not dependent  upon any single source of
supply for these products.

Raw Materials

          The  principal raw materials  used in  manufacturing  our products are
paper and  petroleum-based  resin. We have  historically been able to change our
product prices in response to changes in raw material costs.  While we currently
purchase such raw material from a relatively small number of sources,  paper and
resin are available  from numerous  sources.  Therefore,  we believe our current
suppliers  could be  replaced  without  adversely  affecting  our  manufacturing
operations in any material respect.

Sales and Marketing

         Our  principal  sales and  marketing  efforts are  conducted  through a
domestic  direct  employee  sales  force  of  approximately   170  professionals
servicing  over  40,000  retail  accounts.  Included in this sales force are our
approximately 35 seasoned sales  professionals  who service the party superstore
and party specialty retailer distribution channel and who, on average, have been
affiliated with us for approximately

                                       6
<PAGE>


9  years.   In  addition  to  the  employee   sales  team,  a  select  group  of
manufacturers' representatives handle specific account situations.  Employees of
subsidiaries   outside  the  United  States  generally   service   international
customers.

         To  focus  more  closely  on  the  needs  of  the  independent   retail
distribution  channel, we utilize a specialty sales force which currently totals
approximately  135 sales  professionals.  Our specialty sales force is unique in
the party  goods  industry  in its  ability  to offer both gift  products  and a
comprehensive  line of decorative party goods and  accessories.  Anagram and M&D
Balloons utilize a group of  approximately 40 independent  distributors to bring
their metallic balloons to the grocery,  gift and floral markets,  as well as to
our party superstore and specialty retailer customers.  To support our sales and
marketing  efforts,  we produce four main  decorative  party product  catalogues
annually (three  catalogues for seasonal products and one catalogue for everyday
products). We also produce additional catalogues to market our metallic balloons
and gift and stationery products.

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

         Additionally,  we have successfully  pursued  opportunities to have our
products  listed on the  websites of various  Internet  retailers.  We have also
developed a website  which  displays and describes  our product  assortment  and
capabilities.  This  website  enables  our key  customers  to  access  real time
information  regarding the status of existing orders,  stock availability and to
place new orders.  In the  future,  we plan to utilize  this  website as a vital
marketing  tool,  providing  us with the  ability to  announce  special  product
promotions  and  other  information  in an  expeditious  manner  and to make the
website available to all of our customers.

Distribution and Systems

         We ship our products from distribution  facilities that employ computer
assisted systems directly to customers  throughout the United States and Canada.
Our  electronic-order  entry and  information  systems  allow us to  manage  our
inventory  with minimal waste,  achieve  average fill rates in excess of 90% and
provide quick order turnaround times of generally between 24 to 48 hours.

         Our  distribution  facilities  for paper  party  items are  principally
located in New York; represent more than 1,000,000 square feet in the aggregate;
and include a new 544,000  square foot  domestic  facility  which  became  fully
operational  during  the fourth  quarter of 2002.  We  distribute  our  metallic
balloons  domestically  from facilities in Minnesota and New York.  Products for
markets outside the United States are shipped from our  distribution  facilities
in Mexico, the United Kingtom and Australia.

Customers

         Our  customers are  principally  party  superstores,  other party goods
retailers,  independent card and gift retailers and other distributors.  We have
also  expanded  our  presence in the gift shop,  supermarket  and other  smaller
independent retail distribution channels. In the aggregate,  we supply more than
40,000 retail outlets both domestically and internationally.

         We have a diverse customer base with only one customer, Party City, the
nation's largest party goods retailer, accounting for more than 10% of our sales
in 2002.  For the years ended December 31, 2002,  2001 and 2000,  sales to Party
City's  corporate-owned  and  operated  stores  represented  13%, 13% and 12% of
consolidated  net sales,  respectively.  For the years ended  December 31, 2002,
2001 and  2000,  sales to  Party  City's  franchise-owned  and  operated  stores
represented  14%,  15%  and  13%  of  consolidated   net  sales,   respectively.
Franchisees are financially independent from Party City and diversify our credit
exposure.

                                       7
<PAGE>


Competition

         We  compete  on the  basis of  diversity  and  quality  of our  product
designs,  breadth of product line, product availability,  price,  reputation and
customer service.  Although we have many competitors with respect to one or more
of our products,  we believe that there are few  competitors who manufacture and
distribute  products with the  complexity of design and breadth of product lines
that  we  do.  Furthermore,   our  design  and  manufacturing  processes  create
efficiencies  in  manufacturing  that  few of  our  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  ourselves.  Certain of these  competitors  control various
product licenses for widely recognized images, such as cartoon or motion picture
characters,  which could  provide them with a  competitive  advantage.  However,
through the acquisitions of Anagram and M&D Balloons,  we have acquired a strong
portfolio of cartoon and other character  licenses that we use in the design and
production of our metallic balloons.

Copyrights

         We own  copyrights on the designs we create and use on our products and
trademarks on the words and designs used on or in connection  with our products.
It is our practice to register our copyrights  with the United States  Copyright
Office to the  extent we deem  reasonable.  We do not  believe  that the loss of
copyrights  or  trademarks  with respect to any  particular  product or products
would have a material adverse effect on our business.  Except for those licenses
held by Anagram and M&D  Balloons,  we do not depend on licenses to any material
degree in our  business  and,  therefore,  do not incur any  material  licensing
expenses. We hold approximately 90 licenses,  allowing us to use various cartoon
and other  characters on our balloons.  None of these  licenses is  individually
material to our aggregate business.

Employees

         As of December 31, 2002, the Company had approximately 2,000 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       97,000 square feet        Leased (expiration date:
                            art production of 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        277,700 square feet       Leased (expiration date:
                            of plastic plates, cups and bowls                             April 26, 2006)

Louisville, Kentucky        Manufacture and distribution        189,000 square feet       Leased (expiration date:
                            of paper plates                                               March 31, 2010)

Newburgh, New York          Manufacture of paper napkins        53,000 square feet        Leased (expiration date:
                            and cups                                                      May 31, 2004)

Eden Prairie, Minnesota     Manufacture and distribution        115,600 square feet       Owned
                            of balloons and accessories
</TABLE>

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Owned or Leased
Location                         Principal Activity                Square Feet            (with Expiration Date)
--------                         ------------------                -----------            ----------------------

<S>                         <C>                                 <C>                       <C>
Tijuana, Mexico             Manufacture and distribution        75,000 square feet        Leased (expiration date:
                            of party products                                             May 16, 2007)

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

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

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

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

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

Manteno, Illinois           Manufacture of printed film         31,900 square feet        Leased (expiration date:
                            and flexible packing materials                                August 31, 2003)

Chanhassen, Minnesota       Distribution of balloons and        62,200 square feet        Leased (expiration date:
                            accessories                                                   October 14, 2004)
</TABLE>


     (1) Property subject to a ten-year mortgage securing a loan in the original
         principal  amount of $5.9  million  and  bearing  interest at a rate of
         8.51%.  The loan  matures  in  September  2004.  The  principal  amount
         outstanding  as of December 31, 2002 was  approximately  $1.0  million.
         During the first quarter of 2003, we have  transferred the distribution
         of solid color party  products to this facility from the Newburgh,  New
         York facility. We have not renewed the lease on the Newburgh,  New York
         facility expiring on April 30, 2003.

     (2) Property  subject  to  first  and  second  lien  mortgage  loans in the
         original  principal  amount  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,  we have 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 3.77%, 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. At December 31,
         2002, the principal amounts outstanding under the first and second lien
         mortgage  notes  were  approximately  $9.4  million  and $9.6  million,
         respectively.  This facility became fully operational during the fourth
         quarter of 2002.


         Additionally, we maintain smaller distribution facilities in Australia,
Canada and Mexico. We also maintain sales offices in Australia, Canada and Japan
and showrooms in New York, Texas, Georgia and Toronto, Canada.

         We believe that our properties have been adequately maintained,  are in
generally  good  condition  and are  suitable  for  our  business  as  presently
conducted.  We believe our existing  facilities  provide  sufficient  production
capacity for our present needs and for our anticipated  needs in the foreseeable
future.  To the extent such  capacity is not needed for the  manufacture  of our
products,  we generally  use 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. We also  believe  that upon the  expiration  of our
current leases,  we will be able either to secure renewal terms or to enter into
leases for alternative locations at market terms.

                                       9
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

         We are a party to certain claims and litigation in the ordinary  course
of business. We do not believe any of these proceedings will have,  individually
or in the aggregate,  a material adverse effect upon our financial  condition or
future results of operations.

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

         Not applicable.

                                     PART II
                                     -------

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

         On  December  19,  1997,   Amscan  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 in which  Confetti  was
merged  with and into  Amscan  (the  "Merger"),  with  Amscan  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, 2003, there were 28 holders of
record of the Company 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  payable  annually,  at 6% per  annum.
Dividends  payable on or prior to March 30,  2004,  are  payable  in  additional
shares of Series A Redeemable  Convertible Preferred Stock.  Subsequent to March
30, 2004, dividends are payable, at the option of the Company, either in cash or
additional shares of Series A Redeemable  Convertible  Preferred Stock. On March
30, 2002, the annual dividend was  distributed in additional  shares of Series A
Redeemable  Convertible  Preferred  Stock.  See  Note 13 to the  Company's  2002
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.

                                       10
<PAGE>


Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                             (a)                           (b)                         (c)
                                                                                              Number of securities
                                                                                             remaining available for
                                  Number of securities to be        Weighted-average          future issuance under
                                    issued upon exercise of         exercise price of          equity compensation
                                     outstanding options,          outstanding options,    plans (excluding  securities
                                     warrants and rights           warrants and rights       reflected in column (a))
<S>                                    <C>                               <C>                          <C>
Equity compensation plans
approved by security holders           132.074                           $87,620                      17.926

Equity compensation plans not
approved by security holders              --                               --                            --
                                       -------                           -------                      ------
           Total ............          132.074                           $87,620                      17.926
                                       =======                           =======                      ======
</TABLE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The selected  consolidated  financial  data  presented  below under the
captions  "Statement of Income Data," and "Balance  Sheet Data" as of the end of
and for each of the years in the five-year  period ended  December 31, 2002, are
derived from the consolidated financial statements of Amscan Holdings,  Inc. The
consolidated  financial statements as of December 31, 2002 and 2001 and for each
of the years in the  three-year  period  ended  December 31, 2002 and the report
thereon,  are included in this report under Item 8,  "Financial  Statements  and
Supplementary Data." 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."


                                       11
<PAGE>



<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                              -----------------------------------------------------------------
                                                                 2002         2001           2000          1999          1998
                                                              ---------     ---------     ---------     ---------     ---------
                                                                                    (Dollars in thousands)
<S>                                                           <C>           <C>           <C>           <C>           <C>
Statements of Income Data (1):
Net sales .................................................   $ 385,603     $ 345,183     $ 323,484     $ 304,892     $ 234,048
Cost of sales .............................................     252,980       225,036       206,872       194,632       151,324
                                                              ---------     ---------     ---------     ---------     ---------
Gross profit ..............................................     132,623       120,147       116,612       110,260        82,724
Selling expenses ..........................................      34,619        31,414        28,578        23,235        15,956
General and administrative expenses .......................      32,056        33,317        31,958        30,694        20,612
Provision for doubtful accounts ...........................       3,008         3,758         7,133         2,906         3,336
Art and development costs .................................      10,301         8,772         8,453         8,650         5,972
Write-off of deferred financing and IPO-related costs (2) .       2,261
Restructuring charges (3) .................................       1,663                         500           995         2,400
                                                              ---------     ---------     ---------     ---------     ---------
Income from operations ....................................      48,715        42,886        39,990        43,780        34,448
Interest expense, net .....................................      21,792        24,069        26,355        26,365        22,965
Other (income) expense, net ...............................        (311)           24            96            35          (121)
                                                              ---------     ---------     ---------     ---------     ---------
Income before income taxes and minority interests .........      27,234        18,793        13,539        17,380        11,604
Income tax expense ........................................      10,757         7,423         5,348         7,100         4,816
Minority interests ........................................          12            68            75            73            79
                                                              ---------     ---------     ---------     ---------     ---------
Net income ................................................      16,465        11,302         8,116        10,207         6,709
Dividend on redeemable convertible preferred stock ........         376           270
                                                              ---------     ---------     ---------     ---------     ---------
Net income applicable to common shares ....................   $  16,089     $  11,032     $   8,116     $  10,207     $   6,709
                                                              =========     =========     =========     =========     =========

Other Financial Data:
Gross margin percentage ...................................       34.4%         34.8%         36.0%         36.2%         35.3%
Capital expenditures, including assets under capital leases   $  17,765     $  37,623     $  18,576     $  12,283     $   7,714
Depreciation and amortization (4) .........................      13,962        15,468        14,487        12,931         8,501
Ratio of earnings to fixed charges (5) ....................        2.0x          1.6x          1.4x          1.6x          1.4x

Balance Sheet Data:
Working capital ...........................................   $ 119,256     $  96,713     $  83,760     $  82,228     $  71,476
Total assets ..............................................     372,497       310,474       280,627       263,487       248,852

Short-term obligations (6) ................................   $   3,220     $   4,155     $  14,089     $   8,250     $  13,177
Long-term obligations .....................................     295,420       278,443       261,815       266,891       270,127
                                                              ---------     ---------     ---------     ---------     ---------
Total obligations .........................................   $ 298,640     $ 282,598     $ 275,904     $ 275,141     $ 283,304
                                                              =========     =========     =========     =========     =========

Redeemable convertible preferred stock (7) ................   $   6,646     $   6,270
Redeemable Common Stock (8) ...............................      30,523        29,949     $  28,768     $  23,582     $  19,547
Stockholders' deficit .....................................     (46,283)      (77,305)      (86,881)      (88,529)      (95,287)
</TABLE>


                                       12
<PAGE>



    (1) During the first quarter of 2002, we adopted  Emerging Issues Task Force
        No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer
        or a Reseller of the Vendor's  Products"  ("EITF No.  01-09").  EITF No.
        01-09  addresses  the  income   statement   classification   of  certain
        advertising  costs.  Our  consolidated  statements of income,  including
        those presented for comparative  purposes,  include the reclassification
        of  certain   selling   expenses  as  a  reduction  of  revenue.   These
        reclassifications  did not  affect  our income  from  operations  or net
        income.

    (2) During the fourth  quarter of 2002, we amended and restated our existing
        credit  facility with various  lenders which  resulted in a $1.5 million
        write-off of deferred  financing  costs  associated  with the  facility.
        Additionally,  during the  fourth  quarter  of 2002,  we decided  not to
        pursue an initial public offering ("IPO") of shares of our Common Stock,
        which resulted in a $0.8 million  write-off of costs associated with the
        offering.  On March  12,  2003,  we filed a Form RW with the  Commission
        withdrawing our registration statement for the IPO.

    (3) During 2002, the Company incurred charges of $0.6 million resulting from
        the consolidation of the fabrication operations of M&D Balloons into its
        existing balloon operations.  In addition,  the Company incurred charges
        of $0.4  million  and $0.7  million  relating  to the  consolidation  of
        certain  domestic  and foreign  distribution  operations,  respectively.
        These consolidations may result in additional  restructuring  charges in
        subsequent periods.

        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 a 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.

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

    (4) Depreciation and amortization  includes amortization of goodwill of $2.6
        million,  $2.6 million,  $2.7 million,  and $1.0 million in 2001,  2000,
        1999 and 1998, respectively.

    (5) 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.

    (6) Short-term obligations consists primarily of 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 shares of our
        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.  Dividends are  cumulative
        and payable annually, at 6% per annum.  Dividends payable on or prior to
        March 30, 2004, are payable in additional  shares of Series A Redeemable
        Convertible Preferred Stock. Subsequent to March 30, 2004, dividends are
        payable,  at the  option of the  Company,  either in cash or  additional
        shares of Series A Redeemable  Convertible Preferred Stock. On March 30,
        2002, the annual dividend was distributed in additional shares of Series
        A  Redeemable  Convertible  Preferred  Stock.  As of December  31, 2002,
        accrued dividends aggregated $286,200 and are included in redeemable

                                       13
<PAGE>

        convertible  preferred  stock  on the  consolidated  balance  sheet.  At
        December 31, 2002,  42.4 shares of our  preferred  stock were issued and
        outstanding.

        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.

    (8) Under the terms of the  Company's  amended  and  restated  stockholders'
        agreement dated February 20, 2002 (the "Stockholders'  Agreement"),  the
        Company can purchase  all of the shares held by an employee  stockholder
        and, under certain  circumstances,  an employee  stockholder can require
        the Company to  purchase  all of the shares  held by the  employee.  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.

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.
Although  there  has been  consolidation  in the party  superstore  distribution
channel in the past five years,  the number of party  superstores  continues  to
increase.  Due, in part, to the success of the superstore  distribution channel,
party goods  manufacturers have broadened their product offerings to support the
celebration  of a greater number of occasions.  The  industry's  growth has been
directly  affected  by these  changes.  To  achieve  further  sales  growth  and
expansion,  we utilize a specialty sales force to focus more closely on card and
gift stores and other  independent  retailers  and have created  expansive  gift
lines  encompassing  home, baby and wedding  products for general gift giving or
self-purchase, principally for this distribution channel.

         Our revenues are  generated  from sales of  approximately  38,000 SKU's
consisting  of party  goods  for all  occasions,  including  paper  and  plastic
tableware,  accessories and novelties,  metallic  balloons,  stationery and gift
items.  Tableware (plates,  cups, cutlery,  napkins and tablecovers) is our core
product category,  generating approximately 41% of revenues in 2002. Coordinated
accessories (e.g., balloons, banners, gifts and stationery) and novelties (e.g.,
party favors) are offered to complement  our tableware  products.  As a metallic
balloon  manufacturer,  we have a strong  presence in grocery,  gifts and floral
distribution   channels,  and  have  leveraged  our  strong  presence  to  bring
additional  party goods to these  markets.  In February  2002,  we completed the
strategic  acquisition of M&D Balloons, a metallic balloon  manufacturer,  which
has a strong  portfolio  of  character  licenses  that  complement  those of our
previously existing portfolio.

         Gross profit is  principally  influenced by product mix and the cost of
our key raw materials (paper and  petroleum-based  resin).  We have historically
been able to adjust  our prices in  response  to changes in the price of our key
raw  materials.  Products  we  manufacture,  primarily  tableware  and  metallic
balloons,  represented  over 60% of our  sales in 2002.  During  the past  three
years, we have invested over $25.9 million in printing,  fabrication,  packaging
and other manufacturing equipment, which has allowed us to increase productivity
rates,  thereby  lowering  labor and overhead as a percentage  of  manufacturing
costs  and  increasing   manufacturing   margins.  We  believe  our  ability  to
manufacture  over 60% of our products  enables us to lower  production  costs by
optimizing production while minimizing inventory  investment,  to ensure product
quality through rigid quality  control  procedures  during  production and to be
responsive to our customers' product design demands.

                                       14
<PAGE>


Results of Operations

         During the first quarter of 2002, the Company  adopted  Emerging Issues
Task  Force No.  01-09,  "Accounting  for  Consideration  Given by a Vendor to a
Customer or a Reseller of the Vendor's  Products"  ("EITF No. 01-09").  EITF No.
01-09 addresses the income statement classification of certain selling expenses.
The Company's consolidated  statements of income,  including those presented for
comparative  purposes,  include  the  reclassification  of  such  expenses  as a
reduction  of  revenue.  These  reclassifications  did not affect the  Company's
income from operations or net income.


Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Percentage of Net Sales
                                                         Year Ended December 31,
                                                         -----------------------
                                                            2002        2001
                                                           ------      ------
Net sales .............................................    100.0%      100.0%
Cost of sales..........................................     65.6        65.2
                                                           -----       -----
  Gross profit.........................................     34.4        34.8
Operating expenses:
  Selling expenses.....................................      9.0         9.1
  General and administrative expenses..................      8.3         9.7
  Provision for doubtful accounts......................      0.8         1.1
  Art and development costs............................      2.7         2.5
  Write-off of deferred financing and IPO-related costs      0.6
  Restructuring charges................................      0.4
                                                           -----       -----
Total operating expenses...............................     21.8        22.4
                                                           -----       -----
  Income from operations...............................     12.6        12.4
Interest expense, net..................................      5.6         7.0
Other income, net......................................     (0.1)
                                                           -----       -----
  Income before income taxes and minority interests....      7.1         5.4
Income tax expense.....................................      2.8         2.1
Minority interests.....................................
                                                           -----       -----
  Net income...........................................      4.3%        3.3%
                                                           =====       =====


         Net sales of $385.6  million for the year ended  December 31, 2002 were
$40.4  million or 11.7%  higher than net sales for the year ended  December  31,
2001.  During year ended  December 31, 2002,  the Company's net sales of printed
ensembles,  solid color tableware and other party goods to the party  superstore
distribution  channel grew by 5.3%. The Company's  specialty sales force,  which
brings party goods and related  gift  products to card and gift stores and other
independent  retailers,  achieved  42.1% net sales growth  during the year ended
December  31,  2002.  Domestic  net  sales of  metallic  balloons  and  flexible
packaging  during the year  ended  December  31,  2002  increased  by 39.7% when
compared to 2001,  principally  as a result of the February 2002  acquisition of
M&D Balloons (see Liquidity and Capital Resources).

         Gross  profit for the year ended  December  31,  2002 of 34.4% was 0.4%
lower than in 2001  principally  due to the impact of product mix  (particularly
solid color  tableware),  start-up costs  associated  with the new  distribution
facility  which became fully  operational  during the fourth quarter of 2002 and
increased insurance costs, much of which was a result of the events of September
11, 2001.

         Selling  expenses of $34.6 million for the year ended December 31, 2002
were $3.2 million higher than in the  corresponding  period in 2001  principally
due to the inclusion of the operating  results of M&D Balloons and the continued
expansion  of the  Company's  specialty  sales  force.  Selling  expenses,  as a
percentage of net sales, decreased from 9.1% to 9.0%, as we continue to leverage
our sales infrastructure.

                                       15
<PAGE>


         General and administrative expenses of $32.1 million for the year ended
December 31, 2002 were $1.3 million lower than 2001. The net decrease in general
and  administrative  expenses  principally  reflects the elimination of goodwill
amortization in 2002,  which totaled $1.6 million during the year ended December
31, 2001. The elimination of goodwill  amortization  was partially offset by the
inclusion  of the  operating  results  of M&D  Balloons  and the  aforementioned
increased  insurance  costs as well as employee wages. As a percentage of sales,
general and administrative expenses decreased by 1.4% to 8.3%.

         The provision for doubtful  accounts of $3.0 million for the year ended
December  31, 2002  decreased by $0.8 million and from 1.1% to 0.8% of net sales
compared to 2001. During the second half of 2001, a superstore  customer filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code and the Company charged $2.5 million to the provision for doubtful accounts
to fully provide for this customer's accounts  receivable balance.  The customer
accounted for 2.1% of our net sales in 2001.

         Art and development  costs of $10.3 million for the year ended December
31, 2002 were $1.5  million  higher as compared to 2001,  principally  due to an
increase in staff and the inclusion of the operating results of M&D Balloons. As
a percentage of sales, art and development costs increased by 0.2% to 2.7%.

         During the fourth quarter of 2002, the Company amended and restated its
existing  credit  facility with various lenders which resulted in a $1.5 million
write-off  of  deferred   financing   costs   associated   with  the   facility.
Additionally,  during the fourth  quarter of 2002,  we decided  not to pursue an
IPO, which  resulted in a $0.8 million  write-off of costs  associated  with the
offering. On March 12, 2003, we filed a Form RW with the Commission  withdrawing
our registration statement for the IPO.

         During 2002,  the Company  incurred  charges of $0.6 million  resulting
from the  consolidation  of the fabrication  operations of M&D Balloons into its
existing balloon operations.  In addition,  the Company incurred charges of $0.4
million and $0.7 million  relating to the  consolidation of certain domestic and
foreign distribution operations,  respectively.  These consolidations may result
in additional restructuring charges in subsequent periods.

         Interest expense, net, of $21.8 million for the year ended December 31,
2002 was $2.3 million lower than 2001  reflecting  lower average  interest rates
(6.7%  in  2002  versus  8.4% in  2001),  partially  offset  by  higher  average
borrowings.

         Income  taxes  for the  years  ended  December  31,  2002 and 2001 were
provided for at a consolidated effective income tax rate of 39.5%. The effective
income tax rate exceeds the federal  statutory  income tax rate primarily due to
state income taxes.


                                       16
<PAGE>


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Percentage of Net Sales
                                                        Year Ended December 31,
                                                        -----------------------
                                                           2001        2000
                                                          ------      ------
Net sales ..........................................      100.0%      100.0%
Cost of sales.......................................       65.2        64.0
                                                          -----       -----
  Gross profit......................................       34.8        36.0
Operating expenses:
  Selling expenses..................................        9.1         8.8
  General and administrative expenses...............        9.7         9.9
  Provision for doubtful accounts...................        1.1         2.2
  Art and development costs.........................        2.5         2.6
  Restructuring charges.............................                    0.2
                                                          -----       -----
Total operating expenses............................       22.4        23.7
                                                          -----       -----
  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%
                                                          =====       =====

         Net sales for the year ended December 31, 2001 of $345.2 million,  were
$21.7 million or 6.7% higher than for the year ended  December 31, 2000.  During
2001,  our sales of printed  ensembles,  solid color  tableware  and other party
goods to the  party  superstore  distribution  channel  grew by  16.4%,  despite
further  consolidation during the year. In addition,  our specialty sales force,
which brings  party goods and related gift  products to card and gift stores and
other  independent  retailers,  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 $120.1  million,
or 34.8% of net sales, as compared to $116.6 million, or 36.0% 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 $31.4 million for the year ended December 31, 2001
were $2.8 million  higher than in 2000, or 9.1% of net sales versus 8.8% for the
year 2000. The increase in selling expenses reflects the continued  expansion of
our  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 9.7%.

         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. We 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 2.1% of our net sales in 2001.  During  the year  ended
December 31, 2000,  two of our customers  filed  voluntary  petitions for relief
under  Chapter 11 of the United  States  Bankruptcy  Code.  As a result of those
filings,  we charged $3.4 million and $1.0 million to the provision for doubtful
accounts during the second and fourth quarters of

                                       17
<PAGE>


2000,  respectively,  to fully provide for the accounts  receivable balances due
from these customers. We 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,  we
recorded  charges  of  $0.3  million  relating  to  the   restructuring  of  our
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 39.5%. The effective
income tax rate exceeds the federal  statutory  income tax rate primarily due to
state income taxes.


Liquidity and Capital Resources

         On December  20, 2002,  we amended and  restated  our  existing  credit
facility  with  various  lenders  (the  "Lenders"),  with  Goldman  Sachs Credit
Partners L.P. as sole lead  arranger,  sole  bookrunner and  syndication  agent,
General Electric Capital  Corporation as administrative and collateral agent and
Fleet  National  Bank as  documentation  agent.  Under the  terms of the  Second
Amended and Restated Credit and Guaranty Agreement (the "Credit  Agreement") the
Lenders  agreed  to  amend  and  restate  the  Company's  existing  bank  credit
agreements  in their  entirety  and to  provide a  $200,000,000  senior  secured
facility  consisting  of a  $170,000,000  term loan (the "Term  Loan") and up to
$30,000,000 aggregate principal amount of revolving loans (the "Revolver").  The
proceeds of the Term Loan were used to  redesignate  and  replace the  Company's
AXEL  term loan of $148.5  million  and  revolver  borrowings  of $16.0  million
existing at the closing  date and to pay certain  fees and  expenses  associated
with the refinancing.

         The $170,000,000 Term Loan was funded at a 1.0% original issue discount
and provides for  amortization  (in  quarterly  installments)  of 1.0% per annum
through  June 15,  2006,  and will then  amortize  in equal  quarterly  payments
through  June 15,  2007.  The Term Loan  bears  interest,  at the  option of the
Company,  at the index  rate plus  3.50%  per annum or at LIBOR  plus  4.50% per
annum,  with a LIBOR floor of 2.0%. At December 31, 2002, the floating  interest
rate on the Term Loan was 7.75%.  The Company is  required  to make  prepayments
under the Credit  Agreement based upon the net proceeds from certain asset sales
and insurance or condemnation  awards,  the issuances of certain debt and equity
securities, and based on annual cash flows, as defined.

         The  Revolver  expires on June 15,  2007,  and bears  interest,  at the
option of the Company,  at the index rate plus,  based on performance,  a margin
ranging from 2.00% to 3.50% per annum, or at LIBOR plus, based on performance, a
margin  ranging  from 3.00% to 4.50% per annum,  with a LIBOR floor of 2.0%.  At
December 31, 2002,  the Company had no borrowings  under the  Revolver.  Standby
letters of credit  totaling  $6.5 million were  outstanding  and the Company had
borrowing  capacity  of  approximately  $23.5  million  under  the  terms of the
Revolver at December 31, 2002.

         The Term Loan and borrowings  under the Revolver are secured by a first
priority lien on substantially all of the Company's assets and are guaranteed by
the Company's domestic subsidiaries. The Company is required to maintain certain
financial ratios during the term of the Credit Agreement, including leverage and
interest coverage ratios.

                                       18
<PAGE>


         At  December  31,  2002,  the  Company  had   $110,000,000   of  senior
subordinated notes (the "Notes") outstanding.  The Notes bear interest at a rate
of  9.875%  per  annum  and  mature  in  December  2007.   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 redemption prices ranging
from  104.937%  to  100%,  plus  accrued  and  unpaid  interest  to the  date of
redemption.  Upon the occurrence of a Change of Control,  as defined in the note
indenture, 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 Credit  Agreement,  the note
indenture  and the  other  indebtedness  that  would  become  payable  upon  the
occurrence of such Change of Control.

         The Credit Agreement and the Notes may affect the Company's  ability to
make future capital expenditures and 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, 2002,  the Company
did  not  have  material   commitments   for  capital   expenditures   or  other
acquisitions.

         In addition to the Revolver,  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,  2003,  a 1.0  million  British  Pound  Sterling
denominated revolving credit facility which bears interest at the U.K. base rate
plus  1.75% and  expires  on June 1, 2003 and a $1.0  million  revolving  credit
facility  which bears  interest  at LIBOR plus 1.0% and expires on December  31,
2003. No borrowings were outstanding  under these revolving credit facilities at
December 31, 2002.

         The  Company  financed  the cost to  purchase  property  in 2000 and to
construct a new domestic  distribution facility completed in 2001 (total cost of
$30.2  million),  using  borrowings  under the then  existing  revolving  credit
facility and, in 2001, 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 in the original
principal amount 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 the rate of
3.77%,  and is subject to review and adjustment  semi-annually  based on the New
York State Job Development  Authority's  confidential  internal protocols.  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.

         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.  Dividends are cumulative  and payable  annually at 6%
per annum.  Dividends  payable  on or prior to March 30,  2004,  are  payable in
additional shares of Series A Redeemable  Convertible Preferred Stock based on a
value of  $150,000  per  share.  Subsequent  to March 30,  2004,  dividends  are
payable,  at the option of the Company,  either in cash or additional  shares of
Series A Redeemable  Convertible  Preferred Stock. On March 30, 2002, the annual
dividend was distributed in additional shares of Series A Redeemable Convertible
Preferred  Stock.  At December  31,  2002,  42.40  shares of Series A Redeemable
Convertible  Preferred Stock were issued and  outstanding and accrued  dividends
aggregated $286,200.

         On February  19, 2002,  the Company  purchased  all of the  outstanding
Common Stock of M&D Balloons, a Manteno, Illinois-based manufacturer of metallic
and plastic balloons, from American Greetings Corporation ("American Greetings")
for $27.5 million plus related costs.  The Company  financed the  acquisition by
borrowing  $13.5 million under its then existing  revolving  credit facility and
issuing 96.774 shares of its Common Stock to American  Greetings,  at a value of
$155,000 per share.

                                       19
<PAGE>


American  Greetings  continues to distribute  metallic  balloons  under a supply
agreement with the Company.

         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 costs. Rent expense for the year ended December
31, 2002,  totaled $12.7 million.  The minimum lease payments currently required
under  non-cancelable  operating  leases for the year ending  December 31, 2003,
approximate $12.1 million.

         On June 13, 2002, the Company filed a  registration  statement with the
Commssion for an IPO of its Common Stock. However,  during the fourth quarter of
2002,  the  Company  decided  not to pursue the IPO,  which  resulted  in a $0.8
million write-off of costs associated with the offering.  On March 12, 2003, the
Company  filed  a Form RW  with  the  Commission  withdrawing  its  registration
statement for the IPO.

          Based upon the current level of operations and anticipated  growth, we
anticipate  that our operating  cash flow,  together with  available  borrowings
under the Revolver will be adequate to meet our anticipated future  requirements
for working  capital  and  operating  expenses  for at least the next 12 months.
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 its future performance, which, to a certain extent,
will be subject to general economic, financial,  competitive, business and other
factors beyond its control.


Cash Flow Data - Year Ended  December 31, 2002  Compared to Year Ended  December
31, 2001

         Net cash  provided  by  operating  activities  during  the years  ended
December  31,  2002  and  2001,   totaled  $20.3  million  and  $26.3   million,
respectively.  Net cash flow provided by operating  activities before changes in
operating assets and liabilities for the years ended December 31, 2002 and 2001,
was $40.9 million and $33.3 million,  respectively.  Changes in operating assets
and  liabilities,  net of acquisition  for the years ended December 31, 2002 and
2001   resulted  in  the  use  of  cash  of  $20.6  million  and  $7.0  million,
respectively.  The  changes  in  operating  assets and  liabilities  principally
reflect  increased  working capital  requirements  consistent with the Company's
sales  growth and,  in 2002,  increased  inventory  levels  associated  with the
Company's transition to its new domestic distribution facility during the fourth
quarter.

         Net cash used in investing  activities  during the year ended  December
31, 2002 of $30.7 million  included $13.5 million relating to the acquisition of
M&D Balloons, $17.7 million of capital expenditures,  including $3.1 million for
equipment  for the new  domestic  distribution  facility,  and $0.5  million  of
proceeds  from  disposal of property and  equipment.  Net cash used in investing
activities during the year ended December 31, 2001 consisted of $37.4 million of
capital  expenditures,   including  $21.8  million  of  costs  to  complete  the
construction  of the  Company's  new  distribution  facility and $6.3 million to
acquire related distribution equipment.

         During the year ended  December 31, 2002 net cash provided by financing
activities  of $11.4  million  consisted of net  proceeds  from the Term Loan of
$164.0  million,  which were used to redesignate  and replace the Company's AXEL
term loan and  revolver  borrowings  at the closing date and to pay certain fees
and  expenses  associated  with the  refinancing,  scheduled  payments  of other
long-term  obligations  totaling $3.1 million and loans to officers  under notes
totaling  $0.2  million.  During  the year ended  December  31,  2001,  net cash
provided by financing  activities of $11.0 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  borrowings  under its
then existing revolving credit facility and AXEL term loan and other obligations
totaling $13.5 million and made loans to officers under notes of $1.0 million.

                                       20
<PAGE>


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 $26.3 million,  or $6.4 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 $32.4 million,  respectively.  Changes in operating
assets and liabilities for the years ended December 31, 2001 and 2000,  resulted
in the use of cash of $7.0 million and $12.5 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 $11.0  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 then
existing revolving credit facility and long-term  borrowings under its AXEL term
loan and other  obligations  totaling  $13.5  million and made loans to officers
under notes of $1.0 million.  During the year ended  December 31, 2000, net cash
provided by financing activities of $0.2 million primarily consisted of proceeds
from net short-term borrowings under the then existing 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 AXEL term loan,
repayment of other long-term obligations, and loans made to officers under notes
totaling $0.6 million.


Critical Accounting Policies and Estimates

         Our consolidated  financial  statements are prepared in accordance with
accounting  principles generally accepted in the United States, which require us
to make  estimates and  assumptions.  We believe that the following  significant
accounting policies may involve a higher degree of judgment and complexity.

Revenue Recognition

         The Company's terms of sale are F.O.B. shipping point and, accordingly,
title and the risks and rewards of ownership  are  transferred  to the customer,
and  revenue  is  recognized,  when goods are  shipped.  The  Company  estimates
reductions to revenues for  volume-based  rebate  programs at the time sales are
recognized.  Should  customers  earn higher  incentives  than  estimated  by us,
additional reductions to revenues 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 our
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.

                                       21
<PAGE>


Doubtful Accounts

         We maintain  allowances  for  doubtful  accounts for  estimated  losses
resulting  from the  inability of our  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 we state our 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 us, additional  inventory  write-downs to market value may be
required.

Long-Lived and Intangible Assets

         We have 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  requires  us to make  significant
judgments.  Changes in strategy  and/or market  conditions  could  significantly
impact these judgments and require adjustments to recorded asset balances.


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

         Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards  No. 141,  "Business  Combinations"  ("SFAS No. 141") and Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No.  142").  SFAS No. 141 revises the  accounting  treatment for business
combinations  to require the use of purchase  accounting and prohibit the use of
the   pooling-of-interests   method  of  accounting  for  business  combinations
initiated  after June 30, 2001. SFAS No. 142 revises the accounting for goodwill
to eliminate the amortization of goodwill on transactions consummated after June
30,  2001 and of all other  goodwill  as of  January 1,  2002.  As a result,  we
stopped recording goodwill amortization as of January 1, 2001. Intangible assets
with definite lives will continue to be amortized over their useful lives.  SFAS
No. 142 also requires goodwill and other intangible assets with indefinite lives
to be reviewed for  impairment  each year and more  frequently if  circumstances
indicate  a  possible  impairment.  During  2002,  we  completed  our review and
determined that goodwill was not impaired.

         Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 144,  "Accounting for the Impairment of Long-Lived  Assets" ("SFAS
No. 144"). SFAS No. 144 supersedes SFAS No. 121,  "Accounting for the Impairment
of  Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  Of," and the
accounting and reporting  provisions of Accounting  Principles Board 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."  SFAS No. 144 provides updated guidance concerning the
recognition  and  measurement  of  an  impairment  loss  for  certain  types  of
long-lived assets and expands the scope of a discontinued operation to include a
component of an entity.  The adoption of SFAS No. 144 on January 1, 2002 did not
impact our financial position or results

                                       22
<PAGE>


of operations.

         In May 2002,  Statement  of  Financial  Accounting  Standards  No. 145,
"Rescission of SFAS Nos. 4, 44, and 64,  Amendment of SFAS No. 13, and Technical
Corrections"  ("SFAS No. 145"), was issued.  SFAS No. 145 will require gains and
losses  on  extinguishments  of debt to be  classified  as  income  or loss from
continuing  operations rather than as extraordinary items as previously required
under  SFAS No. 4.  Extraordinary  treatment  will no longer  be  permitted  for
certain  extinguishments  considered to be part of a company's  risk  management
strategy.  SFAS No. 145 also amends SFAS No. 13 to require certain modifications
to capital leases be treated as a sale-leaseback and modifies the accounting for
sub-leases when the original lessee remains a secondary  obligor (or guarantor).
SFAS No. 145 is effective  for financial  statements  issued after May 15, 2002,
and with respect to the impact of the reporting  requirements of changes made to
SFAS No. 4 for fiscal years  beginning  after May 15, 2002. The Company  adopted
SFAS No. 145 in 2002 and classified the write-off of certain deferred  financing
costs of $1.5  million as an operating  expense,  thereby  reducing  income from
operations.

         In July 2002,  Statement of  Financial  Accounting  Standards  No. 146,
"Accounting for Costs  Associated With Exit or Disposal  Activities"  ("SFAS No.
146") was issued.  SFAS No. 146  addresses  accounting  and  reporting for costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force Issue No.  94-3  ("EITF No.  94-3"),  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in a  Restructuring)."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the  liability  is incurred.  Under EITF No. 94-3, a liability  for an exit
cost was  recognized  at the  date an  entity  committed  to an exit  plan.  The
provisions of SFAS No. 146 are effective  for exit or disposal  activities  that
are initiated after December 31, 2002.

         In November 2002, FASB Interpretation No. 45,  "Guarantor's  Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of  Others,  an  Interpretation  of FASB No.  5,  57,  and 107 and
Rescission of FASB Interpretation No. 34," ("FIN No. 45") was issued. FIN No. 45
clarifies   requirements  relating  to  the  guarantor's   accounting  for,  and
disclosure of, the issuance of certain types of guarantees.  FIN No. 45 requires
that upon issuance of a guarantee,  companies recognize a liability for the fair
value  of the  obligation  it  assumes  under  that  guarantee.  The  disclosure
provisions  of FIN No. 45 were  effective  commencing  in the fourth  quarter of
2002. The recognition requirements of FIN No. 45 are to be applied prospectively
to guarantees  issued or modified  after December 31, 2002. The Company does not
expect the  adoption  of this  interpretation  to have a material  effect on the
consolidated financial statements.

         In November 2001,  the EITF No. 01-09,  "Accounting  for  Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Product." EITF No.
01-09 was effective for Amscan as of January 1, 2002.  EITF No. 01-09  clarifies
the income statement  classification of costs incurred by a vendor in connection
with the reseller's purchase or promotion of the vendor's products, resulting in
certain advertising and product placement costs previously classified as selling
expenses to be reflected as a reduction of revenues  earned from that  activity.
The new guidance  requires  retroactive  restatement of all periods presented to
reflect the new accounting provision. These reclassifications did not affect our
income from operations or net income.


"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

                                       23
<PAGE>


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 prices of paper and petroleum-based  resin, (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)

         Despite a concentration  of holidays in the fourth quarter of the year,
as a result of our  expansive  product  lines and  customer  base and  increased
promotional  activities,  the impact of seasonality on our quarterly  results of
operations in recent years has been limited.  Promotional activities,  including
special  dating  terms,  particularly  with respect to Halloween  and  Christmas
products sold in the third  quarter,  and the  introduction  of our new everyday
products  and  designs  during  the  fourth  quarter  result in higher  accounts
receivables  and inventory  balances and higher  interest costs to support these
balances. The following table sets forth our historical net sales, gross profit,
income from operations and net income, by quarter, for 2002 and 2001.

<TABLE>
<CAPTION>
                                                   For the Three Months Ended
                            ----------------------------------------------------------------
                              March 31       June 30         September 30      December 31
                            -----------    -----------       ------------      -----------
                                                (dollars in thousands)
<S>                          <C>            <C>               <C>               <C>
2002
Net sales ............       $ 95,908       $ 94,129          $100,226          $ 95,340
Gross profit .........         34,232         32,150            34,465            31,776
Income from operations         15,626         11,847(a)         14,137(a)          7,105(a)(b)
Net income ...........          6,231          3,940(a)          5,436(a)            858(a)(b)

2001
Net sales ............       $ 86,905       $ 82,839          $ 87,699          $ 87,740
Gross profit .........         31,588         28,313            30,283            29,963
Income from operations         13,083          9,773             9,977(c)         10,053(c)
Net income ...........          3,875          2,209             2,391(c)          2,827(c)
</TABLE>


(a)  The Company incurred  restructuring  charges of $0.2 million, $0.6 million,
     and $0.9  million  during the  second,  third and fourth  quarters of 2002,
     respectively,   resulting  from  the   consolidation   of  the  fabrication
     operations of M&D Balloons  into its existing  balloon  operations  and the
     consolidation  of certain  domestic  and foreign  distribution  operations.
     These consolidations may result in additional

                                       24
<PAGE>


     restructuring charges in subsequent periods.


(b)  During the fourth  quarter of 2002,  the Company  amended and  restated its
     existing credit facility with various lenders which resulted in a write-off
     of $1.5 million of deferred  financing  costs  associated with the existing
     facility at that time. Additionally, during the fourth quarter of 2002, the
     Company  decided not to pursue an IPO of shares of its Common Stock,  which
     resulted in a $0.8 million write-off of costs associated with the offering.
     On  March  12,  2003,  the  Company  filed a Form RW  with  the  Commission
     withdrawing its registration statement for the IPO.

(c)  During the third quarter of 2001, one of the Company's superstore 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.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         Our earnings  are affected by changes in interest  rates as a result of
our  variable  rate  indebtedness.   However,  we  utilize  interest  rate  swap
agreements to manage the market risk  associated  with  fluctuations in interest
rates. If market interest rates for our variable rate  indebtedness  averaged 2%
more than the interest rate actually paid for the years ended December 31, 2002,
2001 and 2000,  our  interest  expense,  after  considering  the  effects of our
interest rate swap  agreements,  would have increased,  and income before income
taxes would have  decreased,  by $3.4  million,  $2.2 million and $0.9  million,
respectively.  These  amounts are  determined by  considering  the impact of the
hypothetical interest rates on our 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  our exposure to the change.  However,  due to the  uncertainty  of the
specific actions that we would take and their possible effects,  the sensitivity
analysis assumes no changes in our financial structure.

         Our 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 our  products  in  foreign  markets.  Although  we
periodically  enter into foreign currency forward contracts to hedge against the
earnings  effects of such  fluctuations,  we may not be able to hedge such risks
completely  or  permanently.  A uniform  10%  strengthening  in the value of the
dollar  relative to the  currencies in which our foreign  sales are  denominated
would have resulted in a decrease in gross profit of $1.5 million,  $1.4 million
and $1.6  million  for the  years  ended  December  31,  2002,  2001  and  2000,
respectively.  These calculations assume 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.  Our  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 Consolidated  Financial  Statements and Financial
Statement Schedule on page F-1 herein.


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

         Not applicable.

                                       25
<PAGE>


                                    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 serving as directors and  executive  officers of the Company
at December 31, 2002.

      Name                     Age      Position
      ----                     ---      --------

      Terence M. O'Toole       44       Director, Chairman of the Board
      Sanjeev K. Mehra         44       Director
      Joseph P. DiSabato       36       Director
      Gerald C. Rittenberg     50       Chief Executive Officer and Director
      James M. Harrison        51       President, Chief Operating Officer,
                                          and Director
      Garry Kieves             54       Senior Vice President
      James F. Flanagan        51       Executive Vice President
      Michael A. Correale      45       Chief Financial Officer


         Terence M. O'Toole has been a Managing Director of Goldman, Sachs & Co.
("Goldman Sachs") in the Principal Investment Area since 1992. He joined Goldman
Sachs in 1983.  He is a member  of  Goldman  Sachs'  Principal  Investment  Area
Investment  Committee.  Mr. O'Toole serves on the Boards of Directors of Western
Wireless  Corporation,  R. H. Donnelley  Corporation and several  privately held
companies on behalf of Goldman Sachs.

         Sanjeev K. Mehra has been a Managing  Director of Goldman  Sachs in the
Principal  Investment  Area since 1996. He joined Goldman Sachs in 1986. He is a
member of Goldman Sachs'  Principal  Investment Area Investment  Committee.  Mr.
Mehra  serves on the Boards of Directors of Hexcel  Corporation,  Madison  River
Telephone Company, LLC and several privately held companies on behalf of Goldman
Sachs.

         Joseph P. DiSabato has been a Managing Director of Goldman Sachs in the
Principal  Investment Area since 2000. He joined Goldman Sachs in 1988,  leaving
in 1991, and returning in 1994. Mr.  DiSabato  serves on the Boards of Directors
of Madison River Telephone Company,  LLC and several privately held companies on
behalf of Goldman Sachs.

         Gerald C. Rittenberg  became Chief Executive  Officer in December 1997.
From May 1997 until December 1997, Mr.  Rittenberg  served as Acting Chairman of
the Board.  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.

         James M. Harrison became President in December 1997 and Chief Operating
Officer in March 2002.  From  February  1997 to March 2002,  Mr.  Harrison  also
served as Chief Financial Officer and Treasurer.  From February 1997 to December
1997, Mr. Harrison served as our Chief Financial Officer and Secretary. 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.

         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 a Senior 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.

                                       26
<PAGE>


         Michael A. Correale became Chief Financial Officer in March 2002. Prior
to that time, Mr. Correale served as Vice President - Finance,  from May 1997 to
March 2002.


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,  2002 whose
aggregate salary and bonus for 2002 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").

<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                  2002       $325,238       $722,000                                $  9,115
    Chief Executive Officer           2001        309,750        500,000                                   7,249
                                      2000        295,000        500,000                                   8,505

James M. Harrison                     2002       $303,188       $649,000                                $  9,115
   President and Chief                2001        288,750        450,000                                   7,382
   Operating Officer                  2000        275,000        450,000                                   9,027

Garry Kieves                          2002       $240,000                                               $ 14,607
   Senior Vice President              2001        240,000                                                 14,806
                                      2000        240,000                                                 16,388

James F. Flanagan                     2002       $250,000       $150,000            2.5(d)              $  3,615
   Executive Vice President (c)       2001         74,000        125,000            2.5(d)

Michael A. Correale                   2002       $183,100       $ 75,000                                $  9,115
   Chief Financial Officer            2001        168,300         40,000                                   7,381
                                      2000        155,600         30,000                                   8,072
</TABLE>

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

                                       27
<PAGE>


(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.

(d) Represents  New  Options   granted  to  Mr.   Flanagan  in  2002  and  2001,
    respectively.


Option Grants Table

         The following table sets forth information concerning New Options which
were  granted  during  2002  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, 2002.


<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%         $155,000    $155,000      January 2,   $243,697         $617,575
                                                                            2012
</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.

 (2)  Assumes a fair market value of the Company Common Stock underlying the New
      Options of $155,000  based on the value of Company Common Stock at January
      2, 2002.


Fiscal 2002 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.....         16.648            0.000           $1,331,840         $     --

James M. Harrison .......         16.268            0.000            1,350,409               --

Garry Kieves ............          5.318            1.330              159,540             39,900

James F. Flanagan .......          0.500            4.500                2,500             10,000

Michael A. Correale .....          2.570            0.000              211,553               --
</TABLE>

         The value of  unexercised in the money options is based on the value of
Company  Common Stock of $155,000 per share at December 31, 2002. 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.

                                       28
<PAGE>


Employment Arrangements

         Employment  Agreement with Gerald C.  Rittenberg.  Gerald C. Rittenberg
has an employment  agreement  with us, dated August 10, 1997,  as amended,  (the
"Rittenberg Employment  Agreement"),  pursuant to which Mr. Rittenberg serves as
Chief Executive  Officer for a term expiring December 31, 2004. During 2002, Mr.
Rittenberg received an annual base salary of $325,238, 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  we  terminate  Mr.
Rittenberg's  employment other than for cause, death or disability,  we 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 we elect as the  Restriction  Period (as  defined  below) in
connection with the agreement's  non-competition provisions. Upon termination of
Mr. Rittenberg's  employment by the Company for cause, death or 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.

         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 will
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  our  business,  or  any  of our  subsidiaries  or  controlled
affiliates,  in any country in which we or any of our 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  we  terminate  Mr.  Rittenberg's
employment other than for cause following a Sale Event,  the Restriction  Period
will be instead a one, two or three-year period at our election. 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 Exchange Act) that is a Competitor, other than GSCP,
of a  majority  of our  outstanding  voting  stock  or (2)  the  sale  or  other
disposition   (other  than  by  way  of  merger  or  consolidation)  of  all  or
substantially  all of our assets and those of our 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 the Common Stock pursuant
to a registration  statement under 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 whom we have business relationships and
(b) inducing any of our  employees 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  immediately prior to the Merger in 1997, 272,728 shares
of the 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

                                       29
<PAGE>


for which GSCP purchased  Confetti Common Stock immediately prior to the Merger.
At the time of the Merger,  such shares of Confetti  Common Stock were converted
into 60.0 shares of our 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 the Common Stock
at $75,000 per share. Such New Options vested 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 the
Common Stock  acquired upon  exercise of the New Options,  except as provided in
the Option Documents.

         Employment  Agreement with James M. Harrison.  James M. Harrison has an
employment agreement with us, dated August 10, 1997, as amended,  (the "Harrison
Employment  Agreement"),  pursuant to which Mr. Harrison serves as our President
for a term expiring  December 31, 2004.  During 2002, Mr.  Harrison  received an
annual base salary of $303,188,  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  which allows us to
elect a one, two or three-year  Restriction Period following a Sale Event. Under
the Harrison  Employment  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 the 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 the Common Stock into  Rollover  Options to purchase
2.394 shares of the Common Stock.  The Rollover  Options have an exercise  price
per share 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,
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 restricted
Common Stock.

         Mr.  Harrison is not  permitted to sell,  assign,  transfer,  pledge or
otherwise  encumber  any New Options,  Rollover  Options or shares of the Common
Stock  acquired upon exercise of the New Options or Rollover  Options (in either
case, "Option Shares"), except as provided in the Option Documents.

         Employment  Agreement with Garry Kieves. Garry Kieves has an employment
agreement with us, dated August 6, 1998,  (the "Kieves  Employment  Agreement"),
pursuant  to which Mr.  Kieves is  employed  as our Senior  Vice  President  and
President of Anagram for an initial term of three years at an annual base salary
of up to $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 up to 5% at the
beginning of each  Additional  Term. The Kieves  Employment  Agreement  contains
provisions for discretionary bonus payments, severance and other benefits, and

                                       30
<PAGE>


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, any business with which we are in
competition. We may terminate the Kieves Employment Agreement 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 the  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 Option Documents.

         Employment  Agreement with James F. Flanagan.  James F. Flanagan has an
employment  agreement  with us, dated July 1, 2001,  as amended  (the  "Flanagan
Employment  Agreement"),  pursuant to which Mr. Flanagan serves as our Executive
Vice  President  for a term  expiring  December  31,  2004.  For the term of the
agreement,  Mr. Flanagan will receive an annual salary of $250,000 and an annual
bonus of not less than  $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
us. We may  terminate  the  Flanagan  Employment  Agreement  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 the Common
Stock at $150,000 per share and, on January 1, 2002,  he was granted  additional
New Options to purchase 2.5 shares of the Common Stock at $155,000 per share, on
terms similar to those granted pursuant to the Rittenberg Employment Agreement.

         In  addition,   pursuant  to  the  terms  of  the  Flanagan  Employment
Agreement, Mr. Flanagan was granted 3.0 shares of 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.

         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 the Common Stock acquired upon exercise of the New Options,  except
as provided in the Option Documents.

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,  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 (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

                                       31
<PAGE>


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 2002,  the  compensation  of executive  officers of the Company,
with the exception of Mr.  Correale,  was paid pursuant to the terms of existing
employment  agreements.  The  compensation  paid to Mr.  Correale  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 2002 with respect to the
Company.

                                       32
<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 of the Company named in the Summary  Compensation table as a
group.

                                           Shares of Company        Percentage
                                              Common Stock           of Class
Name of Beneficial Owner                 Beneficially Owned (a)   Outstanding(a)
------------------------                 ----------------------   --------------

Gerald C. Rittenberg (b) .............          76.648                 6.1%
James M. Harrison (c) ................          31.268                 2.5
James F. Flanagan (d) ................           3.500                 0.3
Garry Kieves, Garry Kieves Retained
   Annuity Trust and Garry Kieves
   Irrevocable Trust, in aggregate (e)         135.318                10.8
Michael C. Correale (f) ..............           2.661                 0.2
Terence M. O'Toole (g) ...............            --                    --
Sanjeev K. Mehra (h) .................            --                    --
Joseph P. DiSabato (i) ...............            --                    --
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 (j) ...          96.774                 7.8
The Goldman Sachs Group, Inc. ........
   and affiliates (k) ................         867.400                68.0
   85 Broad Street
   New York, New York 10004
All directors and executive officers
as a group (8 persons) (l) ...........         249.395                19.4

(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 16.648 shares which could be acquired by Mr.  Rittenberg within 60
     days upon exercise of options.

(c)  Includes  16.268 shares which could be acquired by Mr.  Harrison  within 60
     days upon exercise of options.

(d)  Includes 0.5 shares which could be acquired by Mr.  Flanagan within 60 days
     upon exercise of options. In addition, on January 1, 2002, Mr. Flanagan was
     granted 3.0 shares of restricted stock.

                                       33
<PAGE>


(e)  Includes  5.318 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.

(f)  Includes  2.570  shares which could be acquired by Mr.  Correale  within 60
     days upon exercise of options.

(g)  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.

(h)  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.

(i)  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.

(j)  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 in connection with
     the acquisition of M&D Balloons.

(k)  The Goldman  Sachs  Group,  Inc. may be deemed to own  beneficially  in the
     aggregate  825.0 shares of Company Common Stock and 42.4 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 26.610 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 10.575  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 0.979
     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 2.850 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 1.386  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.

(l)  Includes  41.304 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 of John A. Svenningsen,  the "Non-GSCP
Investors").  The Stockholders' Agreement was subsequently amended in connection
with the Company's  acquisitions of Anagram in 1998 and M&D Balloons 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

                                       34
<PAGE>


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, 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.

         For information  concerning our equity compensation plans, see "Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters."

Item 13.  Certain Relationships and Related Transactions

         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 the  Company's  average  incremental
borrowing rate per annum,  with interest payable at the option of Mr. Rittenberg
annually or accrued to the principal balance.  At December 31, 2002,  borrowings
under this line, plus accrued interest, totaled $1,551,000.

         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, 2002,
the amount borrowed under the note totaled $391,300.

         On February  19, 2002,  the Company  purchased  all of the  outstanding
common stock of M&D Balloons, a Manteno, Illinois-based manufacturer of metallic
and plastic  balloons,  from  American  Greetings for $27.5 million plus certain
other related costs of $1.0  million.  During the year ended  December 31, 2002,
the  Company  sold $7.5  million of metallic  balloons  and other party goods to
American  Greetings.  Trade  accounts  receivable  from  American  Greetings  at
December 31, 2002 was $2.6 million.

                                       35
<PAGE>

         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.

         On December 20, 2002,  Amscan amended and restated its existing  credit
facility with various  lenders,  with Goldman Sachs Credit Partners L.P. as sole
lead arranger,  sole  bookrunner  and  syndication  agent.  Goldman Sachs Credit
Partners L.P.  received a fee of $3,231,572  from the Company for these services
provided.

           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.  Dividends are cumulative and payable annually
at 6% per annum. Dividends payable on or prior to March 30, 2004, are payable in
additional shares of Series A Redeemable Convertible Preferred Stock. Subsequent
to March 30, 2004,  dividends are payable, at the option of the Company,  either
in cash or additional shares of Series A Redeemable Convertible Preferred Stock.
On March 30, 2002, the annual dividend was  distributed in additional  shares of
Series A Redeemable  Convertible  Preferred  Stock. At December 31, 2002,  42.40
shares of Series A  Redeemable  Convertible  Preferred  Stock  were  issued  and
outstanding and accrued dividends aggregated $286,200.

         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.


Item 14.  Controls and Procedures

         Based  on an  evaluation  of  the  Company's  disclosure  controls  and
procedures  performed by the  Company's  Chief  Executive  Officer and its Chief
Financial  Officer  within 90 days of the filing of this report,  the  Company's
Chief  Executive  Officer and its Chief  Financial  Officer  concluded  that the
Company's disclosure controls and procedures have been effective.

         As used herein, "disclosure controls and procedures" means controls and
other  procedures  of the Company that are  designed to ensure that  information
required to be  disclosed by the Company in the reports that it files or submits
under  the  Securities  Exchange  Act is  recorded,  processed,  summarized  and
reported within the time periods  specified in the rules and forms issued by the
Commission.  Disclosure  controls and procedures  include,  without  limitation,
controls and procedures  designed to ensure that  information is accumulated and
communicated  to the Company's  management,  including  its principal  executive
officer or officers, or persons performing similar functions,  as appropriate to
allow timely decisions regarding required disclosure.

           Since  the date of the  evaluation  described  above,  there  were no
significant  changes in the Company's internal controls or in other factors that
could significantly affect these controls,  and there were no corrective actions
with regard to significant deficiencies and material weaknesses.

                                       36
<PAGE>


                                     PART IV
                                     -------

Item 15.  Exhibits, Financial Statements, 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


   Exhibit
   Number                              Description

     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))

     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))

                                       37
<PAGE>


     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))

     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))

                                       38
<PAGE>


    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))

    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 Registrant'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(o) 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 as of January 1, 2002, by and among
               the Company and James F. Flanagan  (incorporated  by reference to
               Exhibit 10(p) to the Registrant's  Annual Report on Form 10-K for
               the year ended December 31, 2001 (Commission File No.000-21827))

    10(r)      Second Amended and Restated  Credit and Guaranty Loan  Agreement,
               dated as of December  20,  2002,  by and among  Amscan  Holdings,
               Inc., the financial institutions

                                       39
<PAGE>


               parties thereto,  Goldman Sachs Credit Partners L.P., as arranger
               and syndication agent, and General Electric Capital  Corporation,
               as  administrative  and collateral agent and Fleet National Bank,
               as documentation agent (incorporated by reference to Exhibit 4 to
               the  Registrant's  Current  Report on Form 8-K dated December 20,
               2002 (Commission File No.000-21827))

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

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

   23.1        Consent of Ernst & Young LLP

   99          Certification  of Chief  Executive  Officer  and Chief  Financial
               Officer  Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant
               to Section 906 of the Sarbanes-Oxley Act of 2002.


(b) Reports on Form 8-K.

         During the fourth  quarter of 2002,  the Company filed a Current Report
      on Form 8-K dated  December  3, 2002 (File No.  000-21827)  responding  to
      Item. 5 and reporting that it had signed  commitment  letters with Goldman
      Sachs Credit  Partners  L.P.  enabling the Company to refinance its senior
      debt facilities.  Additionally,  the Company announced that it had decided
      not to pursue a public offering of shares of its Common Stock.

         On January 30,  2003,  the Company  filed a Current  Report on Form 8-K
      dated  December 20, 2002 (File No.  000-21827)  responding  to Item. 5 and
      reporting the refinancing of its term loan and credit facility.


                                       40
<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/  Michael A. Correale
                                           ---------------------------
                                            Michael A. Correale
                                            Chief Financial Officer

Date:  March 28, 2003

     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.

      Signature                    Title                            Date
      ---------                    -----                            ----


/s/ Terence M. O'Toole      Chairman of the Board               March 28, 2003
----------------------      of Directors
Terence M. O'Toole


                            Director
--------------------
Sanjeev K. Mehra


                            Director
----------------------
Joseph P. DiSabato


/s/ Gerald C. Rittenberg    Chief ExecuPtive Officer and        March 28, 2003
------------------------    Director
Gerald C. Rittenberg


/s/ James M. Harrison       President, Chief Operating Officer  March 28, 2003
---------------------       and Director
James M. Harrison



/s/ Michael A. Correale     Chief Financial Officer             March 28, 2003
-----------------------     (principal financial and
Michael A. Correale         accounting officer)



                                       41
<PAGE>


                                  CERTIFICATION
                           BY CHIEF EXECUTIVE OFFICER
                             PURSUANT TO RULE 13A-14

I, Gerald C. Rittenberg, certify that:

1)   I have reviewed this annual report on Form 10-K of Amscan Holdings, Inc;

2)   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this report;

3)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4)   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

5)   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6)   The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: March 28, 2003                         /s/ Gerald C. Rittenberg
      --------------                         ------------------------
                                             Gerald C. Rittenberg
                                             Chief Executive Officer
                                           (Principal executive officer)

                                       42
<PAGE>


                                  CERTIFICATION
                           BY CHIEF EXECUTIVE OFFICER
                             PURSUANT TO RULE 13A-14

I, Michael A. Correale, certify that:

1)   I have reviewed this annual report on Form 10-K of Amscan Holdings, Inc;

2)   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4)   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

5)   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6)   The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: March 28, 2003                           /s/ Michael A. Correale
      --------------                           -----------------------
                                               Michael A. Correale
                                               Chief Financial Officer

                                       43
<PAGE>


                                    FORM 10-K
                           Item 8, Item 15(a) 1 and 2


                              AMSCAN HOLDINGS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE
                                December 31, 2002



Consolidated Financial  Statements as of December 31, 2002 and 2001 and for each
    of the years in the three-year period ended December 31, 2002:


                                                                            Page
                                                                            ----

    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-7

    Notes to Consolidated Financial Statements...........................   F-8



Financial Statement Schedule for the three years ended December 31, 2002:


    Schedule II - Valuation and Qualifying Accounts......................  F-38





All other  schedules for which  provision is made in the  applicable  accounting
regulations of the 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, 2002 and 2001, and the related  consolidated  statements
of income,  stockholders' deficit, and cash flows for each of the three years in
the period  ended  December  31, 2002.  Our audits also  included the  financial
statement schedule listed in the Index at Item 15(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,  2002 and  2001,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2002, 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,  presents  fairly in all material  respects the  information  set forth
therein.

As discussed in Note 2 to the  consolidated  financial  statements,  in 2002 the
Company  changed its method of  accounting  for  goodwill  and other  intangible
assets.





Stamford, Connecticut                           /s/ ERNST & YOUNG LLP
March 20, 2003


                                      F-2
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)


<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                                       2002            2001
                                                                                     ---------      ---------
<S>                                                                                  <C>            <C>
                                     ASSETS

Current assets:
   Cash and cash equivalents ...................................................     $   2,400      $   1,016
   Accounts receivable, net of allowances of $5,127 and $3,937, respectively ...        74,247         65,039
   Inventories .................................................................        93,890         72,582
   Prepaid expenses and other current assets ...................................        15,233         13,659
                                                                                     ---------      ---------
         Total current assets ..................................................       185,770        152,296
Property, plant and equipment, net .............................................       100,304         94,589
Goodwill, net ..................................................................        74,251         55,985
Notes receivable from officers .................................................         1,942          1,640
Other assets, net ..............................................................        10,230          5,964
                                                                                     ---------      ---------
         Total assets ..........................................................     $ 372,497      $ 310,474
                                                                                     =========      =========

       LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK AND
                              STOCKHOLDERS' DEFICIT
Current liabilities:
   Loans and notes payable .....................................................     $    --        $     700
   Accounts payable ............................................................        39,245         33,083
   Accrued expenses ............................................................        21,524         16,047
   Income taxes payable ........................................................         2,525          2,298
   Current portion of long-term obligations ....................................         3,220          3,455
                                                                                     ---------      ---------
         Total current liabilities .............................................        66,514         55,583
Long-term obligations, excluding current portion ...............................       295,420        278,443
Deferred income tax liabilities ................................................        17,360         15,181
Other ..........................................................................         2,317          2,353
                                                                                     ---------      ---------
         Total liabilities .....................................................       381,611        351,560

Redeemable convertible preferred stock ($0.10 par value; 100 shares authorized;
  42.4 shares and 40 shares issued and outstanding, respectively) ..............         6,646          6,270
Redeemable Common Stock ........................................................        30,523         29,949

Commitments and Contingencies

Stockholders' deficit:
   Common Stock ($0.10 par value; 3,000 shares authorized; 1,233.27 and 1,133.49
     shares issued and outstanding, respectively) ..............................          --             --
   Additional paid-in capital ..................................................        14,814            299
   Unamortized restricted Common Stock award, net ..............................          (323)           (94)
   Notes receivable from stockholders ..........................................          (638)          (601)
   Deficit .....................................................................       (57,551)       (74,016)
   Accumulated other comprehensive loss ........................................        (2,585)        (2,893)
                                                                                     ---------      ---------
         Total stockholders' deficit ...........................................       (46,283)       (77,305)
                                                                                     ---------      ---------

         Total liabilities, redeemable convertible preferred and Common Stock
           and stockholders' deficit ...........................................     $ 372,497      $ 310,474
                                                                                     =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Dollars in thousands)


<CAPTION>
                                                                   For the Years Ended December 31,
                                                                   --------------------------------
                                                                   2002           2001          2000
                                                                ---------      ---------     ---------

<S>                                                             <C>            <C>           <C>
Net sales .................................................     $ 385,603      $ 345,183     $ 323,484
Cost of sales .............................................       252,980        225,036       206,872
                                                                ---------      ---------     ---------
         Gross profit .....................................       132,623        120,147       116,612

Operating expenses:
   Selling expenses .......................................        34,619         31,414        28,578
   General and administrative expenses ....................        32,056         33,317        31,958
   Provision for doubtful accounts ........................         3,008          3,758         7,133
   Art and development costs ..............................        10,301          8,772         8,453
   Write-off of deferred financing and IPO-related costs ..         2,261
   Restructuring charges ..................................         1,663                          500
                                                                ---------      ---------     ---------
         Total operating expenses .........................        83,908         77,261        76,622
                                                                ---------      ---------     ---------
         Income from operations ...........................        48,715         42,886        39,990

Interest expense, net .....................................        21,792         24,069        26,355
Other (income) expense, net ...............................          (311)            24            96
                                                                ---------      ---------     ---------
Income before income taxes and minority interests .........        27,234         18,793        13,539

Income tax expense ........................................        10,757          7,423         5,348
Minority interests ........................................            12             68            75
                                                                ---------      ---------     ---------
Net income ................................................        16,465         11,302         8,116
         Dividend on redeemable convertible preferred stock           376            270
                                                                ---------      ---------     ---------
         Net income applicable to common shares ...........     $  16,089      $  11,032     $   8,116
                                                                =========      =========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

<TABLE>

                              AMSCAN HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
              For the Years Ended December 31, 2002, 2001 and 2000
                             (Dollars in thousands)


<CAPTION>
                                                                       Unamortized
                                                                        Restricted
                                                                          Common      Notes                 Accumulated
                                                            Additional    Stock    Receivable                  Other
                                       Common     Common     Paid-in      Awards,     from                 Comprehensive
                                       Shares     Stock      Capital       Net     Stockholders   Deficit       Loss      Total
                                       ------      -----     -------       ---     ------------   -------       ----      -----
<S>                                   <C>          <C>       <C>        <C>        <C>          <C>           <C>         <C>
Balance at December 31, 1999 .......  1,132.41     $ --      $  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
  Exercise of stock options ........      0.13                    8                                                            8
  Increase in redeemable Common
    Stock due to accretion of market
    value and vesting  of restricted
    Common Stock award .............                                                               (5,186)                (5,186)
  Amortization of restricted Common
    Stock award ....................                                         51                                               51
  Accretion of interest income .....                                                    (35)                                 (35)
  Payments received on notes
    receivable from stockholders ...                                                    151                                  151
                                      --------     ------    -------    --------    --------    ----------   --------   --------
Balance at December 31, 2000 .......  1,132.54       --         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 17 and 18) ....                                                                             (227)      (227)
  Change in fair value of interest
    rate swaps and foreign
    exchange contracts, net of taxes
    (see Notes 17 and 18) ..........                                                                              113        113
                                                                                                                         -------
      Comprehensive income .........                                                                                      10,754
  Exercise of stock options ........      0.95                   66                     (25)                                  41
  Increase in redeemable Common
    Stock due to accretion of market
    value and vesting of restricted
    Common Stock award .............                                                               (1,181)                (1,181)
  Amortization of restricted
    Common Stock award .............                                        260                                              260
  Accretion of interest income .....                                                    (37)                                 (37)
  Payments received on notes
     receivable from  stockholders .                                                      9                                    9
  Redeemable convertible preferred
     stock dividends ...............                                                                 (270)                  (270)
                                      --------    ------    -------    --------    --------     ---------     --------  --------
Balance at December 31, 2001 .......  1,133.49    $ --      $   299    $    (94)   $   (601)    $ (74,016)    $(2,893)  $(77,305)
                                      ========    ======    =======    ========    ========     =========     =======   ========
</TABLE>


                                   (Continued)


                                      F-5
<PAGE>

<TABLE>

                              AMSCAN HOLDINGS, INC.
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
              For the Years Ended December 31, 2002, 2001 and 2000
                             (Dollars in thousands)


<CAPTION>
                                                                     Unamortized
                                                                      Restricted
                                                                        Common      Notes               Accumulated
                                                          Additional    Stock    Receivable                Other
                                     Common     Common     Paid-in      Awards,     from                Comprehensive
                                     Shares     Stock      Capital       Net     Stockholders  Deficit      Loss        Total
                                     ------      -----     -------       ---     ------------  -------      ----        -----

<S>                                <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance at December 31, 2001 ...   1,133.49   $     --    $    299    $    (94)   $   (601)   $(74,016)   $ (2,893)   $(77,305)
Net income .....................                                                                16,465                  16,465
Net change in cumulative
  translation adjustment .......                                                                             1,304       1,304
Change in fair value of interest
   rate swap and foreign exchange
   contracts, net of taxes .....                                                                              (996)       (996)
                                                                                                                      --------
    Comprehensive income .......                                                                                        16,773
Grant of restricted Common
  Stock award ..................       3.00                    465        (465)                                            --
Issuance of Common Stock in
  connection with acquisition ..      96.78                 15,000                                                      15,000
Increase in redeemable Common
   Stock due to vesting of
   restricted Common Stock
     award .....................                              (574)                                                       (574)
Amortization of restricted
  Common Stock awards ..........                                           236                                             236
Accretion of interest income....                                                       (37)                                (37)
Redeemable convertible
  preferred stock dividends ....                              (376)                                                       (376)
                                   --------   ---------   --------    --------    --------    --------    --------    --------
Balance at December 31, 2002 ..    1,233.27   $     --    $ 14,814    $   (323)   $   (638)   $(57,551)   $ (2,585)   $(46,283)
                                   ========   =========   ========    ========    ========    ========    ========    ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


<TABLE>
                              AMSCAN HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<CAPTION>
                                                                                    For the Years Ended December 31,
                                                                                    --------------------------------
                                                                                     2002          2001         2000
                                                                                   ---------    ---------    ---------
<S>                                                                                <C>          <C>          <C>
Cash flows from operating activities:
  Net income ...................................................................   $  16,465    $  11,302    $   8,116
    Adjustments  to  reconcile  net income to net cash  provided  by
     operating activities:
     Depreciation and amortization expense .....................................      13,962       15,468       14,487
     Amortization of deferred financing costs ..................................       1,202          998          902
     Gain on disposal of property, plant and equipment .........................        (254)         (13)          (9)
     Provision for doubtful accounts ...........................................       3,008        3,758        7,133
     Write-off of deferred financing costs .....................................       1,460
     Amortization of restricted Common Stock awards ............................         236          260           51
     Deferred income tax provision .............................................       4,869        1,620        1,761
     Changes in operating assets and liabilities, net of acquisition in 2002:
       Increase in accounts receivable .........................................      (7,934)      (6,162)     (12,895)
       Increase in inventories .................................................     (15,391)      (1,234)     (12,346)
       (Increase) decrease in prepaid expenses, other current assets
          and other, net .......................................................      (2,027)      (4,188)       3,610
       Increase in accounts payable, accrued expenses
          and income taxes payable .............................................       4,733        4,443        9,069
                                                                                   ---------    ---------    ---------
            Net cash provided by operating activities ..........................      20,329       26,252       19,879

Cash flows from investing activities:
  Cash paid in connection with acquisition .....................................     (13,548)
  Capital expenditures .........................................................     (17,712)     (37,479)     (18,576)
  Proceeds from disposal of property, plant and equipment ......................         530           55          101
                                                                                   ---------    ---------    ---------
            Net cash used in investing activities ..............................     (30,730)     (37,424)     (18,475)

Cash flows from financing activities:
  Proceeds from issuance of redeemable convertible preferred stock .............                    6,000
  Proceeds from the exercise of Common Stock options ...........................                       41            8
  Proceeds from loans, notes payable and long-term obligations, net of debt
    issuance costs (including original issue discount, in 2002) of $6,032 and
    $557, in 2002 and 2001, respectively .......................................     163,968       19,443        5,647
  Repayment of loans, notes payable and long-term obligations ..................    (152,351)     (13,495)      (4,884)
  Loans to officers under notes ................................................        (200)        (953)        (621)
  Other ........................................................................                      (66)          95
                                                                                   ---------    ---------    ---------
            Net cash provided by financing activities ..........................      11,417       10,970          245

Effect of exchange rate changes on cash and cash equivalents ...................         368         (251)      (1,029)
                                                                                   ---------    ---------    ---------
            Net increase (decrease) in cash and cash equivalents ...............       1,384         (453)         620
Cash and cash equivalents at beginning of year .................................       1,016        1,469          849
                                                                                   ---------    ---------    ---------
Cash and cash equivalents at end of year .......................................   $   2,400    $   1,016    $   1,469
                                                                                   =========    =========    =========

Supplemental  disclosures of cash flow information:  Cash paid during the period
for:
            Interest ...........................................................   $  20,506    $  25,189    $  26,047
            Income taxes .......................................................   $   6,158    $   6,020    $   5,352
</TABLE>


Supplemental information on non-cash activities (dollars in thousands):
Capital  lease  obligations  of $53 and $144  were  incurred  in 2002 and  2001,
respectively. There were no capital lease obligations incurred in 2000.

          See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>


                              AMSCAN HOLDINGS, INC.
                   Notes to Consolidated Financial Statements
                                December 31, 2002

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. The initial public offering resulted in the sale of 4,000,000 and 422,400
shares of the  Company's  Common  Stock at $12.00 per share on December 18, 1996
and January 8, 1997, respectively.

         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  privately-held  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  13).  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.

         The  Company  designs,  manufactures,  contracts  for  manufacture  and
distributes  party goods,  including  metallic  balloons,  gifts and stationery,
principally in North America, South America, Europe, Asia and Australia.

Basis of Presentation
---------------------
         The consolidated  financial  statements  include the accounts of Amscan
Holdings  and  all   majority-owned  and  controlled   entities.   All  material
intercompany balances and transactions have been eliminated in consolidation.

Acquisition
-----------
         On February  19, 2002,  the Company  purchased  all of the  outstanding
common stock of M&D Balloons, Inc. ("M&D Balloons"),  a Manteno,  Illinois-based
manufacturer  of  metallic  and  plastic  balloons,   from  American   Greetings
Corporation   ("American   Greetings")  to  supplement   its  existing   balloon
operations.  The Company  financed the purchase price of $27,500,000 and certain
other  related  costs of  $1,048,000  by  borrowing  $13,548,000  under its then
existing revolving credit facility and issuing 96.774 shares of its Common Stock
to American  Greetings.  American  Greetings  continues to  distribute  metallic
balloons  purchased under a supply  agreement with the Company.  The acquisition
has been accounted for under the provisions of Statement of Financial Accounting
Standards No. 141, "Business  Combinations,"  ("SFAS No. 141") and, accordingly,
the  operating  results of M&D  Balloons  have been  included  in the  Company's
consolidated financial statements since the date of acquisition.

         The  purchase  price has been  preliminarily  allocated  based upon the
estimated  fair value of net assets  acquired at the date of  acquisition.  Such
allocations are based on studies and valuations that have not yet been completed
and will be subject  to change in the next  period.  The excess of the  purchase
price over  tangible  net assets  acquired has been  preliminarily  allocated to
intangible  assets   consisting  of  licensing   agreements  in  the  amount  of
$1,070,000,  which are being amortized using the  straight-line  method over the
lives of the  contracts  (one to three years with an average life of 2.7 years),
and goodwill in the amount of  $17,762,000,  which is not being  amortized.  The
transaction was structured as a purchase of common stock and,  accordingly,  the
amortization of intangible assets is not deductible for income tax purposes.

         The following  unaudited pro forma information assumes the M&D Balloons
acquisition  had  occurred  on January 1, 2002 and 2001,  respectively.  The pro
forma  information,  as presented  below, is not  necessarily  indicative of the
results that would have been obtained had the transaction occurred on January 1,
2002 and 2001, nor is it

                                      F-8
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002


necessarily indicative of the Company's future results (dollars in thousands):

                                              Years Ended December 31,
                                              ------------------------
                                                 2002           2001
                                                 ----           ----
        Net sales ....................         $389,710      $370,807
        Net income ...................           16,858        12,528

         The net income amounts reflect  adjustments  for interest  expense from
additional  borrowings  necessary to finance the acquisition and amortization of
other intangible assets and, in 2001, goodwill,  net of their related income tax
effects based upon a pro forma  effective  tax rate of 39.5%.  The unaudited pro
forma information gives effect only to adjustments  described above and does not
reflect management's  estimate of any anticipated cost savings or other benefits
as a result of the acquisition.

         During the year ended December 31, 2002, the Company sold $7,475,000 of
metallic  balloons and other party goods to American  Greetings.  Trade accounts
receivable from American Greetings at December 31, 2002 were $2,632,000.


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 and Intangible 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.

         Goodwill,  net of  amortization  was  $74,251,000  and  $55,985,000  at
December 31, 2002 and 2001, respectively.  Goodwill represents the excess of the
purchase  price of acquired  companies  over the estimated fair value of the net
assets acquired. Effective January 1, 2002, the Company adopted SFAS No. 141 and
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible  Assets"  ("SFAS No.  142").  SFAS No.  141  revises  the  accounting
treatment for business  combinations  to require the use of purchase  accounting
and  prohibit  the use of the  pooling-of-interests  method  of  accounting  for
business  combinations  initiated  after June 30, 2001. SFAS No. 142 revises the
accounting   for  goodwill  to  eliminate  the   amortization   of  goodwill  on
transactions  consummated  after June 30,  2001 and of all other  goodwill as of
January  1,  2002.  As  a  result,   the  Company  stopped  recording   goodwill
amortization as of January 1, 2001.  Intangible  assets with definite lives will
continue to be amortized  over their useful  lives.  SFAS No. 142 also  requires
goodwill and other  intangible  assets with indefinite  lives to be reviewed for
impairment  each year and more frequently if  circumstances  indicate a possible
impairment.  During 2002, the Company  completed its review and determined  that
goodwill was not impaired. Had SFAS No. 142 been effective in

                                      F-9
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

fiscal years 2001 and 2000, net income would have been reported as the following
amounts (dollars in thousands):


                                                     Years Ended December 31,
                                                 -------------------------------
                                                   2002        2001        2000
                                                 -------     -------     -------
Reported net income ........................     $16,465     $11,302     $ 8,116
Add back goodwill amortization, net of taxes                   1,572       1,574
                                                 -------     -------     -------
Adjusted net income ........................     $16,465     $12,874     $ 9,690
                                                 =======     =======     =======

         Other intangible assets,  net of amortization,  of $695,000 at December
31, 2002 were comprised of licensing  agreements which are being amortized using
the  straight-line  method over the lives of the  contracts  (one to three years
with an average life of 2.7 years). Other intangible assets at December 31, 2001
were fully  amortized  and were  comprised  principally  of  patents  which were
amortized  using  the  straight-line   method  over  three  years.   Accumulated
amortization  was  $3,375,000  and  $3,000,000  at  December  31, 2002 and 2001,
respectively.  Amortization of other intangible assets for the three years ended
December  31,  2002,  2001 and  2000  was  $375,000,  $705,000  and  $1,003,000,
respectively.  Estimated  amortization expense for the years ending December 31,
2003 and 2004 is $362,000 and $333,000, respectively.

         Effective  January 1, 2002, the Company adopted  Statement of Financial
Accounting  Standards  No. 144,  "Accounting  for the  Impairment or Disposal of
Long-Lived  Assets"  ("SFAS No.  144").  SFAS No. 144  supersedes  Statement  of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets  and  for  Long-Lived  Assets  to be  Disposed  of,"  and the
accounting  and  reporting  provisions of  Accounting  Principles  Board 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."  SFAS No. 144 provides updated guidance concerning the
recognition  and  measurement  of  an  impairment  loss  for  certain  types  of
long-lived assets and expands the scope of a discontinued operation to include a
component of an entity.  The adoption of SFAS No. 144 on January 1, 2002 did not
impact the Company's financial position or results of operations.

         The  Company  reviews  the  recoverability  of its  long-lived  assets,
including definite-lived  intangible assets other than goodwill,  whenever facts
and   circumstances   indicate  that  the  carrying  amount  may  not  be  fully
recoverable.  For purposes of recognizing and measuring impairment,  the Company
evaluates  long-lived  assets other than goodwill based upon the lowest level of
independent cash flows ascertainable to evaluate  impairment.  If the sum of the
undiscounted  future cash flows  expected over the remaining  asset life is less
than the carrying  value of the assets,  the Company may recognize an impairment
loss. The impairment  related to long-lived  assets is measured as the amount by
which the  carrying  amount of the assets  exceeds  the fair value of the asset.
When fair values are not readily  available,  the Company  estimates fair values
using expected discounted future cash flows.

         Goodwill is reviewed for  potential  impairment,  on an annual basis or
more frequently if circumstances  indicate a possible  impairment,  by comparing
the fair value of a reporting unit with its carrying amount, including goodwill.
If the carrying  amount of a reporting unit exceeds its fair value,  the excess,
if any, of the fair value of the  reporting  unit over amounts  allocable to the
unit's other assets and  liabilities  is the implied fair value of goodwill.  If
the  carrying  amount of a reporting  unit's  goodwill  exceeds the implied fair
value of that goodwill, an impairment loss will be recognized in an amount equal
to that excess. The fair value of a reporting unit refers to the amount at which
the  unit as a whole  could be sold in a  current  transaction  between  willing
parties.

Deferred Financing Costs and Original Issue Discount
----------------------------------------------------
         Deferred  financing costs (included in other assets) and original issue
discount  (netted  against  the  related  debt) are both  amortized  to interest
expense using the interest method over the lives of the related debt.

Revenue Recognition
-------------------
         The Company's terms of sale are F.O.B. shipping point and, accordingly,
title and the risks and rewards of ownership  are  transferred  to the customer,
and revenue is recognized, when goods are shipped. The Company estimates

                                      F-10
<PAGE>


reductions to revenues for  volume-based  rebate  programs at the time sales are
recognized.

Doubtful Accounts
-----------------
         The Company  maintains  allowances for doubtful  accounts for estimated
losses resulting from the inability of the Company's  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 the Company's
customers  were to  deteriorate,  resulting in an impairment of their ability to
make payments, additional allowances may be required.

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
------------------
         The Company  enters into royalty  agreements  that allow the Company to
use certain licensed designs on certain of its products. These contracts require
the  Company  to pay  royalties,  generally  as a  percentage  of  sales of such
product, and may require guaranteed minimum royalties, a portion of which may be
paid in advance.  The Company  matches  royalty  expense with the  corresponding
revenue  by  recording  royalties  at the time of sale,  at the  greater  of the
contractual  rate or the  effective  rate  calculated  based  on the  guaranteed
minimum royalty and the Company's  estimate of sales during the contract period.
If a  portion  of  the  guaranteed  minimum  royalty  is  determined  not  to be
recoverable,  the  unrecoverable  portion  is  charged  to expense at that time.
Guaranteed  minimum  royalties paid in advance are recorded in the balance sheet
as other assets.

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 some of which may not reach commercial
production. Accordingly, the Company expenses these costs as incurred.

Derivative Financial Instruments
--------------------------------
         The Company  adopted the  provisions of SFAS No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities,"  ("SFAS No. 133") and SFAS No.
137  and No.  138 as  amendments  thereto,  effective  January  1,  2001.  These
statements  require that all derivative  financial  instruments be recognized on
the balance sheet at fair value and establish  criteria for both the designation
and effectiveness of hedging activities.  The Company may use derivatives in the
management  of  interest  rate and foreign  currency  exposure.  The  statements
require the  Company to  formally  document  the  assets,  liabilities  or other
transaction  the Company  designates as hedged items,  the risk being hedged and
the  relationship  between  the hedged  items and the hedging  instruments.  The
Company  must  measure  the  effectiveness  of the hedging  relationship  at the
inception of the hedge and on an on-going basis.

         For derivative financial instruments that qualify as fair value hedges,
the gain or loss on the instrument and the offsetting loss or gain on the hedged
item  attributable to the hedged risk are recognized in current  earnings during
the period of the change in fair values.  For derivative  financial  instruments
that qualify as cash flow hedges (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 ineffective portion of a cash flow hedge, if any, is determined based on the
dollar-offset  method  (i.e.,  the  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) and 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

                                      F-11
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002


on the Company's consolidated financial statements, but did reduce comprehensive
income in 2001 by $114,000 (see Notes 17 and 18).

Income Taxes
------------
         The Company accounts for income taxes in accordance with the provisions
of Statement of Financial  Accounting  Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109").  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 Statement of Financial  Accounting  Standards  No. 123 ("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 Company
has elected to continue to apply the  intrinsic  value  method of APB No. 25 for
awards granted under its stock-based compensation plans and has provided the pro
forma disclosures required by SFAS No. 123.

         In December 2002,  Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based  Compensation-Transition  and Disclosure" ("SFAS No.
148") was  issued.  SFAS No.  148 amends  SFAS No.  123 to  provide  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for  stock-based  employee  compensation.  In addition,  SFAS No. 148
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results.  The  amendments  to SFAS No. 123 are  effective  for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  adopted the disclosure  provisions of SFAS No. 148 on December 31, 2002
and  continues  to account for its  stock-based  compensation  under APB No. 25.
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.  The adoption of this statement had no impact
on the Company's  financial  position or results of operations.  See Note 11 for
further discussion  regarding the Company's  stock-based  compensation plans and
related accounting matters.

         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,
                                                            -------------------------------
                                                              2002         2001       2000
                                                            -------     -------     -------
<S>                                                         <C>         <C>         <C>
Net income:
      As reported .....................................     $16,465     $11,302     $ 8,116
      Less: Total stock-based employee compensation
          expense determined under the fair value based
          method for all awards, net of tax ...........         517         508         510
                                                            -------     -------     -------

      SFAS No. 123 pro forma net income ...............     $15,948     $10,794     $ 7,606
                                                            =======     =======     =======
</TABLE>

                                      F-12
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

         It has  been  assumed  that the  estimated  fair  value of the  options
granted in 2002,  2001 and 2000 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
4.9%; and expected lives of seven years.

Accumulated Other Comprehensive Loss
------------------------------------
         Accumulated  other  comprehensive  loss at December 31, 2002,  2001 and
2000 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 18).

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 distribution channel. At December 31, 2002
and 2001, Party City Corporation  ("Party City"), the Company's largest customer
with  484  corporate  and   franchise   stores,   accounted  for  20%  and  19%,
respectively,  of  consolidated  accounts  receivable,  net. For the years ended
December 31, 2002,  2001 and 2000,  sales to Party  City's  corporate-owned  and
operated  stores  represented  13%,  13%  and  12% of  consolidated  net  sales,
respectively.  For the years ended  December 31, 2002,  2001 and 2000,  sales to
Party City's franchise-owned and operated stores represented 14%, 15% and 13% 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
------------------------------------
         Effective  January 1, 2002, the Company adopted  Statement of Financial
Accounting  Standards  No. 144,  "Accounting  for the  Impairment  of Long-Lived
Assets" ("SFAS No. 144"). SFAS No. 144 supersedes SFAS No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of," and the accounting and reporting provisions of Accounting  Principles Board
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."  SFAS No. 144  provides  updated  guidance
concerning the  recognition  and  measurement of an impairment  loss for certain
types of long-lived assets and expands the scope of a discontinued  operation to
include a  component  of an entity.  The  adoption of SFAS No. 144 on January 1,
2002 did not impact the Company's financial position or results of operations.

         In May 2002,  Statement  of  Financial  Accounting  Standards  No. 145,
"Rescission of SFAS Nos. 4, 44, and 64,  Amendment of SFAS No. 13, and Technical
Corrections"  ("SFAS No. 145"), was issued.  SFAS No. 145 will require gains and
losses  on  extinguishments  of debt to be  classified  as  income  or loss from
continuing operations rather than as

                                      F-13
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

extraordinary  items as  previously  required  under  SFAS No. 4.  Extraordinary
treatment will no longer be permitted for certain extinguishments  considered to
be part of a company's risk management  strategy.  SFAS No. 145 also amends SFAS
No. 13 to  require  certain  modifications  to  capital  leases be  treated as a
sale-leaseback  and modifies the  accounting  for  sub-leases  when the original
lessee remains a secondary obligor (or guarantor). SFAS No. 145 is effective for
financial  statements  issued after May 15, 2002, and with respect to the impact
of the  reporting  requirements  of changes  made to SFAS No. 4 for fiscal years
beginning  after May 15,  2002.  The  Company  adopted  SFAS No. 145 in 2002 and
classified  the write-off of certain  deferred  financing  costs of $1.5 million
(see Note 8) as an operating expense, thereby reducing income from operations.

         In July 2002,  Statement of  Financial  Accounting  Standards  No. 146,
"Accounting for Costs  Associated With Exit or Disposal  Activities"  ("SFAS No.
146") was issued.  SFAS No. 146  addresses  accounting  and  reporting for costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force  Issue No. 94-3 (" EITF No.  94-3"),  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in a  Restructuring)."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the  liability  is incurred.  Under EITF No. 94-3, a liability  for an exit
cost was  recognized  at the  date an  entity  committed  to an exit  plan.  The
provisions of SFAS No. 146 are effective  for exit or disposal  activities  that
are initiated after December 31, 2002.

         In November 2002,  the Financial  Accounting  Standards  Board ("FASB")
Interpretation No. 45, "Guarantor's  Accounting and Disclosure  Requirements for
Guarantees,   Including  Indirect  Guarantees  of  Indebtedness  of  Others,  an
Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB  Interpretation
No. 34," ("FIN No. 45") was issued. FIN No. 45 clarifies  requirements  relating
to the  guarantor's  accounting  for, and disclosure of, the issuance of certain
types of  guarantees.  FIN No. 45 requires  that upon  issuance of a  guarantee,
companies  recognize a liability for the fair value of the obligation it assumes
under that  guarantee.  The  disclosure  provisions  of FIN No. 45 are effective
commencing in the fourth quarter of 2002. The  recognition  requirements  of FIN
No. 45 are to be applied  prospectively  to guarantees  issued or modified after
December  31,   2002.   The  Company  does  not  expect  the  adoption  of  this
interpretation  to  have  a  material  effect  on  the  consolidated   financial
statements.

         In November  2001,  the  Emerging  Issues Task Force  issued No.  01-09
("EITF  No.  01-09"),  "Accounting  for  Consideration  Given by a  Vendor  to a
Customer or a Reseller of the Vendor's  Product."  EITF No. 01-09 was  effective
for Amscan as of January 1, 2002. EITF No. 01-09 clarifies the income  statement
classification  of costs incurred by a vendor in connection  with the reseller's
purchase or promotion of the vendor's products, resulting in certain advertising
and product  placement  costs  previously  classified as selling  expenses to be
reflected as a reduction of revenues earned from that activity. The new guidance
requires  retroactive  restatement  of all periods  presented to reflect the new
accounting provision.  As a result of applying the provisions of EITF No. 01-09,
the Company's  revenues and selling expenses were each reduced by $1,906,000 and
$2,064,000 for the years ended December 31, 2001 and 2000, respectively.

         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, 2002 and 2001  consisted of the  following
(dollars in thousands):

                                                            2002         2001
                                                          --------     --------
Finished goods ......................................     $ 80,783     $ 65,376
Raw materials .......................................        8,763        5,992
Work-in process .....................................        7,722        4,520
                                                          --------     --------
                                                            97,268       75,888
Less:  reserve for slow moving and obsolete inventory       (3,378)      (3,306)
                                                          --------     --------
                                                          $ 93,890     $ 72,582
                                                          ========     ========

                                      F-14
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

          Property,  plant and  equipment,  net at  December  31,  2002 and 2001
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                 Estimated
                                                      2002           2001      Useful Lives
                                                    --------      ---------    ------------
<S>                                                 <C>           <C>              <C>
Machinery and equipment.........................    $ 93,159      $ 78,520         3-15
Buildings.......................................      37,356        36,860        31-40
Data processing equipment.......................      23,691        21,701         3-5
Leasehold improvements..........................      10,859         9,576         2-20
Furniture and fixtures..........................       5,361         4,856          10
Construction in progress........................           -         1,113
Land............................................       7,134         7,123
                                                    ---------     --------
                                                     177,560       159,749
Less:  accumulated depreciation and amortization     (77,256)      (65,160)
                                                    --------      --------
                                                    $100,304      $ 94,589
                                                    ========      ========
</TABLE>

         Depreciation  and amortization  expense related to property,  plant and
equipment  was  $13,587,000,  $12,164,000  and  $10,882,000  for the years ended
December 31, 2002, 2001 and 2000, respectively.


NOTE 5 - LOANS AND NOTES PAYABLE

         On December 20, 2002,  Amscan amended and restated its existing  credit
facility  with various  lenders (the  "Lenders"),  and with Goldman Sachs Credit
Partners L.P. as sole lead  arranger,  sole  bookrunner and  syndication  agent.
Under the terms of the Second Amended and Restated Credit and Guaranty Agreement
(the "Credit  Agreement")  the Lenders agreed to amend and restate the Company's
then existing bank credit agreements (the "Bank Credit Facilities") (see Note 6)
in  their  entirety  and to  provide  a  $200,000,000  senior  secured  facility
consisting of a  $170,000,000  term loan (the "Term Loan") and up to $30,000,000
aggregate principal amount of revolving loans (the "Revolver").  The proceeds of
the Term Loan were used to redesignate  and replace the Company's AXEL term loan
and revolver borrowings existing under the Bank Credit Facilities at the closing
date and to pay certain fees and expenses associated with the refinancing.

         The  Revolver  expires on June 15,  2007,  and bears  interest,  at the
option of the Company,  at the index rate plus,  based on performance,  a margin
ranging from 2.00% to 3.50% per annum, or at LIBOR plus, based on performance, a
margin  ranging  from 3.00% to 4.50% per annum,  with a LIBOR floor of 2.0%.  At
December 31, 2002,  the Company had no borrowings  under the  Revolver.  Standby
letters of credit of $6,500,000  were  outstanding and the Company had borrowing
capacity  of  approximately  $23,500,000  under  the  terms of the  Revolver  at
December 31, 2002.  Amounts  drawn on the Revolver are also subject to an agreed
upon borrowing  base.  All borrowings  under the Revolver are secured by a first
priority lien on substantially  all of the Company's  assets,  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 is required to
maintain certain  financial ratios  throughout the term of the Credit Agreement,
including leverage and interest coverage ratios.

         At December 31, 2001, the Company's revolver  borrowings under its Bank
Credit  Facilities were $700,000 and bore interest at the prime rate plus 0.625%
(weighted  average  rate of  5.38%  at  December  31,  2001).  The  Company  had
outstanding  standby  letters  of credit  under the Bank  Credit  Facilities  of
$6,321,000 at December 31, 2001.

         In addition to the Revolver,  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, 2003, a 1.0 million British Pound Sterling


                                      F-15
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

denominated revolving credit facility which bears interest at the U.K. base rate
plus  1.75%  and  expires  on June 1,  2003 and a  $1,000,000  revolving  credit
facility  which bears  interest  at LIBOR plus 1.0% and expires on December  31,
2003. No borrowings were outstanding  under these revolving credit facilities at
December 31, 2002 and 2001.


NOTE 6 - LONG-TERM OBLIGATIONS

Long-term  obligations  at December 31, 2002 and 2001 consisted of the following
(dollars in thousands):

                                                           2002         2001
                                                        ---------    ---------
 Senior subordinated notes (a) ......................   $ 110,000    $ 110,000
 Term Loan, net of unamortized discount of $1,692 (b)     168,308         --
 AXEL term loan (c) .................................        --        149,675
 Mortgage obligations (d) ...........................      19,981       21,628
 Notes payable (e) ..................................         140          258
 Capital lease obligations (f) ......................         211          337
                                                        ---------    ---------
          Total long-term obligations ...............     298,640      281,898
 Less: current portion ..............................      (3,220)      (3,455)
                                                        ---------    ---------
 Long-term obligations, excluding current portion ...   $ 295,420    $ 278,443
                                                        =========    =========

         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 the Bank Credit  Facilities which provided for borrowings under
an AXEL  term  loan and  revolving  loan  borrowings  under a  revolving  credit
facility  (see Note 5). On December  20, 2002,  Amscan  amended and restated the
Bank  Credit  Facilities  with  various  Lenders.  Under the terms of the Credit
Agreement,  the Lenders  agreed to amend and restate the  Company's  Bank Credit
Facilities  in their  entirety  and to  provide a  $200,000,000  senior  secured
facility  consisting  of a  $170,000,000  term loan (the "Term  Loan") and up to
$30,000,000 aggregate principal amount of revolving loans (the "Revolver").  The
proceeds of the Term Loan were used to  redesignate  and  replace the  Company's
AXEL term loan and revolver borrowings existing under the Bank Credit Facilities
at the closing  date and to pay certain fees and  expenses  associated  with the
refinancing.

         The  Company is  required  to make  prepayments  under the terms of the
Credit Agreement under certain circumstances, including upon certain asset sales
and certain issuances of debt or equity securities.  Such mandatory  prepayments
will be  applied  to  prepay  the Term  Loan  first  (on a pro rata  basis)  and
thereafter to prepay the Revolver and to reduce the commitments thereunder.  The
Company may prepay,  in whole or in part,  borrowings  under the Term Loan. Call
protection  provisions apply to certain prepayments of borrowings under the Term
Loan.  The Company may prepay  borrowings  under or reduce  commitments  for the
Revolver,  in  whole  or in part,  without  penalty.  The  Credit  Agreement  is
guaranteed by the Company's  domestic  subsidiaries (the "Guarantors") (see Note
19). Subject to certain  exceptions,  all borrowings under the Credit Agreement,
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 the  stock of  domestic  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,  and are  irrevocable,  full and
unconditional.

(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
     redemption  prices  ranging from 104.937% to 100%,  plus accrued and unpaid
     interest  to the date of  redemption.  Upon the  occurrence  of a Change of
     Control, as defined in the note indenture, 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 Credit  Agreement,  the note indenture and
     the other  indebtedness  that would become  payable upon the  occurrence of
     such Change of Control.

                                      F-16
<PAGE>


(b)  The Term Loan of  $170,000,000  was funded at a 1% original  issue discount
     and provides for  amortization  (in  quarterly  installments)  of 1% of the
     principal  amount  thereof per annum  through June 15, 2006,  and will then
     amortize in equal quarterly  payments  through June 15, 2007. The Term Loan
     bears interest,  at the option of the Company, at the index rate plus 3.50%
     per annum or at LIBOR plus 4.50% per annum,  with a LIBOR floor of 2.0%. At
     December 31, 2002,  the floating  interest rate on the Term Loan was 7.75%.
     The original  issue discount is being  amortized to interest  expense using
     the interest method over the life of the Term Loan.

(c)  The AXEL term loan was repaid  using the proceeds of the Term Loan as noted
     above.  The AXEL term loan was to mature in December  2004 and provided for
     amortization  (in quarterly  installments)  of 1% 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
     AXEL term loan bore 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 AXEL term loan was  4.56%.  The
     Company was involved in three interest rate swap  transactions with Goldman
     Sachs Capital  Markets,  L.P.  ("GSCM") and a financial  institution  which
     covered a portion of the  outstanding  borrowings  under the AXEL term loan
     all of which 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 and 2000,  respectively,  which have been
     recorded as (reduction of)  additional  interest  expense,  were as follows
     (dollars in thousands):

                                                       (Reduction of) Additional
                                                            Interest Expense
                                 Notional              -------------------------
Date of contract      Amount       Term     Fixed Rate     2001        2000
----------------      ------     --------   ----------     ----        ----
December 31, 1997    $ 57,330    3 years       8.36%     $  --       $   167
September 30, 1998   $ 35,000    3 years       7.68%          56        (592)
September 17, 1999   $ 31,000    2 years       9.30%        (308)         (8)
January 3, 2001      $ 10,000    9 months      6.03%         (76)
                                                         -------     -------
                                                         $  (328)    $  (433)
                                                         =======     =======

(d)  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 interest  rate swap  contracts
     required  the  Company to settle the  difference  in  interest  obligations
     quarterly.  Net payments to the  counterparty  under the swap contracts for
     the year ended  December 31, 2002,  which have been  recorded as additional
     interest  expense,  were  $343,000.  The second  lien  mortgage  note bears
     interest  at a rate of 3.77%  and  4.75% at  December  31,  2002 and  2001,
     respectively,  and is subject to review and adjustment  semi-annually based
     on the New York State Job  Development  Authority's  confidential  internal
     protocols.  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 principal  amounts  outstanding  as of
     December  31,  2002  were   $9,389,000  and  $9,555,000  with  a  financial
     institution and the New York State Job Development Authority, respectively.
     At December 31, 2002,  the new facility has a carrying value of $30,068,000
     (including  capitalized  interest  of  $1,204,000,  of which  $981,000  and
     $223,000 was incurred in 2001 and 2000, respectively).

     At  December  31,  2002 and 2001,  the  Company  had a mortgage  obligation
     payable  to  a  financial   institution  of  $1,037,000   and   $1,628,000,
     respectively,  due September 13, 2004. The mortgage obligation relates to a
     distribution  facility,  is collateralized by the related real estate asset
     ($4,303,000  carrying  value at December  31,  2002) and bears  interest at
     8.51%.

(e)  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, 2002 and 2001,  the note to the former
     shareholder was $140,000 and $228,000, respectively.

                                      F-17
<PAGE>


     In  connection  with the  acquisition  of all the capital  stock of Anagram
     International,   Inc.,  and  certain   related   companies   (collectively,
     "Anagram") in 1998, the Company assumed a note payable to a former employee
     of Anagram which note was paid in full by March 2002. At December 31, 2001,
     the note to the former  employee  was $30,000 and bore  interest at a fixed
     interest rate of 10%.

(f)  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.

     At December 31, 2002,  maturities of long-term obligations consisted of the
following (dollars in thousands):

                            Mortgage, Notes       Capital
                               and Loans     Lease Obligations       Total
                               ---------     -----------------       -----
2003 ................          $  3,132          $     88          $  3,220
2004 ................             3,015                48             3,063
2005 ................             2,522                50             2,572
2006 ................            83,748                25            83,773
2007 ................           193,232                --           193,232
Thereafter ..........            12,780                --            12,780
                               --------          --------          --------
Long-term obligations          $298,429          $    211          $298,640
                               ========          ========          ========


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.

         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 - WRITE-OFF OF DEFERRED FINANCING AND IPO-RELATED COSTS

         During the fourth quarter of 2002, the Company amended and restated its
Bank Credit  Facilities  with various lenders (see Notes 5 and 6) which resulted
in a  $1,460,000  write-off  of deferred  financing  costs  associated  with the
previous facility.

         On June 13, 2002, the Company filed a  registration  statement with the
Securities and Exchange Commission for an initial public offering ("IPO") of its
Common Stock.  However,  during the fourth quarter of 2002, the Company  decided
not to  pursue  the IPO of shares  of its  Common  Stock,  which  resulted  in a
$801,000 write-off of costs associated with the offering. On March 12, 2003, the
Company filed a Form RW with the Securities and Exchange Commission  withdrawing
its registration statement for the IPO.

                                      F-18
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

NOTE 9 - RESTRUCTURING CHARGES

         During the year ended December 31, 2002, the Company  incurred  charges
of $0.6 million resulting from the  consolidation of the fabrication  operations
of M&D Balloons into its existing balloon operations.  In addition,  the Company
incurred charges of $0.4 million and $0.7 million relating to the  consolidation
of certain  domestic  and foreign  distribution  operations,  respectively.  The
consolidation of the Company's distribution and balloon operations may result in
additional restructuring charges in subsequent periods.

         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 began in 1998.


NOTE 10 - 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,  2002,  2001 and 2000
totaled $3,054,000, $2,462,000 and $2,220,000, respectively.


NOTE 11 - 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,
2002,  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, 2002, 2001 and 2000:

                                      F-19
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
<CAPTION>
                                                                        Average Fair Market
                                                            Average       Value of Options
                                              Options    Exercise Price    at Grant Date
                                              -------    --------------    -------------
<S>                                           <C>           <C>               <C>
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
         Granted ...............                2.500        155,000            55,257
         Canceled ..............               (1.000)       150,000
         Canceled ..............               (2.805)        75,000
                                             --------
Outstanding at December 31, 2002              132.074
                                             ========

Exercisable at December 31, 2000               67.267         77,256
Exercisable at December 31, 2001               91.290         78,977
Exercisable at December 31, 2002              115.210         80,611
</TABLE>

         The average  exercise price for options  outstanding as of December 31,
2002 was $87,620 with  exercise  prices  ranging  from $54,545 to $155,000.  The
average remaining contractual life of those options was 5.6 years.


NOTE 12- INCOME TAXES

         A summary  of  domestic  and  foreign  pre-tax  income  (loss)  follows
(dollars in thousands):
                                        Years Ended December 31,
                                 -------------------------------------
                                   2002           2001          2000
                                 --------       --------      --------
     Domestic .............      $ 28,172       $ 17,350      $  9,639
     Foreign ..............          (938)         1,443         3,900
                                 --------       --------      --------
     Total ................      $ 27,234       $ 18,793      $ 13,539
                                 ========       ========      ========


                                      F-20
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

         The provision for income taxes  consisted of the following  (dollars in
thousands):
                                                   Years Ended December 31,
                                               2002          2001         2000
                                             --------      --------     --------
Current:
       Federal .........................     $  5,452      $  4,266     $  1,551
       State ...........................          993         1,101          688
       Foreign .........................         (557)          436        1,348
                                             --------      --------     --------
         Total current provision .......        5,888         5,803        3,587
Deferred:
       Federal .........................        4,422         1,400        1,528
       State ...........................          591           143          233
       Foreign .........................         (144)           77         --
                                             --------      --------     --------
         Total deferred provision ......        4,869         1,620        1,761
                                             --------      --------     --------

Income tax expense .....................     $ 10,757      $  7,423     $  5,348
                                             ========      ========     ========

         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>
                                                                                        2002          2001
                                                                                      --------      --------
<S>                                                                                   <C>           <C>
Current deferred tax assets:
         Allowance for doubtful accounts ........................................     $  1,871      $  1,216
         Accrued liabilities ....................................................          153           322
         Inventories ............................................................        2,999         2,202
         Charitable contributions carryforward ..................................           --           166
         Other ..................................................................           18           279
                                                                                      --------      --------
              Current deferred tax assets (included in prepaid expenses and other
                current assets) .................................................     $  5,041      $  4,185
                                                                                      ========      ========

                                                                                          2002          2001
                                                                                      --------      --------
Non-current deferred tax liabilities, net:
         Property, plant and equipment ..........................................     $ 16,885      $ 14,433
         Amortization of goodwill and other intangibles .........................        2,076           721
         Royalty reserves .......................................................         (455)           (9)
         Foreign tax credits ....................................................         (308)
         Interest rate swap and foreign exchange contracts ......................         (726)          (76)
         Other ..................................................................         (112)          112
                                                                                      --------      --------
              Non-current deferred tax liabilities, net .........................     $ 17,360      $ 15,181
                                                                                      ========      ========
</TABLE>

         A  non-current  foreign  deferred tax asset of $600,000 and $456,000 at
December  31,  2002  and  2001,  respectively,   is  primarily  attributable  to
non-current obligations recognized in connection with the acquisition of Anagram
in 1998 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:

                                                      Years Ended December 31,
                                                      ------------------------
                                                     2002      2001       2000
                                                     ----      ----       ----
Provision at federal statutory income tax rate ..    35.0%     35.0%      34.0%

State income tax, net of federal tax benefit ....     3.8       4.7        4.5
Other ...........................................     0.7      (0.2)       1.0
                                                     ----      ----       ----
Effective income tax rate .......................    39.5%     39.5%      39.5%
                                                     ====      ====       ====

         At  December  31,  2002,   the  Company's   share  of  the   cumulative
undistributed earnings of foreign subsidiaries

                                      F-21
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

was approximately $11,536,000. 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 13- CAPITAL STOCK

         At December 31, 2002 and 2001,  employee  stockholders  held 196.92 and
193.20 shares,  respectively,  of fully paid and vested Common Stock.  Under the
terms  of the  stockholders'  agreement  (the  "Stockholders'  Agreement"),  the
Company can 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. In addition,  under the
terms of the  Stockholders'  Agreement,  the Company can be required to purchase
all of the  shares  held by an  employee  stockholder  in the  case of  death or
disability,  at a price  determined  by a market  valuation  and,  in all  other
instances,  at  the  lower  of the  share's  cost,  as  defined,  or the  market
valuation. All common shares held by employees are recorded as redeemable Common
Stock,  at the estimated  fair market value of the stock,  with a  corresponding
adjustment  to  stockholders'  deficit.  At  December  31,  2002 and  2001,  the
aggregate  amount that may be payable by the  Company to employee  stockholders,
based on the then estimated  market value for fully paid and vested shares,  was
approximately $30,523,000 and $29,949,000, respectively, and has been classified
as redeemable  Common Stock on the consolidated  balance sheets.  As there is no
active market for the Company's  Common  Stock,  the Company  estimates the fair
value of its Common Stock using various  valuation  techniques  including recent
third party transactions.

         At December 31, 2002 and 2001, 6.38 and 6.67 shares,  respectively,  of
Common Stock (the "Restricted  Stock") were subject to the vesting provisions of
employment  agreements  with the President and Executive  Vice  President of the
Company. The Restricted Stock held by the President and Executive Vice President
will vest in June 2003 and December 2004,  respectively.  During the years ended
December 31, 2002,  2001 and 2000,  the Company  recorded  the  amortization  of
Restricted   Stock  of  $236,000,   $260,000  and  $51,000,   respectively,   as
compensation expense,  which is included in general and administrative  expenses
in the Company's consolidated statements of income.

         At December 31, 2002, the Company held notes  receivable  from a former
officer  and  a  current  officer  in  the  amounts  of  $613,000  and  $25,000,
respectively.  At December 31, 2001,  the Company held notes  receivable  from a
current  officer and a former officer  totaling  $601,000.  These notes arose in
connection  with the  issuance of shares of Common  Stock to the  officers.  The
notes held at  December  31,  2002 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 balance sheets as an increase in stockholders' deficit.

         In February 2002, the Company issued 96.774 shares of its Common Stock,
at a value of $155,000 per share,  to American  Greetings in connection with the
acquisition of M&D Balloons (see Note 1).

         On January 1, 2002, the Company issued 3.0 shares of Restricted  Stock,
with an aggregate value of $465,000 to its Executive Vice President,  subject to
the vesting  provisions  of an  employment  agreement.  The shares of Restricted
Stock will vest on December 31, 2004.

         In September  1998, the Company issued warrants to purchase 10.0 shares
of Common Stock at $125,000 per share in connection  with the acquisition of all
the capital stock of Anagram.  The  warrants,  which were valued at $225,000 and
were fully  exercisable  upon  issuance,  expire on September  17, 2008 and were
included as a cost of the acquisition of Anagram.

         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

                                      F-22
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

Preferred  Stock to GSCP for proceeds of $6.0 million.  Dividends are cumulative
and payable annually at 6% per annum. On March 30, 2002, the annual dividend was
distributed in additional  shares of Series A Redeemable  Convertible  Preferred
Stock.  Dividends  payable  on or  prior to  March  30,  2004,  are  payable  in
additional shares of Series A Redeemable Convertible Preferred Stock. Subsequent
to March 30, 2004,  dividends are payable, at the option of the Company,  either
in cash or additional shares of Series A Redeemable Convertible Preferred Stock.
At December 31, 2002, accrued dividends  aggregated $286,200 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 one share of Common
Stock of the Company,  $0.10 par value, at a conversion  price equal to the fair
value of the Common Stock at the date the redeemable convertible preferred stock
was issued,  subject to adjustment  for the effects of  subsequent  Common Stock
splits or stock  dividends.  At December 31, 2002,  the  redeemable  convertible
preferred  stock was  convertible  into Common  Stock at a price of $150,000 per
common share.  As of December 31, 2002,  there were 44.31 shares of 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.


NOTE 14- 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 2006 (see Note 6).
At December 31, 2002 and 2001, 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):

                                                         2002        2001
                                                       -------     -------

     Machinery and equipment ....................      $ 4,343     $ 7,291
     Less: accumulated amortization .............       (3,382)     (4,111)
                                                       -------     -------
                                                       $   961     $ 3,180
                                                       =======     =======

         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.

                                      F-23
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

         At December 31, 2002, future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):

           2003.....................................      $12,146
           2004.....................................        9,802
           2005.....................................        8,598
           2006.....................................        6,913
           2007.....................................        6,251
           Thereafter...............................       10,523
                                                          -------
                                                          $54,233
                                                          =======

         Rent expense for the years ended  December 31, 2002,  2001 and 2000 was
$12,705,000, $9,450,000, and $9,040,000, respectively.

Royalty Agreements
------------------

         The Company has entered into royalty  agreements with various licensors
of  copyrighted  and  trademarked  characters  and designs used on the Company's
products  which  require  royalty  payments  based  on  sales  of the  Company's
products, or in some cases, annual minimum royalties.

         At December 31, 2002,  the Company's  commitment to pay future  minimum
royalties was as follows (dollars in thousands):

           2003.....................................       $4,278
           2004.....................................        3,332
           2005.....................................          270
           Thereafter...............................            -
                                                           ------
                                                           $7,880
                                                           ======

         Royalty  expense for the years ended  December 31, 2002,  2001 and 2000
was $6,192,000, $4,494,000, and $4,109,000, respectively.

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
--------------------------
         During 2001, the Company  amended a line of credit granted to the Chief
Executive Officer, increasing the line from $1,000,000 to $1,400,000. Borrowings
under the line bear  interest at the  Company's  incremental  borrowing  rate in
effect  during  the time such  loan is  outstanding.  The  interest  is  payable
annually  or, at the  option  of the Chief  Executive  Officer,  accrues  to the
principal balance. The line of credit 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, 2002 and 2001,  borrowings,
including accrued interest,  under this line totaled  $1,551,000 and $1,463,000,
respectively.

         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  personal  federal,  state or local income taxes due and payable upon and in
respect  of the  vesting  of the  President's  Restricted  Stock (see "Note 13 -
Capital  Stock").  The  Company's  obligation  to extend loans under the note is
limited to the amount of income 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

                                      F-24
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

note requires that all payments of principal and interest due thereunder be made
only from the equity pledged as  collateral.  At December 31, 2002 and 2001, the
amount borrowed under the note totaled $391,300 and $177,000, respectively.

       Pursuant to the Stockholders'  Agreement,  Goldman Sachs, an affiliate of
GSCP which owned  approximately  66.9% of the Company's  Common Stock (excluding
the potential impact of the conversion of the redeemable  convertible  preferred
stock) at  December  31,  2002,  has the  exclusive  right (if it so  elects) to
perform,  through its various affiliated  companies,  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.
Goldman Sachs Credit  Partners L.P., an affiliate of Goldman Sachs and GSCP, has
served as the arranger and  syndication  agent for the Company's  term loans and
revolving credit  facilities  since December 1997. On December 20, 2002,  Amscan
amended and restated its existing  credit  facility,  with Goldman  Sachs Credit
Partners L.P. as sole lead arranger,  sole bookrunner and syndication agent. For
the year ended  December 31, 2002 and 2000,  Amscan paid  Goldman  Sachs and its
affiliates fees for services of $3,231,572 and $350,000,  respectively.  No fees
were paid to Goldman Sachs and its affiliates in 2001.

           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 13).  Dividends are cumulative  and payable  annually at 6% per annum.
Dividends  payable on or prior to March 30,  2004,  are  payable  in  additional
shares of Series A Redeemable  Convertible Preferred Stock.  Subsequent to March
30, 2004, dividends are payable, at the option of the Company, either in cash or
additional  shares  of  Series A  Redeemable  Convertible  Preferred  Stock.  At
December 31, 2002,  42.40  shares of Series A Redeemable  Convertible  Preferred
Stock were issued and outstanding and accrued dividends aggregated $286,200.


NOTE 15 - SEGMENT INFORMATION

Industry Segments
-----------------
       The Company manages its operations as one industry segment which involves
the design,  manufacture,  contract for  manufacture  and  distribution of party
goods, including decorative party goods, metallic balloons,  stationery and gift
items.

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.  Sales between geographic areas are made at
cost plus a share of operating profit.

       The  Company's  geographic  area data for each of the three  years  ended
December 31, 2002, 2001 and 2000 were as follows (dollars in thousands):


<TABLE>
<CAPTION>
                                                           Domestic       Foreign      Eliminations   Consolidated
                                                           --------       -------      ------------   ------------
<S>                                                        <C>            <C>            <C>            <C>
2002
Sales to unaffiliated customers ......................     $ 332,187      $  53,416                     $ 385,603
Sales between geographic areas .......................        23,156                     $ (23,156)
                                                           ---------      ---------      ---------      ---------
Net sales ............................................     $ 355,343      $  53,416      $ (23,156)     $ 385,603
                                                           =========      =========      =========      =========

Income from operations ...............................     $  46,481      $   1,410      $     824      $  48,715
                                                           =========      =========      =========
Interest expense, net ................................                                                     21,792
Other income, net ....................................                                                       (311)
                                                                                                        ---------
Income before income taxes and minority interests ....                                                  $  27,234
                                                                                                        =========

Long-lived assets ....................................     $ 179,363      $   7,364                     $ 186,727
                                                           =========      =========                     =========
</TABLE>

                                      F-25
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
<CAPTION>
                                                           Domestic       Foreign      Eliminations   Consolidated
                                                           --------       -------      ------------   ------------
<S>                                                        <C>            <C>            <C>            <C>
2001
Sales to unaffiliated customers ......................     $ 297,585      $  47,598                     $ 345,183
Sales between geographic areas .......................        24,051                     $ (24,051)
                                                           ---------      ---------      ---------      ---------
Net sales ............................................     $ 321,636      $  47,598      $ (24,051)     $ 345,183
                                                           =========      =========      =========      =========

Income from operations ...............................     $  39,385      $   2,430      $   1,071      $  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
                                                           =========      =========                     =========

<CAPTION>
                                                           Domestic       Foreign      Eliminations   Consolidated
                                                           --------       -------      ------------   ------------
2000
<S>                                                        <C>            <C>            <C>            <C>
Sales to unaffiliated customers ......................     $ 278,508      $  44,976                     $ 323,484
Sales between geographic areas .......................        20,408                     $ (20,408)            --
                                                           ---------      ---------      ---------      ---------
Net sales ............................................     $ 298,916      $  44,976      $ (20,408)     $ 323,484
                                                           =========      =========      =========      =========

Income from operations ...............................     $  35,190      $   4,575      $     225      $  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>


NOTE 16 - 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, 2002 and 2001 because of the  short-term  maturity of
those instruments or their variable rates of interest.

         The  estimated  fair  value  of the  Company's  $110,000,000  Notes  at
December 31, 2002 and 2001,  was  $101,772,000  and  $87,835,000,  respectively,
included  in the  consolidated  balance  sheets.  The  carrying  amounts  of the
Company's  borrowings  under its Credit  Agreement  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, 2002 and 2001,  based on the  discounted
future cash flow of each instrument at rates currently  offered for similar debt
instruments of comparable maturity.


NOTE 17 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

         All derivative financial instruments that qualify for hedge accounting,
such as  interest  rate swaps and  foreign  currency  exchange  agreements,  are
recognized  on the  balance  sheet at fair  value and  changes in fair value are
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 ineffective portion of a cash flow hedge, if
any, is determined based on the dollar-offset  method (i.e., the 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) and is  recognized  in
current earnings during the period of change. As long as hedge effectiveness is

                                      F-26
<PAGE>


maintained,  the Company's  interest rate swap arrangements and foreign currency
exchange agreements qualify for hedge accounting as cash flow hedges.

Interest Rate Risk Management
-----------------------------
         As  part  of  the  Company's  risk  management  strategy,  the  Company
periodically 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.  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%.  The fair value of interest  rate swaps is the estimated
amount  that  the  counterparty  would  receive  or pay to  terminate  the  swap
agreements at the reporting date, taking into account current interest rates and
the current  creditworthiness of the swap counterparties.  At December 31, 2002,
this hedge had an  unrealized  net loss of $644,000,  which has been included in
accumulated  other  comprehensive  loss  (see Note  18).  As this  hedge is 100%
effective,  there is no current impact on earnings due to hedge ineffectiveness.
At December 31, 2001,  the fair value of the interest  rate swap  agreement  was
immaterial.

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,  including the British Pound Sterling and the
Euro,   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 and trade receivables.
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, 2002 and
2001,  the Company had  contracts in the notional  amounts of $20.4  million and
$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  related   gains  and  losses  on  these   contracts  are  deferred  in
stockholders'  deficit.  The fair value adjustment at December 31, 2002 and 2001
are unrealized net losses of $466,000,  and $114,000,  respectively,  which have
been included in accumulated other  comprehensive  loss. 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 2003.

                                      F-27
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

NOTE 18 - COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                                 ------------------------------------
                                                                   2002          2001          2000
                                                                 --------      --------      --------

<S>                                                              <C>           <C>           <C>
Net income .................................................     $ 16,465      $ 11,302      $  8,116
Net change in cumulative translation adjustment ............        1,304          (434)       (1,457)
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 17) .                       (227)
Change in fair value of the Company's interest rate
   swap contracts, net of taxes of $421 and $(148),
   respectively (see Note 17) ..............................         (644)          227
Change in fair value of the Company's foreign
   exchange contracts, net of taxes of $229 and $76,
      respectively (see Note 17) ...........................         (352)         (114)
                                                                 --------      --------      --------
                                                                 $ 16,773      $ 10,754      $  6,659
                                                                 ========      ========      ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                2002         2001
                                                              -------      -------

<S>                                                           <C>          <C>
Cumulative translation adjustment .......................     $(1,475)     $(2,779)
Interest rate swap contract qualifying as a hedge, net of
     taxes of $421 ......................................        (644)
Foreign exchange contracts qualifying as hedges,
  net of taxes of $305 and $76, respectively ............        (466)        (114)
                                                              -------      -------
                                                              $(2,585)     $(2,893)
</TABLE>


NOTE 19 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)

         On December 20, 2002,  Amscan amended and restated its existing  credit
facility  (see  Notes 5 and 6).  Under the terms of the  Credit  Agreement,  the
Lenders  agreed  to  amend  and  restate  the  Company's  existing  bank  credit
agreements  in their  entirety  and to  provide a  $200,000,000  senior  secured
facility consisting of a $170,000,000 Term Loan and up to $30,000,000  aggregate
principal amount of revolving loans under the Revolver. The proceeds of the Term
Loan were used to  redesignate  and  replace  the  Company's  AXEL term loan and
revolver  borrowings  existing  under the Bank Credit  Facilities at the closing
date and to pay certain fees and expenses associated with the refinancing.

         On December 19, 1997,  the Company also issued  $110,000,000  aggregate
principal amount of 9.875% senior  subordinated  notes due in December 2007 (see
Note 6). The repayment of the Notes and borrowings under the Credit


                                      F-28
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

Agreement are guaranteed jointly and severally,  fully and  unconditionally,  by
the following wholly-owned Guarantor subsidiaries:

    o   Amscan Inc.
    o   Trisar, Inc.
    o   Am-Source, LLC
    o   Anagram International, Inc.
    o   Anagram International Holdings, Inc.
    o   Anagram International, LLC
    o   M&D Balloons, Inc.
    o   SSY Realty Corp.
    o   JCS Realty Corp.
    o   Anagram Eden Prairie Property Holdings LLC

      Non-guarantor subsidiaries ("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,  2002  and  2001,  and  the  related  consolidating
statements  of income and cash  flows for each of the three  years in the period
ended   December  31,  2002  for  the  combined   Guarantors  and  the  combined
Non-guarantors  and  elimination  entries  necessary to consolidate the entities
comprising the combined companies.



                                      F-29
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                           CONSOLIDATING BALANCE SHEET
                                December 31, 2002
                             (Dollars in thousands)
                                   (Unaudited)

<CAPTION>
                                                      Amscan
                                                   Holdings and     Combined
                                                     Combined         Non-
                                                    Guarantors     Guarantors    Eliminations   Consolidated
                                                    ----------     ----------    ------------   ------------
<S>                                                  <C>            <C>            <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents ...................     $   1,483      $     917                     $   2,400
   Accounts receivable, net ....................        62,520         11,727                        74,247
   Inventories .................................        83,659         11,138      $    (907)        93,890
   Prepaid expenses and other current assets ...        13,411          2,280           (458)        15,233
                                                     ---------      ---------      ---------      ---------
   Total current assets ........................       161,073         26,062         (1,365)       185,770
Property, plant and equipment, net .............        98,951          1,353                       100,304
Goodwill, net ..................................        68,611          5,640                        74,251
Notes receivable from officers .................         1,942                                        1,942
Other assets, net ..............................        34,788            627        (25,185)        10,230
                                                     ---------      ---------      ---------      ---------
   Total assets ................................     $ 365,365      $  33,682      $ (26,550)     $ 372,497
                                                     =========      =========      =========      =========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND COMMON STOCK
    AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
   Loans and notes payable .....................     $    --        $    --                       $    --
   Accounts payable ............................        37,813          1,432                        39,245
   Accrued expenses ............................        15,937          5,587                        21,524
   Income taxes payable ........................         3,037                     $    (512)         2,525
   Current portion of long-term
     obligations ...............................         3,052            168                         3,220
                                                     ---------      ---------      ---------      ---------
   Total current liabilities ...................        59,839          7,187           (512)        66,514
Long-term obligations, excluding
  current portion ..............................       295,274            146                       295,420
Deferred income tax liabilities ................        17,360                                       17,360
Other ..........................................         1,153         16,052        (14,888)         2,317
                                                     ---------      ---------      ---------      ---------
Total liabilities ..............................       373,626         23,385        (15,400)       381,611

Redeemable convertible preferred stock .........         6,646                                        6,646
Redeemable Common Stock ........................        30,523                                       30,523

Commitments and Contingencies

Stockholders' (deficit) equity:
   Common Stock ................................                          339           (339)          --
   Additional paid-in capital ..................        14,814            658           (658)        14,814
   Unamortized restricted Common Stock
      award, net ...............................          (323)                                        (323)
   Notes receivable from stockholders ..........          (638)                                        (638)
   (Deficit) retained earnings .................       (56,698)        11,198        (12,051)       (57,551)
   Accumulated other comprehensive loss ........        (2,585)        (1,898)         1,898         (2,585)
                                                     ---------      ---------      ---------      ---------
       Total stockholders' (deficit) equity ....       (45,430)        10,297        (11,150)       (46,283)
                                                     ---------      ---------      ---------      ---------
       Total liabilities, redeemable convertible
           preferred and Common Stock and
           stockholders' (deficit) equity ......     $ 365,365      $  33,682      $ (26,550)     $ 372,497
                                                     =========      =========      =========      =========
</TABLE>

                                      F-30
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                           CONSOLIDATING BALANCE SHEET
                                December 31, 2001
                             (Dollars in thousands)
                                   (Unaudited)

<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
Goodwill, net ....................................        51,136          4,849                        55,985
Notes receivable from officers ...................         1,640                                        1,640
Other assets, net ................................        22,859          4,880        (21,775)         5,964
                                                       ---------      ---------      ---------      ---------
     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-31
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                      For the Year Ended December 31, 2002
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                                             Amscan
                                                          Holdings and     Combined
                                                            Combined         Non-
                                                           Guarantors     Guarantors    Eliminations   Consolidated
                                                           ----------     ----------    ------------   ------------
<S>                                                        <C>            <C>            <C>            <C>
Net sales ............................................     $ 350,585      $  53,416      $ (18,398)     $ 385,603
Cost of sales ........................................       233,112         38,130        (18,262)       252,980
                                                           ---------      ---------      ---------      ---------
         Gross profit ................................       117,473         15,286           (136)       132,623
Operating expenses:
    Selling expenses .................................        28,586          6,033                        34,619
    General and administrative expenses ..............        26,764          6,252           (960)        32,056
    Provision for doubtful accounts ..................         2,147            861                         3,008
    Art and development costs ........................        10,301                                       10,301
    Write-off of deferred financing and IPO-related
      costs ..........................................         2,261                                        2,261
    Restructuring charges ............................           933            730                         1,663
                                                           ---------      ---------      ---------      ---------
         Income from operations ......................        46,481          1,410            824         48,715
Interest expense, net ................................        21,121            671                        21,792
Other (income) expense, net ..........................        (2,182)         2,327           (456)          (311)
                                                           ---------      ---------      ---------      ---------
         Income (loss) before income taxes
           and minority interests ....................        27,542         (1,588)         1,280         27,234
Income tax expense (benefit) .........................        10,995           (184)           (54)        10,757
Minority interests ...................................                           12                            12
                                                           ---------      ---------      ---------      ---------
         Net income (loss) ...........................        16,547         (1,416)         1,334         16,465
         Dividend on redeemable convertible
             preferred stock .........................           376                                          376
                                                           ---------      ---------      ---------      ---------
         Net income (loss) applicable to common shares     $  16,171      $  (1,416)     $   1,334      $  16,089
                                                           =========      =========      =========      =========
</TABLE>

                                      F-32
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                      For the Year Ended December 31, 2001
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                                      Amscan
                                                   Holdings and     Combined
                                                     Combined         Non-
                                                    Guarantors     Guarantors   Eliminations   Consolidated
                                                    ----------     ----------   ------------   ------------

<S>                                                 <C>            <C>           <C>            <C>
Net sales .....................................     $ 321,327      $  45,380     $ (21,524)     $ 345,183
Cost of sales .................................       214,505         31,751       (21,220)       225,036
                                                    ---------      ---------     ---------      ---------
         Gross profit .........................       106,822         13,629          (304)       120,147
Operating expenses:
    Selling expenses ..........................        26,355          5,059                       31,414
    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 on redeemable convertible
            preferred stock ...................           270                                         270
                                                    ---------      ---------     ---------      ---------
         Net income applicable to common shares     $  11,336      $   1,191     $  (1,495)     $  11,032
                                                    =========      =========     =========      =========
</TABLE>

                                      F-33
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                        CONSOLIDATING STATEMENT OF INCOME
                      For the Year Ended December 31, 2000
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                              Amscan
                                           Holdings and    Combined
                                             Combined        Non-
                                            Guarantors    Guarantors    Eliminations  Consolidated
                                            ----------    ----------    ------------  ------------

<S>                                         <C>            <C>           <C>            <C>
Net sales .............................     $ 299,647      $  43,913     $ (20,076)     $ 323,484
Cost of sales .........................       198,582         28,399       (20,109)       206,872
                                            ---------      ---------     ---------      ---------
         Gross profit .................       101,065         15,514            33        116,612
Operating expenses:
    Selling expenses ..................        23,066          5,512                       28,578
    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-34
<PAGE>


                             AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                               December 31, 2002

<TABLE>
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      For the Year Ended December 31, 2002
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                                                         Amscan Holdings   Combined
                                                                          and Combined       Non-
                                                                           Guarantors     Guarantors    Eliminations   Consolidated
                                                                           ----------     ----------    ------------   ------------

<S>                                                                        <C>            <C>            <C>            <C>
Cash flows from operating activities:
  Net income (loss) ..................................................     $  16,547      $  (1,416)     $   1,334      $  16,465
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
      Depreciation and amortization ..................................        13,443            519                        13,962
      Amortization of deferred financing costs .......................         1,202                                        1,202
      (Gain) loss on disposal of property, plant and equipment .......          (348)            94                          (254)
      Provision for doubtful accounts ................................         2,147            861                         3,008
      Write-off of deferred financing costs ..........................         1,460                                        1,460
      Amortization of restricted Common Stock awards .................           236                                          236
      Deferred income tax provision (benefit) ........................         5,013           (144)                        4,869
      Changes in operating assets and liabilities, net of acquisition:
           Increase in accounts receivable ...........................        (4,528)        (3,406)                       (7,934)
           (Increase) decrease in inventories ........................       (13,710)        (1,817)           136        (15,391)
           (Increase) decrease in prepaid expenses, other
              current assets and other, net ..........................        (4,949)         4,338         (1,416)        (2,027)
           Increase (decrease) in accounts payable, accrued
              expenses and income taxes payable ......................         3,665          1,122            (54)         4,733
                                                                           ---------      ---------      ---------      ---------
           Net cash provided by operating activities .................        20,178            151           --           20,329

Cash flows from investing activities:
  Cash paid in connection with acquisition ...........................       (13,548)                                     (13,548)
  Capital expenditures ...............................................       (17,248)          (464)                      (17,712)
  Proceeds from disposal of property, plant and equipment ............           481             49                           530
                                                                           ---------      ---------      ---------      ---------
           Net cash used in investing activities .....................       (30,315)          (415)                      (30,730)

Cash flows from financing activities:
  Proceeds from loans, notes payable and long-term obligations, net of
     debt issuance costs (including original issue discount) of $6,032       163,968                                      163,968
  Repayment of loans, notes payable and long-term obligations ........      (152,198)          (153)                     (152,351)
  Loans to officers under notes ......................................          (200)                                        (200)
                                                                           ---------      ---------      ---------      ---------
           Net cash provided by (used in) financing activities .......        11,570           (153)                       11,417
Effect of exchange rate changes on cash and cash equivalents .........           (10)           378                           368
                                                                           ---------      ---------      ---------      ---------
           Net increase (decrease) in cash and cash equivalents ......         1,423            (39)                        1,384
Cash and cash equivalents at beginning of year .......................            60            956                         1,016
                                                                           ---------      ---------      ---------      ---------
Cash and cash equivalents at end of year .............................     $   1,483      $     917      $    --        $   2,400
                                                                           =========      =========      =========      =========
</TABLE>

                                      F-35
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      For the Year Ended December 31, 2001
                             (Dollars in thousands)
                                   (Unaudited)



<CAPTION>
                                                                    Amscan Holdings   Combined
                                                                      and 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, plant 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, other
              current assets and other, net .......................       (5,967)          588         1,191        (4,188)
           Increase (decrease) in accounts payable, accrued
             expenses and income taxes payable ....................        4,801          (358)                      4,443
                                                                        --------      --------      --------      --------
           Net cash provided by operating activities ..............       25,386           866          --          26,252

Cash flows from investing activities:
  Capital expenditures ............................................      (37,033)         (446)                    (37,479)
  Proceeds from disposal of property, plant 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)
  Loans to officers under notes ...................................         (953)                                     (953)
  Other ...........................................................          (42)          (24)                        (66)
                                                                        --------      --------      --------      --------
           Net cash provided by (used in) financing activities ....       11,148          (178)                     10,970
Effect of exchange rate changes on cash and cash equivalents ......          (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-36
<PAGE>


                              AMSCAN HOLDINGS, INC.
             Notes to Consolidated Financial Statements (Continued)
                                December 31, 2002

<TABLE>
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                      For the Year Ended December 31, 2000
                             (Dollars in thousands)
                                   (Unaudited)


<CAPTION>
                                                                  Amscan Holdings  Combined
                                                                   and 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, plant and equipment              8           (17)                         (9)
      Provision for doubtful accounts ..........................        6,896           237                       7,133
      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, other
              current assets and other, net ....................        2,726        (1,377)        2,261         3,610
           Increase (decrease) in accounts payable, accrued
              expenses and income taxes payable ................       10,160        (1,091)                      9,069
                                                                     --------      --------      --------      --------
           Net cash provided by operating activities ...........       17,862         2,017          --          19,879

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

Cash flows from financing activities:
  Proceeds from the exercise of Common Stock options ...........            8                                         8
  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)
  Loans to officers under notes ................................         (621)                                     (621)
  Other ........................................................          484          (389)                         95
                                                                     --------      --------      --------      --------
           Net cash provided by (used in) financing activities            883          (638)                        245
Effect of exchange rate changes on cash and cash equivalents ...         (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-37
<PAGE>



<TABLE>
                                   SCHEDULE II
                              AMSCAN HOLDINGS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 2002, 2001 and 2000
                             (Dollars in thousands)


<CAPTION>
                                     Beginning                                Ending
                                      Balance     Write-offs    Additions     Balance
                                      -------     ----------    ---------     -------
<S>                                    <C>          <C>          <C>          <C>
Allowance for Doubtful Accounts:
    For the year ended:
       December 31, 2000 .......       $6,172       $8,059       $7,133       $5,246
       December 31, 2001 .......        5,246        5,067        3,758        3,937
       December 31, 2002 .......        3,937        1,818        3,008        5,127

<CAPTION>
                                     Beginning                                Ending
                                      Balance     Write-offs    Additions     Balance
                                      -------     ----------    ---------     -------
<S>                                    <C>          <C>          <C>          <C>
Inventory Reserves:
    For the year ended:
       December 31, 2000 .......       $2,029       $1,075       $1,478       $2,432
       December 31, 2001 .......        2,432          722        1,596        3,306
       December 31, 2002 .......        3,306        1,187        1,259        3,378
</TABLE>



                                      F-38