UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

F O R M 10-Q

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

For the Quarterly Period Ended September 30, 2001

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

For the transition period from ____________________ to ____________________

Commission file number 000-21827

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

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

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

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

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

As of November 14, 2001, 1,133.59 shares of Registrants Common Stock, par value $0.10, were
outstanding.

AMSCAN HOLDINGS, INC.
FORM 10-Q
September 30, 2001

Table of Contents

|          | Part I                                                                                            | Page
|--------- | ------------------------------------------------------------------------------------------------- | ----
|          |                                                                                                   |     
|Item 1    | Financial Statements (Unaudited)                                                                  |     
|          |                                                                                                   |     
|          | Consolidated Balance Sheets at September 30, 2001 and December 31, 2000                           | 3   
|          |                                                                                                   |     
|          | Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2001 and 2000 | 4   
|          |                                                                                                   |     
|          | Consolidated Statement of Stockholders' Deficit for the Nine Months
Ended September 30, 2001      | 5   
|          |                                                                                                   |     
|          | Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000       | 6   
|          |                                                                                                   |     
|          | Notes to Consolidated Financial Statements                                                        | 7   
|          |                                                                                                   |     
|Item 2    | Management's Discussion and Analysis of Financial Condition
    and Results of Operations         | 14  
|          |                                                                                                   |     
|Item 3    | Quantitative and Qualitative Disclosures About Market Risk                                        | 20  
|          |                                                                                                   |     
|          | Part II                                                                                           |     
|          |                                                                                                   |     
|Item 1    | Legal Proceedings                                                                                 | 20  
|          |                                                                                                   |     
|Item 2    | Changes in Securities and Use of Proceeds                                                         | 21  
|          |                                                                                                   |     
|Item 6    | Exhibits and Reports on Form 8-K                                                                  | 21  
|          |                                                                                                   |     
|Signature |                                                                                                   | 22  

2

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

`September 30,   December 31,
                                                                    2001           2000
                                                           -------------  -------------
                                                                 (Unaudited)      (Note)
                                 ASSETS
Current assets:
   Cash and cash equivalents ...............................     $     963      $   1,469
   Accounts receivable, net of allowances ..................        70,800         62,678
   Inventories, net of allowances ..........................        73,510         71,539
   Prepaid expenses and other current assets ...............        11,988          9,272
                                                                 ---------      ---------
         Total current assets ..............................       157,261        144,958
Property, plant and equipment, net .........................        87,391         69,198
Intangible assets, net .....................................        56,653         59,360
Other assets, net ..........................................         9,791          7,111
                                                                 ---------      ---------

         Total assets ......................................     $ 311,096      $ 280,627
                                                                 =========      =========

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

Current liabilities:
   Short-term obligations ..................................     $  25,000      $  10,335
   Accounts payable ........................................        27,705         28,820
   Accrued expenses ........................................        21,292         17,091
   Income taxes payable ....................................         2,203          1,198
   Current portion of long-term obligations ................         2,479          3,754
                                                                 ---------      ---------
         Total current liabilities .........................        78,679         61,198
Long-term obligations, excluding current portion ...........       260,090        261,815
Deferred income tax liabilities ............................        14,114         13,314
Other ......................................................         2,330          2,413
                                                                 ---------      ---------
         Total liabilities .................................       355,213        338,740

Redeemable convertible preferred stock .....................         6,180           --
Redeemable Common Stock ....................................        28,768         28,768

Stockholders' deficit:
   Common Stock ............................................          --             --
   Additional paid-in capital ..............................           299            233
   Unamortized restricted Common Stock award, net ..........          (132)          (354)
   Notes receivable from stockholders ......................          (564)          (548)
   Deficit .................................................       (75,572)       (83,867)
   Accumulated other comprehensive loss ....................        (3,096)        (2,345)
                                                                 ---------      ---------
         Total stockholders' deficit .......................       (79,065)       (86,881)
                                                                 ---------      ---------
         Total liabilities, redeemable convertible preferred
           and Common Stock and stockholders' deficit ......     $ 311,096      $ 280,627
                                                                 =========      =========

         Note:   The balance sheet at December 31, 2000 has been derived from the audited
         consolidated financial statements at that date.`

See accompanying notes to consolidated financial statements.

3

AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)

`Three Months Ended           Nine Months Ended
                                                     September 30,                September 30,
                                                 ----------------------      ---------------------
                                                   2001          2000          2001         2000
                                                --------      --------      --------     --------

Net sales ..................................     $ 88,010      $ 83,365      $258,879     $239,500
Cost of sales ..............................       57,416        53,022       167,259      150,698
                                                 --------      --------      --------     --------
      Gross profit .........................       30,594        30,343        91,620       88,802

Operating expenses:
   Selling expenses ........................        8,648         7,981        25,340       22,037
   General and administrative expenses .....        7,717         7,914        23,866       23,670
   Provision for doubtful accounts .........        2,113           444         3,100        4,817
   Art and development costs ...............        2,139         2,329         6,481        6,429
                                                 --------      --------      --------     --------
      Total operating expenses .............       20,617        18,668        58,787       56,953
                                                 --------      --------      --------     --------
      Income from operations ...............        9,977        11,675        32,833       31,849

Interest expense, net ......................        6,001         6,595        18,766       19,768
Other (income) expense, net ................          (24)           85            20          158
                                                 --------      --------      --------     --------
      Income before income taxes and
        minority interests .................        4,000         4,995        14,047       11,923

Income tax expense .........................        1,580         1,973         5,549        4,710
Minority interests .........................           29            13            23           47
                                                 --------      --------      --------     --------
      Net income ...........................        2,391         3,009         8,475        7,166
      Dividend requirement on redeemable
                convertible preferred stock           (90)                       (180)
                                                 --------      --------      --------     --------
      Net income applicable to common shares     $  2,301      $  3,009      $  8,295     $  7,166
                                                 ========      ========      ========     ========`

See accompanying notes to consolidated financial statements.

4

AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
Nine Months Ended September 30, 2001(Dollars in thousands)
(Unaudited)

`Unamortized
                                                            Restricted        Notes                    Accumulated
                                              Additional      Common       Receivable                     Other
                                     Common     Paid-in    Stock Award,       from                    Comprehensive
                                      Stock     Capital        Net         Stockholders     Deficit        Loss            Total
                                     --------  ---------   ------------    ------------    ----------  -------------     ----------

Balance at December 31, 2000........$     -      $233         $(354)           $(548)       $(83,867)     $(2,345)        $(86,881)

   Net income.......................                                                           8,475                         8,475
   Net change in cumulative
      translation adjustment........                                                                         (662)            (662)
   Cumulative effect of a change in
     accounting  principle, net
     of taxes (see Notes 5 and 9)...                                                                         (227)            (227)
   Change in fair value of interest
     rate swaps, net of taxes
     (see Notes 5 and 9)............                                                                          138              138
                                                                                                                          ---------
         Comprehensive income.......                                                                                         7,724

   Redeemable convertible
     preferred stock dividends......                                                            (180)                         (180)
   Exercise of stock options........               66                            (25)                                           41
   Payments of notes receivable from
     stockholders...................                                               9                                             9
   Amortization of restricted
      Common Stock award............                            222                                                            222
                                     --------  ---------   ------------    ------------    ----------  -------------     ----------

Balance at September 30, 2001.......$     -      $299         $(132)           $(564)       $(75,572)     $(3,096)        $(79,065)
                                     ========  =========   ============    ============    ==========  =============     ==========`

See accompanying notes to consolidated financial statements.

5

AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

`Nine Months Ended September 30,
                                                                            -------------------------------
                                                                                  2001           2000
                                                                             --------       --------
Cash flows from operating activities:
    Net income ............................................................     $  8,475      $  7,166
    Adjustments to reconcile net income to net cash provided by
       operating activities:
       Depreciation and amortization ......................................       11,722        10,328
       Amortization of deferred financing costs ...........................          748           652
       Amortization of restricted Common Stock award ......................          222            38
       Provision for doubtful accounts ....................................        3,100         4,817
       Deferred income tax expense ........................................          481         1,051
       Gain on disposal of property and equipment .........................                         (5)
       Changes in operating assets and liabilities:
           Increase in accounts receivable ................................      (11,757)      (13,513)
           Increase in inventories ........................................       (2,162)       (8,172)
           (Increase) decrease in prepaid expenses and other current assets       (1,994)        1,305
           Increase in accounts payable, accrued expenses and income taxes
             payable ......................................................        4,401         3,494
       Other, net .........................................................       (3,551)           60
                                                                                --------      --------
          Net cash provided by operating activities .......................        9,685         7,221

Cash flows from investing activities:
    Capital expenditures ..................................................      (27,157)       (8,282)
    Proceeds from sale of property and equipment ..........................         --              17
                                                                                --------      --------
          Net cash used in investing activities ...........................      (27,157)       (8,265)

Cash flows from financing activities:
    Proceeds from issuance of redeemable convertible preferred stock ......        6,000          --
    Proceeds from short-term obligations ..................................       14,665         5,666
    Repayment of loans, notes payable and long-term obligations ...........       (3,138)       (3,978)
    Other .................................................................           (4)          127
                                                                                --------      --------
          Net cash provided by financing activities .......................       17,523         1,815

Effect of exchange rate changes on cash and cash equivalents ..............         (557)         (864)
                                                                                --------      --------
          Net decrease in cash and cash equivalents .......................         (506)          (93)
Cash and cash equivalents at beginning of period ..........................        1,469           849
                                                                                --------      --------
Cash and cash equivalents at end of period ................................     $    963      $    756
                                                                                ========      ========

Supplemental Disclosures:
               Interest paid ..............................................     $ 16,301      $ 16,580
               Income taxes paid ..........................................     $  5,056      $  3,244`

Capital lease obligations of $144 were incurred during the nine months ended September 30, 2001. There were no
capital lease obligations incurred during the nine months ended September 30, 2000.

See accompanying notes to consolidated financial statements.

6

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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. AHI designs, manufactures, contracts for manufacture and
distributes party and novelty goods and gifts principally in North America,
South America, Europe, Asia and Australia.

Note 2 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001. The results of operations may be affected by seasonal factors
such as the timing of holidays or industry factors that may be specific to a
particular period, such as movement in and the general level of raw material
costs. For further information, see the consolidated financial statements and
notes thereto included in Amscan Holdings' Annual Report on Form 10-K for the
year ended December 31, 2000.

In connection with the preparation of the accompanying unaudited
consolidated financial statements, the Company has reclassified certain amounts
in prior periods to conform to the current year presentation.

Note 3 - Inventories

Inventories consisted of the following (dollars in thousands):

`September 30,  December 31,
                                                           2001           2000
                                                       ------------   ------------

Finished goods .....................................     $ 63,543      $ 61,680
Raw materials ......................................        7,004         7,614
Work-in-process ....................................        5,497         4,677
                                                         --------      --------
                                                           76,044        73,971
Less: reserve for slow moving and obsolete inventory       (2,534)       (2,432)
                                                         --------      --------
                                                         $ 73,510      $ 71,539
                                                         ========      ========`

Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or market.

Note 4 - Income Taxes

The  consolidated  income tax  expense for the three and nine months  ended  September  30, 2001 and 2000 was
determined based upon estimates of the Company's consolidated effective income tax rates for the years ending

7

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

December 31, 2001 and 2000, respectively.  The differences between the consolidated effective income tax rate and
the U.S. Federal statutory rate are primarily attributable to state income taxes and the effects of foreign
operations.

Note 5 - Comprehensive Income (Loss)

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

`Three Months Ended     Nine Months Ended
                                                             September 30,         September 30,
                                                        ------------------     -----------------
                                                           2001       2000        2001       2001
                                                          -------    -------     -------   -------

Net income ............................................   $ 2,391    $ 3,009     $ 8,475   $ 7,166
Net change in cumulative translation adjustment .......       116       (265)       (662)   (1,398)
Cumulative effect of a change in accounting principle
  to recognize the fair value of the Company's interest
  rate swap contracts, net of taxes (see Note 9) ......                             (227)
Change in fair value of the Company's interest rate
  swap contracts, net of taxes (see Note 9) ...........       133                    138
                                                          -------    -------     -------   -------
                                                          $ 2,640    $ 2,744     $ 7,724   $ 5,768
                                                          =======    =======     =======   =======`

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

`September 30,  December 31,
                                                       2001          2000
                                                     --------      --------
Cumulative translation adjustment ................   $(3,007)      $(2,345)
Interest rate swap contracts qualifying as hedges,
  net of taxes (see Note 9) ......................       (89)         --
                                                     -------       -------
                                                     $(3,096)      $(2,345)
                                                     =======       =======`

Note 6 - Capital 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. Also on March 30, 2001, the Company issued 40
shares of Series A Redeemable Convertible Preferred Stock to GS Capital Partners
II, L.P. and certain other private investment funds managed by Goldman, Sachs &
Co. (collectively, "GSCP"), for proceeds of $6.0 million. Dividends are
cumulative and shall be payable annually beginning March 30, 2002, at 6% per
annum. Such dividends payable on or prior to March 30, 2004, shall be payable in
additional shares of Series A Redeemable Convertible Preferred Stock based on a
value of $150,000 per share. Subsequent to March 30, 2004, dividends shall be
payable, at the option of the Company, either in cash or additional shares of
Series A Redeemable Convertible Preferred Stock. As of September 30, 2001,
accrued but unpaid dividends aggregated $180,000 and are included in
redeemable convertible preferred stock  on the consolidated balance
sheet.

Each share of the Series A Redeemable Convertible Preferred Stock is convertible
at the option of the holder at any time, into shares of Common Stock of the
Company, $0.10 par value, at a conversion rate of 1.0 share of Common Stock for
each share of Series A Redeemable Convertible Preferred Stock, subject to
adjustment under certain conditions. As of September 30, 2001, there were 40
shares of Company Common Stock reserved for such conversion.

8

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED(Unaudited)

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 price 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.

At September 30, 2001 and December 31, 2000, the Company's authorized Common
Stock consisted of 3,000 shares of Common Stock, $0.10 par value, of which
1,133.59 and 1,132.54 shares, respectively, were issued and outstanding.

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 dividends or distributions to its stockholders.

Note 7 - Segment Information

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

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  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 is as follows (dollars in thousands):

`Domestic       Foreign    Eliminations   Consolidated
                                                 ---------     ---------   ------------   ------------
Three Months Ended September 30, 2001
Sales to unaffiliated customers ............     $  75,022     $  12,988                    $  88,010
Sales between geographic areas .............         7,071                   $  (7,071)          --
                                                 ---------     ---------     ---------      ---------
Net sales ..................................     $  82,093     $  12,988     $  (7,071)     $  88,010
                                                 =========     =========     =========      =========

Income from operations .....................     $   8,636     $   1,341                    $   9,977
                                                 =========     =========
Interest expense, net ......................                                                    6,001
Other income, net ..........................                                                      (24)
                                                                                            ---------
Income before income taxes and minority
        interests ..........................                                                $   4,000
                                                                                            =========

Long-lived assets, net at September 30, 2001     $ 146,814     $   7,021                    $ 153,835
                                                 ---------     ---------                    =========`

9

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED(Unaudited)

`Domestic     Foreign     Eliminations    Consolidated
                                                 --------     -------     ------------    ------------
Three Months Ended September 30, 2000
Sales to unaffiliated customers ............     $ 71,701     $ 11,664                      $ 83,365
Sales between geographic areas .............        5,504                   $ (5,504)           --
                                                 --------     --------      --------        --------
Net sales ..................................     $ 77,205     $ 11,664      $ (5,504)       $ 83,365
                                                 ========     ========      ========        ========

Income from operations .....................     $ 10,308     $  1,367                      $ 11,675
                                                 ========     ========
Interest expense, net ......................                                                   6,595
Other expense, net .........................                                                      85
                                                                                            --------
Income before income taxes and minority
        interests ..........................                                                $  4,995
                                                                                            ========

Long-lived assets, net at September 30, 2000     $124,558     $  6,857                      $131,415
                                                 ========     ========                     ========

Nine Months Ended September 30, 2001
Sales to unaffiliated customers ............     $223,878     $ 35,001                      $258,879
Sales between geographic areas .............       19,336                   $(19,336)           --
                                                 --------     --------      --------        --------
Net sales ..................................     $243,214     $ 35,001      $(19,336)       $258,879
                                                 ========     ========      ========        ========

Income from operations .....................     $ 30,071     $  2,762                      $ 32,833
                                                 ========     ========
Interest expense, net ......................                                                  18,766
Other expense, net .........................                                                      20
                                                                                            --------
Income before income taxes and minority
        interests ..........................                                                $ 14,047
                                                                                            ========

Nine Months Ended September 30, 2000
Sales to unaffiliated customers ............     $206,995     $ 32,505                      $239,500
Sales between geographic areas .............       14,230                   $(14,230)           --
                                                 --------     --------      --------        --------
Net sales ..................................     $221,225     $ 32,505      $(14,230)       $239,500
                                                 ========     ========      ========        ========

Income from operations .....................     $ 28,764     $  3,085                      $ 31,849
                                                 ========     ========
Interest expense, net ......................                                                  19,768
Other expense, net .........................                                                     158
                                                                                            --------
Income before income taxes and minority
        interests ..........................                                                $ 11,923
                                                                                            ========`

Note 8 - 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 on its financial
condition or future results of operations.

10

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

Note 9 - Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and, in June 1999 and June 2000,
issued SFAS No. 137 and No. 138 as amendments thereto. These statements provide
a comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities, requiring all derivatives to be recognized
on the balance sheet at fair value and establishing standards for the
recognition of changes in such fair value. These statements are effective for
fiscal years beginning after June 15, 2000. As long as hedge effectiveness is
maintained, the Company's interest rate arrangements qualify for hedge
accounting as cash flow hedges under SFAS No. 133 as amended by SFAS No. 138. For
derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in current earnings
during the period of change. The Company has adopted these statements effective
January 1, 2001. Because of the Company's limited use of derivatives, the
adoption of SFAS No. 133 did not have a significant effect on earnings or the
financial position of the Company.

As part of the Company's risk management strategy, the Company uses
interest rate swaps to hedge variability of cash flows on its variable rate term
loan ("Term Loan"). The Term Loan matures in December 2004 and provides for
amortization (in quarterly installments) of one percent of the principal amount
thereof per year for the first five years and 32.3% and 62.7% of the principal
amount thereof in the sixth and seventh years, respectively. The Term Loan bears
interest, at the option of the Company, at the lenders' customary base rate plus
1.625% per annum or at the lenders' customary reserve adjusted Eurodollar rate
plus 2.625% per annum. At September 30, 2001, the floating interest rate on the
Term Loan was 5.97%. The Company has two interest rate swap contracts
outstanding with Goldman Sachs Capital Markets, L.P. and a financial institution
covering $45,000,000 of its Term Loan at effective interest rates ranging from
7.68% to 8.90% . The interest rate swap contracts require the Company to settle
the difference in interest obligations quarterly. Net payments to (receipts
from) the counterparty under the swap contracts have been recorded as additions
to (reductions of) interest expense.

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 September 30, 2001, these hedges
had an unrealized loss of $0.1 million, net of taxes, which has been included in
the Company's accumulated other comprehensive loss (see Note 5). The ineffective
portion relating to these hedges was not material during the three and nine
months ended September 30, 2001. At September 30, 2001, the Company expects to
reclassify the loss on these hedges from accumulated other comprehensive loss to
earnings over the next quarter during which the hedged transaction affects
earnings. The actual amount that will be reclassified to earnings over the next
quarter will vary from this amount, as a result of changes in market conditions

11

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

Note 10 - 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 to the provision for
doubtful accounts during the third quarter of 2001. This customer accounted for
approximately 2.6% and 2.1% of the Company's consolidated net sales for the
three and nine months ended September 30, 2001, respectively. The Company does
not believe the potential loss of this customer will have a material adverse
effect on the Company's future results of operations or its financial condition.

During the second quarter of 2000, two of the Company's customers filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code. As a result of the filings, the Company charged $3.4 million to the
provision for doubtful accounts during the second quarter of 2000. In addition,
the Company charged $1.0 million to the provision for doubtful accounts in the
fourth quarter of 2000 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 0.6% and 1.9% of the Company's consolidated net
sales for the three and nine months ended September 30, 2000, respectively.
Approximately 50% of the locations previously owned by these two customers have
been acquired by other customers and continue to operate as party stores.

Note 11 - Pending Acquisition

On July 26, 2001, Amscan and American Greetings Corporation ("American
Greetings") signed a letter of intent pursuant to which Amscan would acquire
American Greetings' subsidiary, M&D Balloons, a Manteno, Illinois-based
manufacturer of metallic balloons. American Greetings would continue to
distribute metallic balloons, through its Balloon Zone entity, under a supply
agreement with Amscan. However, there is no assurance that the transaction will
close as it is subject to completion of due diligence, further documentation and
other conditions.

Note 12 - New Accounting Pronouncements

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

In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Intangible
Assets" ("SFAS No. 142") which supercedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates the current requirement to amortize goodwill
and indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
effective date. SFAS No.142

12

AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

is effective for fiscal
years beginning after December 15, 2001. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. Application of the nonamortization provisions of SFAS 142 is
expected to result in an estimated increase in net income of approximately $1.6
million per year. During 2002, the Company will perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002 and has not yet determined what the effect of these tests
will be on the earnings and financial position of the Company.

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

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

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.

13

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

Percentage of Net Sales

`Three Months Ended September 30,
                                                         --------------------------------
                                                                 2001       2000
                                                                ------     ------
Net sales ...............................................       100.0%     100.0%
Cost of sales ...........................................        65.2       63.6
                                                                -----      -----
         Gross profit ...................................        34.8       36.4
Operating expenses:
    Selling expenses ....................................         9.8        9.6
    General and administrative expenses .................         8.8        9.5
    Provision for doubtful accounts .....................         2.4        0.5
    Art and development costs ...........................         2.5        2.8
                                                                -----      -----
         Total operating expenses .......................        23.5       22.4
                                                                -----      -----
         Income from operations .........................        11.3       14.0
Interest expense, net ...................................         6.8        7.9
Other expense, net ......................................                    0.1
                                                                -----      -----
        Income before income taxes and minority interests         4.5        6.0
Income tax expense ......................................         1.8        2.4
Minority interests ......................................
                                                                -----      -----
        Net income ......................................         2.7%       3.6%
                                                                =====      =====`

Net sales of $88.0 million for the three months ended September 30, 2001
were $4.6 million or 5.6% higher than net sales for the three months ended
September 30, 2000. The growth in net sales reflects higher sales of seasonal
and other party goods, including metallic balloons and custom products, to
party superstores and distributors. The growth in sales also reflects, to a
lesser extent, an increase in sales of party goods to international customers and
gift sales to independent party goods and specialty stores.

Gross profit for the third quarter of 2001 of 34.8% was 1.6% lower than the
corresponding period in 2000 as incremental margin achieved as a result of
higher sales was more than offset by the impact of increasing sales incentives and lower margins associated with third party manufacturing
and the unfavorable effects of foreign currency
fluctuations on international sales margin.

Selling expenses of $8.6 million for the third quarter of 2001 were $0.7
million higher than those of the corresponding period in 2000 and increased to
9.8% of net sales from 9.6% of net sales. The increase in selling expenses
reflects the continued development of a specialty sales force, which has more
than doubled since the beginning of 2000, and increased marketing initiatives.

General and administrative expenses for the three months ended September
30, 2001 of $7.7 million were $0.2 million lower than the corresponding period
in 2000 and decreased as a percent of net sales to 8.8% from 9.5%, reflecting
the increase in net sales previously noted.

The provision for doubtful accounts was $2.1 million for the third quarter
of 2001 or $1.7 million higher than the corresponding period in 2000. 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 to the provision for doubtful accounts
during the third quarter of 2001. This customer accounted for approximately 2.6%
of the Company's consolidated net sales for the three months ended September 30,
2001. The

14

Company does not believe
the potential loss of this customer will have a material adverse effect on the
Companys future results of operations or its financial condition.

Art and development costs of $2.1 million for the third quarter of 2001,
were $0.2 million lower than the corresponding period in 2000 and decreased as a
percent of net sales to 2.5% from 2.8%, reflecting the increase in net sales
previously noted.

Interest expense of $6.0 million for the third quarter of 2001 was
comparable to the corresponding period in 2000 reflecting a lower average
interest rate on higher average borrowings as compared to 2000. In addition,
during the three-month period ended September 30, 2001, the Company capitalized
$0.3 million of interest on debt associated with the construction of its new
distribution facility (see "Liquidity and Capital Resources").

Income taxes for the third quarter of 2001 and 2000 were based upon
estimated consolidated effective income tax rates of 39.5% for the years ending
December 31, 2001 and 2000.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

Percentage of Net Sales

`Nine Months Ended September 30,
                                                          -------------------------------
                                                                 2001       2000
                                                                -----      -----
Net sales ...............................................       100.0%     100.0%
Cost of sales ...........................................        64.6       62.9
                                                                -----      -----
        Gross profit ....................................        35.4       37.1
Operating expenses:
    Selling expenses ....................................         9.8        9.2
    General and administrative expenses .................         9.2        9.9
    Provision for doubtful accounts .....................         1.2        2.0
    Art and development costs ...........................         2.5        2.7
                                                                -----      -----
        Total operating expenses ........................        22.7       23.8
                                                                -----      -----
        Income from operations ..........................        12.7       13.3
Interest expense, net ...................................         7.3        8.2
Other expense, net ......................................                    0.1
                                                                -----      -----
        Income before income taxes and minority interests         5.4        5.0
Income tax expense ......................................         2.1        2.0
Minority interests ......................................
                                                                -----      -----
        Net income ......................................         3.3%       3.0%
                                                                =====      =====`

Net sales of $258.9 million for the nine months ended September 30, 2001
were $19.4 million or 8.1% higher than net sales for the nine months ended
September 30, 2000. The growth in net sales reflects increased sales of solid
color tableware to superstores, under a program which began in the second quarter
of 2000, and higher sales of seasonal and other
party goods, including metallic balloons and custom products, to party
superstores and distributors. The growth in sales also reflects, to a lesser
extent, an increase in sales of party goods to international customers and gift sales
to independent party goods and specialty stores.

Gross profit for the nine months ended September 30, 2001 of 35.4% was 1.7%
lower than the corresponding period in 2000 as incremental margin achieved as a
result of higher sales was more than offset by the impact of increasing sales incentives and lower margins attributable to
product mix, principally solid color tableware, third party manufacturing and the unfavorable effects of foreign currency fluctuations.

15

Selling expenses of $25.3 million for the nine months ended September 30,
2001 were $3.3 million higher than those of the corresponding period in 2000 and
increased to 9.8% of net sales from 9.2% of net sales. The increase in selling
expenses reflects the continued development of a specialty sales force, which
has more than doubled since the beginning of 2000, and increased marketing
initiatives.

General and administrative expenses for the nine months ended September 30,
2001 of $23.9 million were $0.2 million higher than the corresponding period in
2000 but decreased as a percent of net sales by 0.7% to 9.2%, reflecting the
increase in net sales previously noted.

The provision for doubtful accounts was $3.1 million for the nine months
ended September 30, 2001, or $1.7 million lower than the corresponding period in
2000. 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 to the provision for
doubtful accounts during the third quarter of 2001. This customer accounted for
approximately 2.1% of the Company's consolidated net sales for the nine months
ended September 30, 2001. The Company does not believe the potential loss of
this customer will have a material adverse effect on the Company's future
results of operations or its financial condition. During the second quarter of
2000, two of the Company's customers filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code, and as a result, the Company
charged $3.4 million to the provision for doubtful accounts. On a combined
basis, these two customers accounted for approximately 1.9% of the Company's
consolidated net sales for the nine months ended September 30, 2000.
Approximately 50% of the locations previously owned by these two customers have
been acquired by other customers and continue to operate as party stores.

Art and development costs of $6.5 million for the nine months ended
September 30, 2001, were comparable to the corresponding period in 2000. As a
percentage of net sales, art and development costs were 2.5% for the nine months
ended September 30, 2001 as compared to 2.7% for the corresponding period of
2000 reflecting the increase in net sales previously noted.

Interest expense of $18.8 million for the nine months ended September 30,
2001 was $1.0 million lower than the corresponding period in 2000 reflecting a
lower average interest rate on higher average borrowings as compared to 2000. In
addition, during the nine months ended September 30, 2001, the Company
capitalized $0.7 million of interest on debt associated with the construction of
its new distribution facility (see "Liquidity and Capital Resources").

Income taxes for the nine months ended September 30, 2001 and 2000 were
based upon estimated consolidated effective income tax rates of 39.5% for the
years ending December 31, 2001 and 2000.

Liquidity and Capital Resources

At September 30, 2001, the Company had an outstanding Term Loan of $150.1
million provided under a bank credit agreement (the "Bank Credit Facilities"),
together with senior subordinated notes of $110.0 million (the "Notes")
(collectively, the "Financings"). The Term Loan matures in December 2004 and
provides for amortization (in quarterly installments) of one percent of the
principal amount thereof per year for the first five years and 32.3% and 62.7%
of the principal amount thereof in the sixth and seventh years, respectively.
The Term Loan bears interest, at the option of the Company, at the lenders'
customary base rate plus 1.625% per annum or at the lenders' customary reserve
adjusted Eurodollar rate plus 2.625% per annum. At September 30, 2001, the
floating interest rate on the Term Loan was 5.97%. The Notes bear interest at a
rate of 9.875% per annum and mature in December 2007. The Company is required to
make prepayments on the Bank Credit Facilities under certain circumstances,
including upon certain asset sales and issuance of debt or equity securities and
based on cash flows, as defined.

In addition to the Term Loan, the Bank Credit Facilities provide for
revolving loan borrowings of up to $50 million (the "Revolving Credit
Facility"). The Revolving Credit Facility, expires on December 31, 2002, bears

16

interest, at the option of
the Company, at the lenders customary base rate plus, based on certain
terms, a range of 1.00% to 1.50% per annum or at the lenders customary
reserve adjusted Eurodollar rate plus, based on certain terms, a range of 2.00%
to 2.50% per annum. Interest on balances outstanding under the Revolving Credit
Facility are subject to adjustment in the future based on the Companys
performance. At September 30, 2001, the Company had borrowing capacity of
approximately $19.3 million under the Revolving Credit Facility.

At September 30, 2001, the Company had two interest rate swap contracts
outstanding with Goldman Sachs Capital Markets, L.P. and a financial
institution covering $45.0 million of its Term Loan at effective interest rates
ranging from 7.68% to 8.90%.

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.

In October 2000, the Company purchased property for the construction of a
new domestic distribution facility for $4.9 million and entered into a contract
for the design and construction of the new facility. Through September 30, 2001,
the Company incurred costs of $23.4 million relating to the construction of the
new facility, including $20.7 million incurred under the construction contract and
$1.0 million of cumulative capitalized interest costs. The expenditures were
financed through September 30, 2001 by borrowings under the Revolving Credit
Facility. The Company has financed the purchase of the property and a portion of
the costs associated with the construction of the facility using the proceeds
from the issuance of the Series A Redeemable Convertible Preferred Stock of $6.0
million noted above. The Company intends to refinance the remaining
costs associated with the construction of the facility using long-term
borrowings totaling $20.0 million. The
Company has obtained firm commitments totaling $20.0 million for the permanent
financings from both the New York Job Development Authority and a financial
institution. The Company has amended and restated its Bank Credit Facilities to
provide for, among other things, the additional borrowings and future capital
expenditures for the construction of the new facility.

On July 26, 2001, Amscan and American Greetings signed a letter of intent
pursuant to which Amscan would acquire American Greetings' subsidiary, M&D
Balloons, a Manteno, Illinois-based manufacturer of metallic balloons. American
Greetings would continue to distribute metallic balloons, through its Balloon
Zone entity, under a supply agreement with Amscan. However, there is no
assurance that the transaction will close as it is subject to completion of due
diligence, further documentation and other conditions.

Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the Revolving Credit Facility will be adequate to meet its
anticipated future requirements for working capital and operating expenses and
to service its debt requirements as they become due. However, the Company's
ability to make scheduled payments of principal of, or to pay interest on, or to
refinance its indebtedness and to satisfy its other obligations will depend upon
its future performance, which, to a certain extent, will be subject to general
economic, financial, competitive, business and other factors beyond its control.

The Financings may affect the Company's ability to make future capital
expenditures and potential acquisitions. However, management believes that
current asset levels provide adequate capacity to support its operations for at
least the next 12 months. As of September 30, 2001, the Company did not have
material commitments for capital expenditures or acquisitions other than for the
construction of a new domestic distribution facility and the potential
acquisition of M&D Balloons.

Cash Flow Data - Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

During the nine months ended September 30, 2001, net cash provided by
operating activities totaled $9.7 million, an increase of $2.5 million as
compared to the corresponding period in 2000. Net cash flow provided by

17

operating activities before
changes in other operating assets and liabilities for the nine months ended
September 30, 2001 and 2000, was $24.7 million and $24.0 million, respectively.
Net cash used as a result of changes in other operating assets and liabilities
for the nine months ended September 30, 2001 and 2000, was $15.0 million and
$16.8 million, respectively and principally represents increases in the level of
accounts receivable from year end as a result of extended
dating on third quarter seasonal sales.

During the nine months ended September 30, 2001, net cash used in investing
activities of $27.2 million included payments of $20.4 million associated with
the construction of the new domestic distribution facility and $6.8 million of
additional investments primarily in manufacturing equipment. Net cash used in
investing activities during the nine months ended September 30, 2000 of $8.3
million principally reflects capital expenditures for both manufacturing and
warehouse machinery and equipment.

During the nine months ended September 30, 2001, net cash provided by
financing activities was $17.5 million and consisted principally of proceeds
from both short-term working capital borrowings and the issuance of the Series A
Redeemable Convertible Preferred Stock totaling $6.0 million partially offset by
payments made against the Term Loan and other long-term obligations. During the
nine months ended September 30, 2000, net cash provided by financing activities
was $1.8 million and primarily consisted of proceeds from short-term working
capital borrowings, partially offset by the repayment of a portion of the Term
Loan, including the $1.3 million prepayment as required based on the Company's
cash flows, and repayment of other long-term obligations.

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 on its
financial condition or future results of operations.

Recently Issued Accounting Standards

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

In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Intangible
Assets" ("SFAS No. 142") which supercedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates the current requirement to amortize goodwill
and indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
effective date. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS 142 is expected to result
in an estimated increase in net income of approximately $1.6 million per year.
During 2002, the Company will perform the first of the required impairment tests
of goodwill

18

and indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

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

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

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

"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995

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

19

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.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

The Company's earnings are affected by changes in interest rates as a
result of its issuance of variable rate indebtedness. However, the Company
utilizes interest rate swap agreements to manage the market risk associated with
fluctuations in interest rates. If market interest rates for the Company's
variable rate indebtedness averaged 2% more than the interest rate actually paid
for the three months ended September 30, 2001 and 2000, the Company's interest
expense, after considering the effects of its interest rate swap agreements,
would have increased, and income before income taxes and minority interests
would have decreased, by $0.5 million and $0.2 million, respectively. If market
interest rates for the Company's variable rate indebtedness averaged 2% more
than the interest rate actually paid for the nine months ended September 30,
2001 and 2000, the Company's interest expense, after considering the effects of
its interest rate swap agreements, would have increased, and income before
income taxes and minority interests would have decreased, by $1.4 million and
$0.6 million, respectively. These amounts are determined by considering the
impact of the hypothetical interest rates on the Company's borrowing cost,
short-term investment balances, and interest rate swap agreements. This analysis
does not consider the effects of the reduced level of overall economic activity
that could exist in such an environment. Further, in the event of a change of
such magnitude, management would likely take actions to further mitigate its
exposure to the change. However, due to the uncertainty of the specific actions
that would be taken and their possible effects, the sensitivity analysis assumes
no changes in the Company's financial structure.

The Company's earnings are also affected by fluctuations in the value of
the U.S. dollar as compared to foreign currencies, predominately in European
countries, as a result of the sales of its products in foreign markets. Foreign
currency forward contracts are used periodically to hedge against the earnings
effects of such fluctuations. A uniform 10% strengthening in the value of the
dollar relative to the currencies in which the Company's foreign sales are
denominated would have resulted in a decrease in gross profit of $0.4 million
for each of the three months ended September 30, 2001 and 2000, respectively. A
uniform 10% strengthening in the value of the dollar relative to the currencies
in which the Company's foreign sales are denominated would have resulted in a
decrease in gross profit of $1.1 million and $1.2 million for the nine months
ended September 30, 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 also affect the volume of sales or the foreign currency sales price as
competitors' products become more or less attractive. The Company's sensitivity
analysis of the effects of changes in foreign currency exchange rates does not
factor in a potential change in sales levels or local currency prices.

Part II

Item 1.   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 on its
financial condition or future results of operations.

20

Item 2.   Changes in Securities and Use of Proceeds

| | a) | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b) | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c) | In August 2001, the Company issued 0.2868 shares of Common Stock to a former
employee upon exercise of a stock option for $16,377 in cash. No underwriting
discounts or commissions were paid in connection with such sale. These shares
were part of an offering to a limited number of accredited investors and
employees of the Company. Such sale was exempt under Section 4 (2) of the
Securities Act of 1933.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d) | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                    

Item 6.   Exhibits and Reports on Form 8-K

| | (a) | ExhibitsNone.                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                            
| | (b) | Reports on Form 8 - KA Current Report on Form 8 - K dated July 26, 2001, was filed responding to Item 5
regarding the signing of a letter of intent between Amscan and American
Greetings pursuant to which Amscan would acquire American Greetings
subsidiary, M&D Balloons, a Manteno, Illinois-based manufacturer of metallic
balloons.

21

SIGNATURE

Pursuant to the requirements 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                                                                            
|----------------------- | --- | ---------------------------------------------------------------------------------------------------
|Date: November 14, 2001 |     | Michael A. CorrealeVice President
(on behalf of the registrant and as principal
accounting officer)

22