Holiday parties are a tradition for North American firms. Every year, all employees and their "+1" enjoy eating bad food and consuming free alcohol. The setting is usually tacky but the mood is always cheerful.
These parties are sometimes extravagant but have recently taken a humbling hit during these recessionary times. I believe that it is a mistake to cancel the annual holiday party. These events are more than just a reward for a year of success - the parties serve to humanize all layers of an organization. There is something both empowering and communal about seeing one's boss drink a beer or dance with his wife. The holiday party gives new perspective to those who attend - usually this is quite good for any company.