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Equity Incentive Plans
 12 Months Ended
Dec. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Equity Incentive Plans
Note 16—Equity Incentive Plans
Party City Holdco has adopted the Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”) under which it can grant incentive awards in the form of stock appreciation rights, restricted stock
,
 
restricted stock units and
common stock options to certain directors, officers, employees and consultants of Party City Holdco and its affiliates. A committee of Party City Holdco’s Board of Directors, or the Board itself in the absence of a committee, is authorized to make grants and various other decisions under the 2012 Plan. The maximum number of shares reserved under the 2012 Plan is 15,316,000 shares.
Time-based options
Party City Holdco grants time-based options to key eligible employees and outside directors. In conjunction with the options, the Company recorded compensation expense of $1,319, $1,744, and $5,309 during the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.
The fair value of time-based options granted during the year ended December 31, 2019 was estimated on the grant date using a Black-Scholes option valuation model based on the assumptions in the following table:
         
Expected dividend rate
   
—%
  
Risk-free interest rate
   
1.88% to 2.44%
 
Volatility
   
29.06% to 30.78%
 
Expected option term
   
6 years—6.5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As Party City Holdco’s stock only recently started trading publicly, the Company determined volatility based on the average historical volatility of guideline companies. Additionally, as there is not sufficient historical exercise data to provide a reasonable basis for determining the expected terms of the options, the Company estimated such expected terms based on the assumption that options will be exercised at the
mid-point
of the vesting of the options and the completion of the contractual lives of such options.
The Company has based its estimated forfeiture rate on historical forfeitures for time-based options as the number of options given to each of the various levels of management is principally consistent with historical grants and forfeitures are expected to be materially consistent with past experience.
The Company’s time-based options principally vest 20% on each anniversary date. The Company records compensation expense for such options on a straight-line basis. As of December 31, 2019, there was $1,893 of unrecognized compensation cost, which will be recognized over a weighted-average period of approximately 30 months.
Performance-based options
During 2013, Party City Holdco granted performance-based stock options to key employees and independent directors. For performance-based options, vesting is contingent upon Thomas H. Lee Partners, L.P. (“THL”) achieving specified investment returns when it sells its ownership stake in Party City Holdco. Since the sale of
 all
THL’s shares cannot be assessed as probable before it occurs, no compensation expense has been recorded for the performance-based options that have been granted. As of December 31, 2019, 2,808,400 performance-based options were outstanding.
Based on a Monte Carlo simulation and the following assumptions, the options have an average grant date fair value of $3.09 per option:
         
Expected dividend rate
   
—%
  
Risk-free interest rate
   
1.86%
 
Volatility
   
52.00%
 
Expected option term
   
5 years
 
 
 
 
 
 
 
 
As
Party
City Holdco’s stock was not publicly traded when the performance-based options were granted, the Company determined volatility based on the average historical volatility of guideline companies.
The following table summarizes the changes in outstanding stock options for the years ended December 31, 2017, December 31, 2018, and December 31, 2019.
 
Options
 
  
Average
Exercise
Price
 
  
Average Fair
Value of
Time-Based
Options at
Grant Date
 
  
Aggregate
Intrinsic
Value
 
  
Weighted
Average
Remaining
Contractual
Term
(Years)
 
Outstanding at December 31, 2016
   
8,461,826
      
     
     
     
 
Granted
   
101,444
     $
14.38
      
4.46
      
     
 
Exercised
   
(243,775
 )    
5.33
      
     
     
 
Forfeited
   
(294,734
 )    
9.47
      
     
     
 
                                         
Outstanding at December 31, 2017
   
8,024,761
      
8.89
      
     
40,634
      
6.0
 
Granted
   
187,080
      
14.63
      
4.98
      
     
 
Exercised
   
(425,505
 )    
5.33
      
     
     
 
Forfeited
   
(859,162
 )    
7.84
      
     
     
 
                                         
Outstanding at December 31, 2018
   
6,927,174
      
9.39
      
     
4,089
      
5.2
 
Granted
   
337,000
     
6.43
     
2.16
      
     
 
Exercised
   
(215,300
 )    
5.33
     
     
     
 
Forfeited
   
(730,157
 )    
13.00
     
     
     
 
                                         
Outstanding at December 31, 2019
   
6,318,717
     
8.95
     
     
(41,784
 )    
4.4
 
Exercisable at December 31, 2019
   
2,650,034
     
11.64
     
     
(24,642
 )    
4.5
 
Expected to vest at December 31, 2019 (excluding performance-based options)
   
860,284
    $
12.50
     
    $
(8,743
 )    
7.6
 
The intrinsic value of options exercised was $1,254, $3,351 and $1,972 for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively. The fair value of options vested was $2,118, $2,819, and $4,354, during the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.
Restricted stock and Restricted Stock Units
During 2018, the Company started granting restricted stock and restricted stock units to certain executives, senior leaders and the Company’s independent directors. To the extent that the awards vest, the participants receive shares of the Company’s stock.
Of the awards that were granted, 358,506 awards vest solely based on service conditions. To the extent that such awards vest, one share of stock is issued for each award.
Additionally, the Company granted awards which vest if certain cash flow and earnings per share targets are met. Depending on the achievement of such targets, a maximum of 2,834,390 shares could be issued due to such awards.
The service-based awards vested 1/3 on January 1, 2019 and will vest 1/3 each on January 1, 2020 and January 1, 2021. During the
years
ended December 31,
2019 and December 31,
2018, the Company recorded
 $2,033 and
$1,174 of compensation expense related to the service-based awards
, respectively
.
The performance-based awards vest if certain cash flow and earnings per share targets are met for the three-year period from January 1, 2018 to December 31, 2020. The Company recognizes compensation expense for
such awards if it is probable that the performance conditions will be achieved. Based on the Company’s results for the year ended December 31, 2019 and December 31, 2018 and its projections for the year ending December 31, 2020, as of December 31, 2019 the Company concluded that it was not probable that such performance conditions will be met and, therefore, the Company did not record any compensation expense for the awards during the years ended December 31, 2019 and December 31, 2018.
The Company has based its estimated forfeiture rate for the restricted stock units and restricted
stock
on historical forfeitures for the Company’s time-based stock options as the number of awards given to each of the various levels of management is principally consistent with historical stock option grants and forfeitures are expected to be materially consistent with past experience.
As of December 31, 2019 and December 31, 2018, there were $2,158 and
 
$
1,817 of unrecognized compensation cost for the service-based awards
, respectively
.