Equity Incentive Plan

12 Months Ended

Dec. 31, 2011

Note 15 — Equity Incentive Plan

On May 1, 2004, the Company adopted the 2004 Equity Incentive Plan (the “Plan”) under which the Company may grant incentive awards in the form of restricted and unrestricted common stock options to purchase shares of the Company’s common stock (“Company Stock Options”) to certain directors, officers, employees and consultants of the Company and its affiliates. 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 Plan. Unless otherwise determined by the Committee, any participant granted an award under the Plan must become a party to, and agree to be bound by, the Company’s stockholders’ agreement. Company Stock Options reserved under the Plan totals 5,439.27, including those which are currently outstanding, and may include incentive and nonqualified stock options. Company Stock Options are nontransferable (except under certain limited circumstances) and, unless otherwise determined by the Committee, vest over five years and have a term of ten years from the date of grant.

The Company has three types of options – rollover options, time-based options, and performance-based options, each of which is described below.

Rollover Options

In 2004, the Company’s CEO and its President exchanged vested options in the predecessor company for 98.18 vested options to purchase common shares at $2,500 per share (the “Rollover Options”). These options had an intrinsic value of $737 and a fair value of $880. Under ASC 805-30-30-11 Goodwill or Gain from Bargain Purchase, Including Consideration Transferred, vested options granted by the acquiring company in exchange for outstanding options of the target company should be considered part of the purchase transaction. The fair value is accounted for as part of the purchase price of the target company.

Since these options were vested immediately and can be exercised upon death or disability of the executives and put back to the Company, they are reflected as redeemable common securities on the Company’s consolidated balance sheet.

However, these options have an additional condition, whereby they may be put back to the Company at fair market value upon retirement. Because the terms of the Rollover Options could extend beyond the retirement dates of these two executives, it is possible that they could exercise these options within six months of the specified retirement date and then put the immature shares back to the Company at retirement less than six months later. GAAP requires variable accounting for awards with puts that can be exercised within six months of the issuance of the shares.

Therefore, regardless of the probability of this occurrence, changes in market value of the shares are expensed as additional stock compensation because the put, even if not probable, is within the control of the employee.

During 2011 and 2010, increases in the valuation of the remaining options resulted in charges to pre-tax income of $116 and $572, respectively. There was no charge to earnings for these options in 2009 because the valuation did not change during the year.

Time-based options

In April 2005, the Company granted 722 time-based options (“TBOs”) to key employees and its outside directors, exercisable at a strike price of $10,000. The Company used a minimum value method to determine the fair value of the stock options granted in April 2005, together with the following assumptions: dividend yield of 0%, risk-free interest rate of 3.1%, forfeitures and expected cancellation of 3%, and an expected life of four years. The estimated fair value of the options granted in 2005 was amortized on a straight line basis to compensation expense, net of taxes, over the vesting period of four years. The Company recorded compensation expense of $140 in general and administrative expenses during the year ended December 31, 2009. No expense was recorded during the years ended December 31, 2011 and 2010. No future expense will be recorded related to these options.

Since April 2004, the Company granted the following TBOs to key eligible employees and outside directors:


Options Granted		Exercise Price per Share
722.00		$10,000
489.50		12,000
187.00		14,250
20.00		17,500
122.00		20,750
5.00		22,340
95.00		28,350
83.00		27,700
175.00		29,600

The Company recorded compensation expense of $1,281, $723, and $736 during the years ended December 31, 2011, 2010, and 2009, respectively, related to TBOs granted since 2006. The fair value of each grant is 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		1.76% to 5.08%
Price volatility		15.00
Weighted average expected life		7.5
Forfeiture rate		7.75

The weighted average expected life (estimated period of time outstanding) was estimated using the Company’s best estimate for determining the expected term. Expected volatility was based on implied historical volatility of an applicable Dow Jones Industrial Average sector index for a period equal to the stock option’s expected life. The remaining stock compensation expense to be recorded in future years for these options is $1,651, which is expected to be recognized over a weighted average period of 4.3 years.

In addition, as discussed in Note 9, during December 2010, the Company made a distribution to all holders of time options that were vested before December 2010. The total amount of the distribution, $9,370, was charged to stock compensation expense in 2010. In addition, holders of unvested time and performance options at the declaration date may also receive a distribution of $9,400 per share if, and when, the time and performance options vest. During 2011, certain time options vested and the Company recorded a $617 charge to stock compensation expense. At December 31, 2011, the aggregate potential distribution associated with unvested time and performance options was $17,875. Such amount will be recorded in stock compensation expense if, and when, the options vest.

Performance-based options

In April 2005, the Company granted 760 performance based options (“PBOs”) to key employees and its outside directors, exercisable at a strike price of $10,000. Under the PBO feature, the ability to exercise vested option awards is contingent upon the occurrence of an initial public offering of the Company’s common stock or a change in control of the Company and the achievement of specified investment returns to the Company’s shareholders. Since a change in control condition cannot be assessed as probable before it occurs, no compensation expense is recorded in connection with the issuance of PBOs until an initial public offering of the Company’s common stock is completed or a change in control occurs and specified investment returns are achieved. At that time, holders of performance based options granted before December 2010 would receive a distribution of $9,400 per vested option, which would be included in the recognition of compensation expense if and when such events occur.

Since April 2005, the Company granted the following PBOs to key eligible employees and outside directors:


Options Granted		Exercise Price per Share
760.00		$10,000
893.50		12,000
314.00		14,250
30.00		17,500
147.00		20,750
185.00		22,340
116.00		28,350
237.00		27,700
350.00		29,600

The following table summarizes the changes in outstanding options under the Equity Incentive Plan for the years ended December 31, 2009, 2010 and 2011:


						Average Fair Market				Weighted Average Remaining
				Average Exercise		Value of TBOs at		Aggregate Intrinsic		Contractual Term
	Options			Price		Grant Date		Value		(Years)
Outstanding at December 31, 2008		2,932.60		$	13,242

Granted		40.00			28,350	$	5,712
Exercised		(7.70	)		11,573
Canceled		(31.87	)		12,459


Outstanding at December 31, 2009		2,933.03			13,462

Granted		327.00			28,035		7,399
Exercised		(4.68	)		11,090
Canceled		(133.10	)		21,622


Outstanding at December 31, 2010		3,122.25			14,350

Granted		689.00			29,148		7,179
Exercised		(70.99	)		17,549
Canceled		(41.99	)		27,897


Outstanding at December 31, 2011		3,698.27			17,137			$	46,091		5.5
Exercisable at December 31, 2011		1,073.11			12,689				18,148		4.3
Exercisable at December 31, 2010		996.79			11,139				16,508		4.8
Expected to vest (excludes PBOs)		266.99			27,573				541		8.6

The intrinsic value of options exercised was $831, $81 and $129 for the years ended December 31, 2011, 2010 and 2009, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Statement of Position (SOP)

-Number 93-6

-Paragraph 53

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Staff Accounting Bulletin (SAB)

-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 123R

-Paragraph 64, 65, A240

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 40

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 50

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

+ Details

AMSCAN HOLDINGS INC 10-K