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GUESS?, Inc. and Subsidiaries
On July 30, 1996, the Board of Directors adopted the GUESS?, Inc. 1996 Equity Incentive Plan (the "Plan") pursuant to which the Board
of Directors may grant stock options to officers, key employees and consultants. The Plan authorizes grants of options to purchase up to
4,500,000 authorized but unissued shares of Common Stock. Stock options are granted with an exercise price equal to the stock's fair
market value at the date of grant. Stock options have ten-year terms (five years in the case of an incentive stock option granted to a
ten-percent stockholder) and vest and become fully exercisable after varying time periods from the date of grant based on length of
service or specified performance goals.
At December 31, 2000, 1999 and 1998, there were 1,883,056, 2,763,397 and 2,841,825 additional shares available for grant under the
plan, respectively. Using the Black Scholes option pricing model, the weighted-average per share fair value of stock options granted
during 2000, 1999 and 1998 was $10.09, $12.46 and $4.24, respectively. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively:
risk-free interest rates of 5.35%, 6.51% and 4.87%; volatility factors of the expected market price of the Company's common stock of
80%, 65% and 63%; no expected dividend yield; and a weighted-average expected life of the option of four years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because options under the Company's stock option plan have characteristics significantly different
from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the options under
the Company's stock option plan.
The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its
stock options in the accompanying consolidated financial statements. Had the Company determined compensation based on the fair value
at the grant date for its stock options under SFAS No. 123 ("SFAS 123"), the Company's pro forma net earnings and net earnings per
share for the years ended December 31, 2000, 1999 and 1998 would have been the pro forma amounts indicated below (in thousands,
except per share data):
2 0 0 0
1999
1998
Pro forma net earnings
$14,279
$51,300
$24,574
Pro forma earnings per share basic
$ 0.33
$ 1.19
$ 0.57
Pro forma earnings per share diluted
$ 0.33
$ 1.18
$ 0.57
In December 2000, the Company granted 205,680 shares of nonvested Common Stock to a key employee which vest through January 2004.
Upon granting of the stock, unearned compensation equivalent to the market value of the stock at the date of issuance ($4.63 per share)
was charged to stockholders' equity and will be amortized to operations over four years.
Stock option activity during the period indicated is as follows:
Weighted
Number of
Average
Shares
Exercise Price
Balance at December 31, 1997
1,291,355
$ 11.05
Granted
1,035,600
4.24
Forfeited
(668,780)
(10.92)
Balance at December 31, 1998
1,658,175
$ 6.86
Granted
343,650
12.46
Exercised
(373,090)
(8.56)
Forfeited
(265,222)
(7.68)
Balance at December 31, 1999
1,363,513
$ 7.64
Granted
1,400,130
13.77
Exercised
(250,976)
(6.69)
Forfeited
(519,789)
(12.96)
Balance of December 31, 2000
1,992,878
$ 10.68
At December 31, 2000, 1999 and 1998, the weighted average exercise price was $10.68, $7.64 and $6.86, respectively, and the weighted
average remaining contractual lives of outstanding options were 8.74, 8.53 and 9.0 years, respectively.
