Share-Based Compensation

Share-Based Compensation Plans

The Company has four share-based compensation plans. The Guess?, Inc. 2004 Equity Incentive Plan (the “Plan”) provides that the Board of Directors may grant stock options and other equity awards to officers, key employees and certain consultants and advisors to the Company or any of its subsidiaries. Effective May 20, 2014, the Plan was amended to extend the term for an additional ten years and reduce the authorized issuance of shares from 20,000,000 shares of common stock to 15,000,000 shares of common stock. The amendment also extended the ability for the Company to grant certain performance-based awards under the Plan through the beginning of calendar year 2019. All other remaining provisions under the Plan remain in full force and effect. As of January 31, 2015 and February 1, 2014, there were 6,593,723 and 12,151,436 shares available for grant under the Plan, respectively. Stock options granted under the Plan have ten-year terms and typically vest and become fully exercisable in increments of one-fourth of the shares granted on each anniversary from the date of grant. Stock awards/units granted under the Plan typically vest in increments of one-fourth of the shares granted on each anniversary from the date of grant. The three most recent annual grants for stock options and other equity awards had initial vesting periods of nine months followed by three annual vesting periods. The Guess?, Inc. Employee Stock Purchase Plan (“ESPP”) allows for qualified employees to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. The Guess?, Inc. 2006 Non-Employee Directors’ Stock Grant and Stock Option Plan (the “Director Plan”) provides for the grant of equity awards to non-employee directors. The Director Plan authorizes the issuance of up to 2,000,000 shares of common stock which consists of 1,000,000 shares that were initially approved for issuance on July 30, 1996 plus an additional 1,000,000 shares that were approved for issuance effective May 9, 2006. As of January 31, 2015 and February 1, 2014, there were 827,463 and 860,432 shares available for grant under this plan, respectively. In addition, the Guess?, Inc. 1996 Equity Incentive Plan, under which equity grants have not been permitted since the approval of the Plan in 2004, continues to govern outstanding awards previously made thereunder.

Performance Awards

On April 8, 2014, the Company granted 100,000 nonvested stock units to Paul Marciano, the Company’s Chief Executive Officer and Vice Chairman of the Board, in connection with an employment agreement entered into between the Company and Mr. Marciano during fiscal 2014. The nonvested stock units had an initial vesting period of ten months followed by two annual vesting periods and were subject to certain performance-based vesting conditions for fiscal 2015 as well as continued service vesting conditions through the vesting periods. The Company also granted a target of 159,700 nonvested stock units to Mr. Marciano on April 8, 2014; however, these stock units are not expected to vest as a result of certain performance-based vesting conditions for fiscal 2015.

On July 11, 2013, the Company granted 100,000 nonvested stock units to Mr. Marciano which had an initial vesting period of seven months followed by two annual vesting periods and were subject to certain performance-based vesting conditions for the last three quarters of fiscal 2014 as well as continued service vesting conditions through the vesting periods. The Company also granted a target of 143,700 nonvested stock units to Mr. Marciano, of which approximately 84% are expected to vest based on the achievement of certain performance-based conditions for the last three quarters of fiscal 2014 subject to continued service vesting conditions through the vesting date. Such shares are scheduled to vest on February 1, 2016.

On May 1, 2008, the Company granted an aggregate of 167,000 nonvested stock awards to certain employees which were subject to certain annual performance-based vesting conditions over a five-year period. On October 30, 2008, the Company granted an aggregate of 563,400 nonvested stock options to certain employees scheduled to vest over a four-year period, which were subject to the achievement of certain performance-based vesting conditions for fiscal 2010. During the first quarter of fiscal 2010, the Compensation Committee determined that the performance goals established in the prior year were no longer set at an appropriate level to incentivize and help retain employees given the greater than previously anticipated deterioration of the economy that had occurred since the goals were established. Therefore, in April 2009, the Compensation Committee modified the performance goals of that year’s tranche of the outstanding performance-based stock awards and options to address the challenges associated with the economic environment. During first quarter of fiscal 2011, fiscal 2012 and fiscal 2013, the Compensation Committee modified the performance goals of the respective year’s tranche of the outstanding performance-based stock awards to address the continuing challenges associated with the economic environment. None of the modifications had a material impact on the consolidated financial statements of the Company.

Share-Based Compensation Expense

Compensation expense for nonvested stock options and stock awards is recognized on a straight-line basis over the vesting period. The Company estimates forfeitures in calculating the expense relating to share-based compensation as opposed to recognizing forfeitures as an expense reduction as they occur.

The following table summarizes the share-based compensation expense recognized under all of the Company’s stock plans during fiscal 2015, fiscal 2014 and fiscal 2013 (in thousands):



	Year Ended		Year Ended		Year Ended
	Jan 31, 2015		Feb 1, 2014		Feb 2, 2013
Stock options	$	2,106	$	2,490	$	4,633
Nonvested stock awards/units	12,999		11,225		11,337
ESPP	237		234		315
Total share-based compensation expense	$	15,342	$	13,949	$	16,285

Stock options

The following table summarizes the stock option activity under all of the Company’s stock plans during fiscal 2015:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000’s)
Options outstanding at February 1, 2014	1,781,926		$	30.46
Granted	456,950		27.97
Exercised	(96,158	)	12.92
Forfeited	(325,587	)	31.27
Expired	—		—
Options outstanding at January 31, 2015	1,817,131		$	30.61	6.45	$	69
Exercisable at January 31, 2015	1,274,541		$	31.89	5.49	$	69
Options exercisable and expected to vest at January 31, 2015	1,749,715		$	30.74	6.34	$	69

The fair value of each stock option was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants during fiscal 2015, fiscal 2014 and fiscal 2013:



	Year Ended		Year Ended		Year Ended
Valuation Assumptions	Jan 31, 2015		Feb 1, 2014		Feb 2, 2013
Risk-free interest rate	0.8	%	0.5	%	0.4	%
Expected stock price volatility	36.1	%	39.7	%	46.8	%
Expected dividend yield	3.3	%	3.0	%	2.6	%
Expected life of stock options (in years)	3.7		3.7		3.6

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The expected volatility is determined based on an average of both historical volatility and implied volatility. Implied volatility is derived from exchange traded options on the Company’s common stock. The expected dividend yield is based on the Company’s history and expectations of dividend payouts. The expected life is determined based on historical trends. The expected forfeiture rate is determined based on historical data.

The weighted average grant date fair value of options granted was $5.99, $6.38 and $8.92 during fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The total intrinsic value of stock options exercised during fiscal 2015, fiscal 2014 and fiscal 2013 was $0.9 million, $2.2 million and $3.4 million, respectively. The intrinsic value of stock options is defined as the difference between the Company’s stock price on the exercise date and the grant date exercise price. The total cash received from option exercises was $1.2 million, $5.0 million and $5.1 million during fiscal 2015, fiscal 2014 and fiscal 2013, respectively.

The excess tax benefit realized for the tax deductions from option exercises for fiscal 2015 was $0.2 million and has been included in cash flows from financing activities for fiscal 2015. The excess tax shortfall of $0.5 million was included in cash flows from operating activities for fiscal 2015. The compensation expense included in SG&A expense recognized was $2.1 million before the recognized income tax benefit of $0.7 million during fiscal 2015. As of January 31, 2015, there was approximately $2.9 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock options. This cost is expected to be recognized over a weighted average period of 1.6 years.

Nonvested stock awards/units

The following table summarizes the nonvested stock awards/units activity under all of the Company’s stock plans during fiscal 2015:



	Number of Shares/Units		Weighted Average Grant Date Fair Value
Nonvested at February 1, 2014	963,655		$	29.76
Granted	631,645		28.12
Vested	(431,713	)	30.12
Forfeited	(172,000	)	29.06
Nonvested at January 31, 2015	991,587		$	28.71

The weighted average grant date fair value of nonvested stock awards/units granted was $28.12, $28.34 and $29.71 during fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The total fair value at grant date of previously nonvested stock awards/units that were vested during fiscal 2015, fiscal 2014 and fiscal 2013 was $13.0 million, $9.0 million and $17.5 million, respectively. During fiscal 2015, fiscal 2014 and fiscal 2013, the total intrinsic value of nonvested stock awards/units that vested was $9.9 million, $8.3 million and $15.0 million, respectively.

The excess tax benefit realized for the tax deductions from vested shares and dividends paid on unvested shares for fiscal 2015 was $0.2 million and has been included in cash flows from financing activities for fiscal 2015. The excess tax shortfall of $1.0 million was included in cash flows from operating activities for fiscal 2015. The total intrinsic value of nonvested stock awards/units outstanding and unvested as of January 31, 2015 was $18.6 million. The compensation expense included in SG&A expense recognized during fiscal 2015 was $13.0 million before the recognized income tax benefit of $4.6 million. As of January 31, 2015, there was approximately $16.4 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock awards/units. This cost is expected to be recognized over a weighted average period of 1.5 years.

ESPP

In January 2002, the Company established an ESPP, the terms of which allow for qualified employees (as defined) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. Prior to March 4, 2009, the ESPP was a straight purchase plan with no holding period requirement. Effective March 4, 2009, the ESPP was amended to require participants to hold any shares purchased under the ESPP after April 1, 2009 for a minimum period of six months after purchase. In addition, all Company employees are subject to the terms of the Company’s securities trading policy which generally prohibits the purchase or sale of any Company securities during the two weeks before the end of each fiscal quarter through two days after the public announcement by the Company of its earnings for that period. On January 23, 2002, the Company filed with the Securities and Exchange Commission (“SEC”) a Registration Statement on Form S-8 registering 4,000,000 shares of common stock for the ESPP. Effective March 12, 2012, the ESPP was amended and restated to extend the term for an additional ten years.

During fiscal 2015, fiscal 2014 and fiscal 2013, 47,538 shares, 43,265 shares and 50,013 shares of the Company’s common stock were issued pursuant to the ESPP at an average price of $21.20, $22.64 and $23.72 per share, respectively.

The fair value of stock compensation expense associated with the Company’s ESPP was estimated on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted average assumptions used for grants during fiscal 2015, fiscal 2014 and fiscal 2013.



	Year Ended		Year Ended		Year Ended
Valuation Assumptions	Jan 31, 2015		Feb 1, 2014		Feb 2, 2013
Risk-free interest rate	0.0	%	0.1	%	0.1	%
Expected stock price volatility	29.0	%	29.7	%	46.4	%
Expected dividend yield	3.7	%	3.1	%	2.8	%
Expected life of ESPP options (in months)	3		3		3

The weighted average grant date fair value of ESPP options granted during fiscal 2015, fiscal 2014 and fiscal 2013 was $5.02, $5.46 and $6.84, respectively.