North Face 2004 Annual Report Download - page 49

Shares Under Weighted Average
Options Exercise Price
Balance, December 2001 9,009,981 $ 35.87
Options granted 2,453,000 40.90
Options exercised (1,326,026) 30.29
Options canceled (343,265) 41.16
Balance, December 2002 9,793,690 37.70
Options granted 2,448,480 34.75
Options exercised (921,710) 29.99
Options canceled (417,850) 41.70
Balance, December 2003 10,902,610 37.54
Options granted 1,755,890 44.80
Options exercised (3,015,044) 36.78
Options canceled (13,500) 38.20
Balance, December 2004 9,629,956 $ 39.10
93vf corporation 2004 Annual Report
VF may grant nonqualified stock options, restricted
stock units and restricted stock to officers, key
employees and nonemployee members of VF’s
Board of Directors under a stock compensation plan
approved by stockholders. Stock options are granted
at prices not less than fair market value on the date
of grant. Options become exercisable from one to
three years after the date of grant and expire ten
years after the date of grant. Stock option activity
is summarized as follows:
Options to purchase 7,664,766 shares were exercisable
at the end of 2003 at a weighted average exercise price
of $38.23. At the end of 2002, there were options
exercisable to purchase 6,061,240 shares at a weighted
average exercise price of $36.20. At the end of 2004,
there were 9,186,248 shares available for future
grants of stock options and stock awards, of which
no more than 2,582,575 may be grants of restricted
stock or shares delivered in settlement of restricted
stock units.
VF has granted performance-based restricted stock
units to certain key employees as a long-term incentive
under the stock compensation plan. The restricted
stock units entitle the participants to receive shares
of VF Common Stock at the end of a three year
performance period. Each restricted stock unit has
a final value ranging from zero to two shares of
VF Common Stock. For the 2004 grants, the number
of shares to be earned is based on achievement
of preestablished performance goals set by the
Compensation Committee of the Board of Directors.
For grants in prior years, the number of shares to be
earned was based on three year stockholder return
comparisons of VF Common Stock with a peer group
of apparel companies. Dividend equivalents, payable in
additional shares of VF Common Stock, accrue on the
restricted stock units. Shares earned at the end of each
three year performance period are issued to partici-
pants in the following year, unless they elect to defer
receipt of the shares. VF granted 280,007 restricted
stock units having a grant date fair value per unit of
$43.18 in 2004 for the performance period ending in
2006; similarly, 49,147 units were granted at $36.10
in 2003 and 44,143 units at $39.27 in 2002. A total
of 23,727, 25,064 and 57,188 shares of VF Common
Stock were earned for the three year performance
periods ended in 2004, 2003 and 2002, respectively.
At the end of 2004, there were 49,147 restricted stock
units outstanding for the performance period ending
in 2005 and 280,007 for the performance period
ending in 2006. A total of 101,943 shares of Common
Stock are issuable in future years to participants who
have elected to defer receipt of their shares earned.
At the end of 2004, VF had 62,611 shares of restricted
stock outstanding that vest in 2005, which had been
granted to key employees in prior years. This total
included dividends payable in additional restricted
shares of 1,328, 1,579 and 1,425 shares accrued in
2004, 2003 and 2002, respectively, on prior years’
grants of restricted stock.
Compensation expense recognized in the
Consolidated Statements of Income for restricted
stock units and restricted stock totaled $11.0 million
in 2004, $1.6 million in 2003 and $1.0 million in
2002. Since all stock options are granted at market
value, compensation expense is not required. Note A
presents pro forma net income and earnings per share
that would have resulted if compensation had been
recorded based on the fair value method for all
stock-based compensation. Fair value for stock
options, as presented in Note A, was estimated using
the Black-Scholes option-pricing model. The resulting
weighted average fair value of stock options granted
during 2004 was $11.64 per share, during 2003 was
$8.33 per share and during 2002 was $10.51 per share,
based on the following assumptions:
Stock options outstanding at the end of 2004 are summarized as follows:
Options Outstanding Options Exercisable
Weighted Average
Range of Number Remaining Years Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$25–30 624,700 4.5 $ 26.16 624,700 $ 26.16
30 – 35 1,966,340 6.1 34.58 1,439,676 34.57
35 – 40 1,413,446 7.2 35.87 1,353,446 35.89
40 – 45 5,625,470 6.8 42.93 3,616,550 42.17
$ 25– 45 9,629,956 6.6 $ 39.10 7,034,372 $ 37.98
note p – stock-based compensation
2004 2003 2002
Risk-free interest rate 2.6%2.6%4.0%
Expected dividend yield 2.4%2.9%2.7%
Expected volatility 35%36%36%
Expected life (years) 444