This excerpt taken from the CCH 20-F filed Jun 30, 2005.
Employee BenefitsStock-Based Compensation
The Company currently sponsors stock option plans and stock appreciation rights. The Company uses the intrinsic value method of accounting for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ('Opinion No. 25'), and related interpretations.
Pro forma information regarding net income and earnings per share is required by Statement No. 123, Accounting for Stock-Based Compensation ("Statement No. 123"), and has been determined as if the Company had accounted for its employee stock options under the fair value method of the Statement.
The following table for the years ended December 31, illustrates the effect on net income and earnings per share, if the Company had applied the fair value recognition provisions of Statement No. 123 to stock-based employee compensation:
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.
The following table summarizes the fair value (weighted average) of stock options granted in 2004 and 2003 (no stock options were granted in 2002). The fair value of options granted in 2004 was estimated using the binomial option-pricing model. We believe this model more accurately reflects the value of the options than using the Black-Scholes option-pricing model. Previous years grants continue to be valued using the Black-Scholes model. Because the Company's employee stock options 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 its employee stock options. The fair value of each option grant was calculated on the date of grant with the following assumptions (weighted average):