Chesapeake Energy 1997 Annual Report Download - page 67

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
interest rates (zero-coupon U.S. government issues with a remaining life equal to the expected term of the
options) of 6.74% and 6.2 1%; dividend yields of 0.9% and 0.9%; volatility factors of the expected market price
of the Company's common stock of .60 and .60; and weighted-average expected life of the options 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 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 Company's pro forma information follows:
50
For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period, which is four years. Because the Company's stock options vest generally over
four years and additional awards are typically made each year, the above pro forma disclosures are not likely to
be representative of the effects on pro forma net income for future years. A summary of the Company's stock
option activity and related information follows:
Year Ended June 30,
1997 1996 1995
Options Weighted-Avg
Exercise Price Options Weighted-Avg
Exercise Price Options Weighted-Avg
Exercise Price
Outstanding - Beginning of Year 7,602,884 $ 4.66 6,828,592 $1.97 5,033,340 $0.72
Granted 3,564,884 19.35 2,426,850 9.98 3,185,550 3.38
Exercised (1,197,998) 1.95 (1,574,046) 1.31 (1,288,732) 0.67
Forfeited (2,066,111) 22.26 (78,512) 2.61 (101,566) 0.92
Outstanding End of Year 7,903,659 7.09 7,602,884 4.66 6,828,592 1.97
Exercisable - End of Year 3,323,824 2,974,386 2,489,742
Shares Authorized for Future Grants 5,212,056 713,826 3,102,982
Fair Value of Options Granted During the
Year $ 7.51 $4.84 N/A
Year Ended June 30,
1997 1996
(In thousands, except
per share amounts)
Net Income (Loss)
As reported $(183,377) $23,355
Pro forma (190,160) 22,081
Earnings (Loss) per Share
As reported $(2.79) $0.40
Pro forma (2.89) 0.38