ComEd 2006 Annual Report Download - page 201

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
over the estimated expected life of the stock options. The risk-free interest rate for a security with a
term equal to the expected life is based on a yield curve constructed from U.S. Treasury strips at the
time of grant. The expected life represents the period of time the stock options are expected to be
outstanding and is based on the “simplified method”. Additionally, Exelon uses historical data to
estimate employee forfeitures. Exelon reviews the actual and estimated forfeitures on an annual basis
and records an adjustment if necessary.
Utilizing the Black-Scholes-Merton option-pricing model and the assumptions discussed above,
the weighted average grant-date fair value of stock options granted during the twelve months ended
December 31, 2006, 2005 and 2004 was $13.22, $6.33 and $4.79, respectively.
Information with respect to stock options at December 31, 2006 is as follows:
Shares
Weighted
Average
Exercise
Price
(per share)
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Balance of shares outstanding at December 31,
2005 ................................... 21,674,270 $31.23
Options granted ........................... 4,084,645 58.55
Options exercised .......................... (5,900,095) 29.06
Options forfeited/cancelled ................... (483,710) 42.40
Balance of shares outstanding at December 31,
2006 ................................... 19,375,110 37.35 6.74 $475,397,402
Exercisable at December 31, 2006 (a) .......... 8,836,049 31.18 5.39 271,355,375
(a) Includes stock options issued to retirement-eligible employees.
Intrinsic value for stock-based instruments is defined as the difference between the current market
value and the exercise price. The total intrinsic value of stock options exercised during the twelve
months ended December 31, 2006, 2005 and 2004 was $170 million, $191 million and $102 million,
respectively.
During the twelve months ended December 31, 2006, cash received from stock options exercised
was $171 million, and the actual tax benefit realized for tax deductions from stock options exercised
was $68 million. SFAS No. 123-R requires the benefits of tax deductions in excess of the
compensation cost recognized for stock options exercised (excess tax benefits) to be classified as
financing cash flows. There was $53 million of excess tax benefits related to stock options exercised
included as a cash inflow in other financing activities in Exelon’s Consolidated Statement of Cash
Flows for the twelve months ended December 31, 2006. Prior to the adoption of SFAS No. 123-R,
Exelon presented these benefits as operating cash flows in the Consolidated Statement of Cash Flows.
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