ComEd 2006 Annual Report Download - page 200

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)
The following table presents stock-based compensation expense (pre-tax) during the twelve
months ended December 31, 2006, 2005 and 2004:
Year
Ended
December 31,
Registrant 2006 2005 2004
Generation ............................................................ $48 $21 $22
ComEd ................................................................ 12 2 3
PECO ................................................................ 3 1 1
Exelon Corporate (a) ..................................................... 65 33 39
(a) Represents amounts billed to Exelon’s subsidiaries through intercompany allocations.
Stock Options
Non-qualified stock options to purchase shares of Exelon’s common stock are granted under the
LTIPs. The exercise price of the stock options is equal to the fair market value of the underlying stock
on the date of option grant. Stock options granted under the LTIPs generally become exercisable upon
a specified vesting date. Shares subject to stock options are typically issued from authorized but
unissued common stock shares. All stock options expire ten years from the date of grant. The vesting
period of stock options outstanding as of December 31, 2006 generally ranged from three years to four
years. The value of stock options at the date of grant is either amortized through expense or
capitalized over the requisite service period using the straight-line method. For stock options granted to
retirement eligible employees, the value of the stock option is recognized immediately on the date of
grant. There were no significant stock-based compensation costs capitalized during the twelve months
ended December 31, 2006, 2005 and 2004.
Exelon grants most of its stock options in the first quarter of each year. Stock options granted
during the remaining quarters of 2006, 2005 and 2004 were not material.
The fair value of each option is estimated on the date of grant using the Black-Scholes-Merton
option-pricing model with the following weighted average assumptions used for grants for the twelve
months ended December 31, 2006, 2005 and 2004:
Year
Ended
December 31,
2006 2005 2004
Dividend yield ....................................................... 3.2% 3.6% 3.3%
Expected volatility .................................................... 25.5% 18.1% 19.7%
Risk-free interest rate ................................................. 4.27% 3.83% 3.25%
Expected life (years) .................................................. 6.25 6.25 5.0
The dividend yield is based on several factors, including Exelon’s most recent dividend payment at
the grant date and the average stock price over the previous twelve months. Expected volatility is
based on implied volatilities of traded stock options in Exelon’s common stock and historical volatility
195