Freeport-McMoRan 2008 Annual Report Download - page 91

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 89
preceding the notice of redemption. FCX used a portion of the
proceeds from the sale to purchase 23.9 million shares of FCX
common stock owned by Rio Tinto for $882 million (approximately
$36.85 per share) and used the remainder for general corporate
purposes. Rio Tinto no longer owns an equity interest in FCX;
however, it is still PT Freeport Indonesia’s joint venture partner
(see Note 3). In December 2008, through privately negotiated
transactions, FCX induced conversion of 0.3 million shares of its
5½% Perpetual Preferred Stock with a liquidation preference of
$268 million into 5.8 million shares of FCX common stock. To
induce conversion of these shares, FCX issued to the holders an
additional 1.0 million shares of FCX common stock valued at $22
million, which was recorded as losses on induced conversions in
the consolidated statements of operations.
Stock Award Plans. FCX currently has six stock-based
compensation plans, including two Phelps Dodge plans resulting
from the acquisition. As of December 31, 2008, only four of the
plans, all of which are stockholder approved (which are discussed
below), have awards available for grant.
FCX’s 1999 Stock Incentive Plan (the 1999 Plan) and 2003 Stock
Incentive Plan (the 2003 Plan) provide for the issuance of stock
options, SARs, restricted stock, restricted stock units and other
stock-based awards. Each plan allows FCX to grant awards for
up to 8 million common shares to eligible participants. In 2004,
FCX’s stockholders approved the 2004 Director Compensation
Plan (the 2004 Plan). The 2004 Plan authorizes awards of options
and restricted stock units for up to 1 million shares of common
stock and the one-time grant of 66,882 SARs. In 2006, FCX’s
stockholders approved the 2006 Stock Incentive Plan (the 2006
Plan), and in 2007, FCX’s stockholders approved amendments to
the plan primarily to increase the number of shares. The 2006
Plan provides for the issuance of stock options, SARs, restricted
stock, restricted stock units and other stock-based awards for up
to 37 million common shares. As of December 31, 2008, there
were 28.8 million shares under the 2006 Plan, 0.1 million shares
under the 2004 Plan, 0.1 million shares under the 2003 Plan and
less than 6,000 shares under the 1999 Plan available for grant.
In connection with the Phelps Dodge acquisition, former
Phelps Dodge stock options and restricted stock awards were
converted into 806,595 FCX stock options and 87,391 FCX
restricted stock awards, which retain the terms by which they
were originally granted under Phelps Dodge’s plans. The stock
options carry a maximum term of 10 years with 672,134 stock
options vested upon the acquisition of Phelps Dodge and 134,461
stock options that vest ratably over a three-year period or the
period until the participant becomes retirement-eligible,
whichever is shorter. Restricted stock awards generally become
fully vested in five years, with a majority of these shares having
graded-vesting features in which 25 percent of the shares will
vest on the third and fourth anniversaries of the award and the
remaining 50 percent in the fifth year. The fair value of the
restricted stock awards was determined based on the quoted
market price at the time of the acquisition.
Stock-Based Compensation Cost. Compensation cost charged
against earnings for stock-based awards is shown below for the
years ended December 31, 2008, 2007 and 2006. FCX did not
capitalize any stock-based compensation costs during the years
ended December 31, 2008, 2007 and 2006.
2008 2007 2006
Stock options awarded to employees
(including directors) $ 66 $ 71 $ 28
Stock options awarded to nonemployees 5 5 3
Restricted stock units awarded to employees 52 – –
Restricted stock units in lieu of cash awards (29)
a
67 23
Restricted stock awards to employees 3 6 –
Restricted stock units awarded to directors 4 3 1
Stock appreciation rights (6) 7 1
Total stock-based compensation cost
b
95 159 56
Tax benefit (36) (62) (20)
Minority interests share (2) (4) (3)
Impact on net (loss) income $ 57 $ 93 $ 33
a. Reflects an adjustment related to 2007 awards.
b. Amounts are before Rio Tinto’s share of the cost of employee exercises of in-the-
money stock options, which decreased consolidated selling, general and
administrative expenses by $1 million in 2008, $4 million in 2007 and $7 million
in 2006.
Options and SARs. Stock options and SARs granted under the
plans generally expire 10 years after the date of grant and vest
in 25 percent annual increments beginning one year from
the date of grant. The plans and award agreements provide
that participants will receive the following year’s vesting after
retirement and provide for accelerated vesting if there is a
change in control (as defined in the plans).
A summary of options outstanding as of December 31, 2008,
including 72,533 SARs, and changes during the year ended
December 31, 2008, follow:
Weighted-
Average
Weighted- Remaining Aggregate
Number of Average Contractual Intrinsic
Options Option Price Term (years) Value
Balance at January 1 10,759,798 $ 58.17
Granted 1,449,500 91.10
Exercised (2,198,601) 48.51
Expired/Forfeited (157,750) 70.43
Balance at December 31 9,852,947 64.98 7.8 $ 4
Vested and exercisable
at December 31 2,108,906 50.72 6.6 $ 4