Freeport-McMoRan 2011 Annual Report Download - page 93

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2011 ANNUAL REPORT | 91
A summary of options outstanding as of December31,2011,
including 69,672 SARs, and changes during the year ended
December31,2011, follows:
Weighted-
Average
Weighted- Remaining Aggregate
Number of Average Contractual Intrinsic
Options Option Price Term (years) Value
Balance at January 1 26,930,444 $ 30.22
Granted 4,230,500 55.43
Exercised (3,044,174) 21.88
Expired/Forfeited (149,625) 37.61
Balance at December 31 27,967,145 34.90 6.9 $ 152
Vested and exercisable
at December 31 13,560,645 $ 33.10 5.7 $ 65
Summaries of options outstanding, including SARs, and changes
during the years ended December31 follow:
2010 2009
Weighted- Weighted-
Number of Average Number of Average
Options Option Price Options Option Price
Balance at January 1 24,921,594 $ 27.59 19,705,894 $ 32.49
Granted 8,303,000 36.15 7,302,000 12.94
Exercised (6,081,650) 27.54 (1,571,874) 20.15
Expired/Forfeited (212,500) 30.29 (514,426) 30.29
Balance at December 31 26,930,444 30.22 24,921,594 27.59
e fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option valuation model.
Expected volatility is based on implied volatilities from traded
options on FCX’s common stock and historical volatility of FCX’s
common stock. FCX uses historical data to estimate future option
exercises, forfeitures and expected life of the options. When
appropriate, separate groups of employees that have similar
historical exercise behavior are considered separately for valuation
purposes. e expected dividend rate is calculated using the
annual dividend (excluding supplemental dividends) at the date of
grant. e risk-free interest rate is based on Federal Reserve rates
in eect for bonds with maturity dates equal to the expected term
of the option at the grant date. e weighted-average assumptions
used to value stock option awards during the years ended
December31 follow:
2011 2010 2009
Expected volatility 50.9% 51.9% 70.6%
Expected life of options (in years) 4.34 4.61 4.37
Expected dividend rate 1.8% 0.8% —%
Risk-free interest rate 1.6% 2.2% 1.5%
e weighted-average grant-date fair value of options granted was
$20.58 per option during 2011, $15.33 per option during 2010 and
$7.14 per option during 2009. e total intrinsic value of options
exercised was $101 million during 2011, $129 million during 2010
and $24 millionduring 2009. e total fair value of options
vested was $89 million during 2011, $61 million during 2010 and
$70 million during 2009. As of December31,2011, FCX had
$101 million of total unrecognized compensation cost related to
unvested stock options expected to be recognized over a
weighted-average period of 1.5 years.
e following table includes amounts related to exercises of
stock options and SARs and vesting of restricted stock units and
restricted stock awards during the years ended December31:
2011 2010 2009
FCX shares tendered to pay
the exercise price and/or the
minimum required taxes
a
936,811 934,099 542,786
Cash received from stock option
exercises $ 48 $ 109 $ 18
Actual tax benefit realized for tax
deductions 45 50 21
Amounts FCX paid for employee taxes 45 28 12
Amounts FCX paid for exercised SARs 1 1 1
a. Under terms of the related plans, upon exercise of stock options and vesting of restricted
stock units and restricted stock awards, employees may tender FCX shares to FCX to pay
the exercise price and/or the minimum required taxes.
Restricted Stock Units. FCX has an annual incentive plan for its
executive ocers that requires a portion of each executive ocer’s
annual bonus be paid in restricted stock units. e maximum
annual incentive award pool is a percentage of FCX’s consolidated
operating cash ows adjusted for working capital for the preceding
year and funding of the pool is subject to a performance condition.
Grants of restricted stock units before 2012 vest ratably over three
years and provide that the FCX executive ocers will receive the
following year’s vesting upon retirement provided the performance
condition is met. e fair value of these restricted stock unit grants
was estimated based on projected operating cash ows for the
applicable year and was charged to expense ratably over three years,
beginning with the year during which the cash ows were
generated as performance of services commenced in the calendar
year preceding the date of grant. In February 2012, the terms of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS