Freeport-McMoRan 2003 Annual Report Download - page 65

2003 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 63
For the pro forma computations, the values of option
grants were calculated on the dates of grant using the
Black-Scholes option-pricing model. The weighted
average fair value for stock option grants was $10.30
per option in 2003, $7.89 per option in 2002 and
$6.30 per option in 2001. The weighted average
assumptions used include a risk-free interest rate of
3.8 percent in 2003, 5.0 percent in 2002 and 5.2
percent in 2001; expected volatility of 47 percent; no
annual dividends for grants prior to February 6, 2003,
and a $0.36 per share annual dividend for grants
after that date; and expected lives of 7 years. The pro
forma effects on net income are not representative
of future years because of the potential changes in
the factors used in calculating the Black-Scholes
valuation and the number and timing of option grants.
No other discounts or restrictions related to vesting or
the likelihood of vesting of stock options were applied.
Earnings Per Share. Basic net income per share of
common stock was calculated by dividing net income
applicable to common stock by the weighted-average
number of common shares outstanding during the
year. The following is a reconciliation of net income
and weighted average common shares outstanding
for purposes of calculating diluted net income per
share (in thousands, except per share amounts):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2003 2002 2001
Net income applicable to common stock, as reported $154,219 $127,050 $76,496
Add: Stock-based employee compensation expense included in reported
net income for stock option conversions, restricted stock grants and
SARs, net of taxes and minority interests
9,512 2,320 494
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards, net of taxes
and minority interests (14,225) (8,833) (6,528)
Pro forma net income applicable to common stock $149,506 $120,537 $70,462
Earnings per share:
Basic – as reported $0.99 $0.88 $ 0.53
Basic – pro forma $0.96 $0.83 $ 0.49
Diluted – as reported $0.97 $0.87 $ 0.53
Diluted – pro forma $0.92 $0.80 $ 0.49
2003 2002 2001
Net income before preferred dividends and cumulative effect of changes
in accounting principles $197,253 $167,703 $113,025
Preferred dividends (27,441) (37,604) (36,529)
Net income before cumulative effect 169,812 130,099 76,496
Cumulative effect of changes in accounting principles (15,593) (3,049) —
Net income applicable to common stock $154,219 $127,050 $ 76,496
Weighted average common shares outstanding 155,805 144,649 143,952
Add: Dilutive stock options (see Note 6) 3,094 1,498 678
Restricted stock (see Note 6) 203 271 308
Weighted average common shares outstanding for purposes of
calculating diluted net income per share 159,102 146,418 144,938
Diluted net income per share of common stock:
Before cumulative effect $1.07 $0.89 $ 0.53
Cumulative effect (.10) (0.02) —
Net income per share of common stock $0.97 $0.87 $ 0.53
Outstanding stock options with exercise prices greater
than the average market price of the common stock
during the year are excluded from the computation of
diluted net income per share of common stock. In
addition, our convertible preferred stock (see Note 6)
and our convertible senior notes (see Note 5) are
excluded for all years presented because including
the conversion of these instruments would have
increased reported diluted net income per share. A
recap of the excluded amounts follows (in thousands,
except exercise prices):