Freeport-McMoRan 2007 Annual Report Download - page 81

Financial & Operating Information 79
Notes to Consolidated Financial Statements
of SFAS No. 123R, FCX recognized forfeitures as they occurred in its SFAS
No. 123 pro forma disclosures. Beginning January 1, 2006, FCX includes
estimated forfeitures in its compensation cost and updates the estimated
forfeiture rate through the final vesting date of the awards.
The following table illustrates the effect on net income and earnings
per common share for the year ended December 31, 2005, if FCX had
applied the fair value recognition provisions of SFAS No. 123 to
stock-based awards granted under FCX’s stock-based compensation
plans:
Net income applicable to common stock, as reported $ 935
Add: Stock-based employee compensation expense included
in reported net income for stock option conversions, SARs and
restricted stock units, net of taxes and minority interests 13
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards, net
of taxes and minority interests (26)
Pro forma net income applicable to common stock $ 922
Earnings per share:
Basic – as reported $ 5.18
Basic – pro forma $ 5.12
Diluted – as reported $ 4.67
Diluted – pro forma $ 4.64
For the pro forma computations, the values of option grants were
calculated on the dates of grant using the Black-Scholes-Merton option
pricing model and amortized to expense on a straight-line basis over
the options’ vesting periods. No other discounts or restrictions related to
vesting or the likelihood of vesting of stock options were applied.
The following table summarizes the calculated average fair values and
weighted-average assumptions used to determine the fair value of
FCX’s stock option grants under SFAS No. 123 during the year ended
December 31, 2005.
Fair value per stock option $ 13.97
Risk-free interest rate 3.9%
Expected volatility rate 46%
Expected life of options (in years) 6
Assumed annual dividend $ 1.00
Earnings Per Share. FCX’s 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 (in millions) for purposes of
calculating diluted net income per share for the years ended
December 31, 2007, 2006 and 2005:
2007 2006 2005
Income from continuing operations $ 2,942 $ 1,457 $ 995
Preferred dividends (208) (61) (60)
Income from continuing operations applicable to common stock 2,734 1,396 935
Plus income impact of assumed conversion of:
6 3/4% Mandatory Convertible Preferred Stock 147 – –
5 1/2% Convertible Perpetual Preferred Stock 61 61 60
7% Convertible Senior Notes – 12 35
Diluted net income from continuing operations applicable to common stock 2,942 1,469 1,030
Income from discontinued operations 35 – –
Diluted net income applicable to common shares $ 2,977 $ 1,469 $ 1,030
Weighted-average common shares outstanding 341 191 180
Add shares issuable upon conversion, exercise or vesting of:
6 3/4% Mandatory Convertible Preferred Stock (see Note 13) 30 – –
5 1/2% Convertible Perpetual Preferred Stock (see Note 13) 23 22 21
7% Convertible Senior Notes (see Note 11) – 7 17
Dilutive stock options (see Note 13) 2 1 2
Restricted stock (see Note 13) 1 – –
Weighted-average common shares outstanding for purposes of calculating diluted net income per share 397 221 220
Diluted net income per share of common stock:
Continuing operations $ 7.41 $ 6.63 $ 4.67
Discontinued operations 0.09 – –
Diluted net income per share of common stock $ 7.50 $ 6.63 $ 4.67