Freeport-McMoRan 2010 Annual Report Download - page 76

FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
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Metal Bulletin, plus conversion premiums for products that undergo
additional processing, such as ferromolybdenum and molybdenum
chemical products. The majority of these sales use the average price
of the previous month quoted by the applicable publication. FCX’s
remaining molybdenum sales generally have pricing that is either
based on a fixed price or adjusts within certain price ranges.
PT Freeport Indonesia concentrate sales and Tenke Fungurume
metal sales are subject to certain royalties, which are recorded as a
reduction to revenues (refer to Note 14 for further discussion).
Stock-Based Compensation. Compensation costs for share-based
payments to employees, including stock options, are measured at fair
value and charged to expense over the requisite service period for
awards that are expected to vest. The fair value of stock options is
determined using the Black-Scholes-Merton option valuation model.
In addition, for other stock-based awards under the plans,
compensation costs are recognized based on the fair value on the
date of grant for restricted stock units and the intrinsic value on the
reporting or exercise date for cash-settled stock appreciation rights
(SARs). FCX estimates forfeitures at the time of grant and revises
those estimates in subsequent periods if actual forfeitures differ
from those estimates through the final vesting date of the awards.
Refer to Note 11 for further discussion.
Earnings Per Share. FCX’s basic net income (loss) per share of
common stock was calculated by dividing net income (loss)
attributable to common stockholders by the weighted-average shares
of common stock outstanding during the year. A reconciliation of
net income (loss) and weighted-average shares of common stock
outstanding for purposes of calculating diluted net income (loss) per
share for the years ended December 31 follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the long-established structure of sales agreements prevalent
in the industry, copper contained in concentrates and cathodes is
generally provisionally priced at the time of shipment. The provisional
prices are finalized in a specified future period (generally one to four
months from the shipment date) based on the quoted London Metal
Exchange (LME) or the New York Mercantile Exchange (COMEX)
prices. FCX receives market prices based on prices in the specified
future period, and these sales result in changes recorded to revenues
until the specified future period. FCX records revenues and invoices
customers at the time of shipment based on then-current LME or
COMEX prices, which results in an embedded derivative (i.e., a
pricing mechanism that is finalized after the time of delivery) that is
required to be bifurcated from the host contract. The host contract is
the sale of the metals contained in the concentrates or cathodes at
the then-current LME or COMEX price. FCX applies the normal
purchases and normal sales scope exception in accordance with
derivatives and hedge accounting guidance to the host contract in its
concentrate or cathode sales agreements since these contracts do
not allow for net settlement and always result in physical delivery.
The embedded derivative does not qualify for hedge accounting. At
December 31, 2010, FCX had outstanding provisionally priced copper
sales from its copper mining operations of 417 million pounds
of copper (net of noncontrolling interests), priced at an average of
$4.36 per pound, subject to final pricing over the first several months
of 2011 pursuant to the terms of the sales contracts.
Gold sales are priced according to individual contract terms,
generally the average London Bullion Market Association price for a
specified month near the month of shipment.
Approximately 90 percent of FCX’s 2010 molybdenum sales were
priced based on prices published in Metals Week, Ryan’s Notes or
2010 2009 2008
Net income (loss) $ 5,544 $ 3,534 $ (10,450)
Net income attributable to noncontrolling interests
(1,208) (785) (617)
Preferred dividends and losses on induced conversions (63) (222) (274)
Net income (loss) attributable to FCX common stockholders 4,273 2,527 (11,341)
Plus income impact of assumed conversion of:
6¾% Mandatory Convertible Preferred Stock
a
63 194 —
b
5½% Convertible Perpetual Preferred Stock
c
— 28 —
d
Diluted net income (loss) attributable to FCX common stockholders $ 4,336 $ 2,749 $ (11,341)
Weighted-average shares of common stock outstanding 915 829 763
Add stock issuable upon conversion, exercise or vesting of (refer to Note 11):
6¾% Mandatory Convertible Preferred Stock
a
26 79 —
b
5½% Convertible Perpetual Preferred Stock
c
— 25 —
d
Dilutive stock options 6 3 —
e
Restricted stock 2 2 —
e
Weighted-average shares of common stock outstanding for purposes of calculating
diluted net income (loss) per share 949 938 763
Diluted net income (loss) per share attributable to FCX common stockholders
$ 4.57 $ 2.93 $ (14.86)
a. All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock at a conversion rate of 2.7432 shares of FCX common stock.
b. Potential income impact of $194 million and additional shares of common stock of approximately 78 million shares were excluded because they were anti-dilutive.
c. In September 2009, FCX redeemed the remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock.
d. Potential income impact of $58 million and additional shares of common stock of approximately 47 million shares were excluded because they were anti-dilutive.
e. Potential additional shares of common stock of approximately 3 million were anti-dilutive.