Freeport-McMoRan 2010 Annual Report Download - page 90

FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the expected term of the option at the grant date. The weighted-
average assumptions used to value stock option awards during the
years ended December 31 follow:
2010 2009 2008
Expected volatility 51.9% 70.6% 49.3%
Expected life of options (in years)
4.61 4.37 4.60
Expected dividend rate
0.8% —% 2.0%
Risk-free interest rate
2.2% 1.5% 3.3%
The weighted-average grant-date fair value of options granted was
$15.33 per option during 2010, $7.14 per option during 2009 and
$17.45 per option during 2008. The total intrinsic value of options
exercised was $129 million during 2010, $24 million during 2009
and $128 million during 2008. The total fair value of options
vested was $61 million during 2010, $70 million during 2009 and
$61 million during 2008. As of December 31, 2010, FCX had
$107 million of total unrecognized compensation cost related to
unvested stock options expected to be recognized over a weighted-
average period of 1.6 years.
The 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:
2010 2009 2008
FCX shares tendered to pay
the exercise price and/or the
minimum required taxes
a
934,099 542,786 823,915
Cash received from stock option
exercises
$ 109 $ 18 $ 56
Actual tax benefit realized for tax
deductions
50 21 78
Amounts FCX paid for employee taxes
28 12 34
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. These
treasury shares were not affected by the two-for-one stock split.
Restricted Stock Units. Prior to December 2008, FCX had a
restricted stock program that allowed FCX senior executives to elect
to receive restricted stock units in lieu of all or part of their annual
cash incentive compensation. Effective December 2, 2008, the
Board of Directors discontinued this program and, thereafter,
initiated a new annual incentive plan for the FCX executive officers.
The annual incentive plan requires that a portion of each executive’s
annual bonus be paid in restricted stock units that will continue
to be subject to a performance condition for three years. The annual
incentive award is a function of FCX’s consolidated operating cash
flows for the preceding year and, therefore, considered a
performance-based award. The restricted stock units vest ratably over
three years, and this plan provides that the FCX executive officers
will receive the following year’s vesting upon retirement provided the
performance condition is met. The fair value of the restricted stock
units are estimated based on projected operating cash flows for the
year and are charged to expense ratably over three years, beginning
with the year during which the cash flows were generated as
performance of services commenced in the calendar year preceding
the date of grant.
FCX also granted other restricted stock units that vest over a period
of up to five years. The plans and award agreements provide for
accelerated vesting of all restricted stock units if there is a change of
control (as defined in the plans) and provide that participants will
receive the following year’s vesting after retirement (except for the
restricted stock units with five year vesting that do not allow
acceleration because of retirement). Dividends and interest on
restricted stock units accrue and are paid upon the award’s vesting.
FCX grants restricted stock units to its directors. The restricted
stock units vest over four years. The fair value of the restricted stock
units is amortized over the four-year vesting period or the period
until the director becomes retirement-eligible, whichever is shorter.
Upon a director’s retirement, all of their unvested restricted
stock units immediately vest. For retirement-eligible directors, the
fair value of restricted stock units is recognized in earnings on the
date of grant.
A summary of outstanding restricted stock units as of December 31,
2010, and activity during the year ended December 31, 2010,
follows:
Weighted-
Average
Number of Remaining Aggregate
Restricted Contractual Intrinsic
Stock Units Term (years) Value
Balance at January 1 2,873,998
Granted 671,734
Vested (1,401,486)
Forfeited (3,332)
Balance at December 31 2,140,914 1.1 $ 129
The total grant-date fair value of restricted stock units granted during
the year ended December 31, 2010, was $23 million. The total
intrinsic value of restricted stock units vested was $50 million during
2010, $22 million during 2009 and $33 million during 2008.
As of December 31, 2010, FCX had $9 million of total unrecognized
compensation cost related to unvested restricted stock units
expected to be recognized over a weighted-average period of less than
one year.
Restricted Stock Awards. As discussed above, FCX had
restricted stock awards that were issued in connection with the
Phelps Dodge acquisition. A summary of outstanding restricted stock
awards as of December 31, 2010, and activity during the year
ended December 31, 2010, follows:
Balance at January 1 74,228
Vested (74,228)
Balance at December 31 —