Freeport-McMoRan 2014 Annual Report Download - page 108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
106
Stock Award Plans. FCX currently has awards outstanding under
various stock-based compensation plans. The 2006 Stock
Incentive Plan (the 2006 Plan), which was stockholder approved,
provides for the issuance of stock options, SARs, restricted stock,
RSUs and other stock-based awards for up to 74 million common
shares. FCX’s stockholders approved amendments to the plan
in 2007 primarily to increase the number of shares available for
grants, and in 2010, to permit grants to outside directors. As of
December 31, 2014, 19.6 million shares were available for grant
under the 2006 Plan.
During 2014, the Board approved an incentive plan that provides
for the issuance of cash-settled RSUs to employees who are not
executive officers.
In connection with the restructuring of an executive
employment arrangement, a special retention award of one
million RSUs was granted in December 2013. The RSUs are fully
vested and the related shares of common stock will be delivered
to the executive upon separation of service, along with a cash
payment for accumulated dividends. With respect to stock
options previously granted to this executive, such awards became
fully vested. With respect to performance-based awards
previously granted to this executive, the service requirements are
considered to have been satisfied, and the vesting of any such
awards shall continue to be contingent upon the achievement of
all performance conditions set forth in the award agreements.
In connection with the restructuring, FCX recorded a $37 million
charge to selling, general and administrative expenses in 2013.
Stock-Based Compensation Cost. Compensation cost charged
against earnings for stock-based awards for the years ended
December 31 follows:
2014 2013 2012
Selling, general and administrative expenses $ 7 9 $ 145 $ 77
Production and delivery 28 28 23
Capitalized costs 23 13 —
Total stock-based compensation 13 0 186 100
Less capitalized costs (23) (13) —
Tax benefit and noncontrolling interests’ share (42) (66) (39)
Impact on net income $ 65 $ 107 $ 61
Stock Options and SARs. Stock options granted under the plans
generally expire 10 years after the date of grant and vest in
25 percent annual increments beginning one year from the date of
grant. The award agreements provide that participants will
receive the following year’s vesting after retirement. Therefore,
on the date of grant, FCX accelerates one year of amortization for
retirement-eligible employees. Stock options granted prior to
February 2012 provide for accelerated vesting if there is a change
of control (as defined in the award agreements). Stock options
granted after that date provide for accelerated vesting only upon
certain qualifying termination of employment within one year
following a change of control. SARs generally expire within five
years after the date of grant and vest in one-third annual
increments beginning one year from the date of grant. SARs are
similar to stock options, but are settled in cash rather than in
shares of common stock and are classified as liability awards.
A summary of options and SARs outstanding as of December 31,
2014, including 1,413,153 SARs, and activity during the year ended
December 31, 2014, follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Number of Exercise Price Contractual Intrinsic
Options and SARs Per Share Term (years) Value
Balance at January 1 45,130,661 $ 35.39
Granted 3,276,000 31.01
Exercised (1,950,130) 21.23
Expired/Forfeited (526,792) 37.51
Balance at December 31 45,929,739 35.65 5.1 $ 38
Vested and exercisable
at December 31 35,062,748 $ 35.15 4.2 $ 38
The fair value of each stock option is estimated on the date of
grant using the Black-Scholes-Merton option valuation model.
The fair value of each SAR is determined using the Black-Scholes-
Merton option valuation model and remeasured at each reporting
date until the date of settlement. 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 and SARs exercises,
forfeitures and expected life. When appropriate, separate groups
of employees who have similar historical exercise behavior are
considered separately for valuation purposes. The expected
dividend rate is calculated using the annual dividend (excluding
supplemental dividends) at the date of grant. The risk-free interest
rate is based on Federal Reserve rates in effect for bonds with
maturity dates equal to the expected term of the option or SAR.
Information related to stock options during the years ended
December 31 follows:
2014 2013 2012
Weighted-average assumptions used
to value stock option awards:
Expected volatility 36.6% 48.9% 52.0%
Expected life of options (in years) 4.92 4.66 4.54
Expected dividend rate 3.5% 3.3% 3.1%
Risk-free interest rate 1.7% 0.7% 0.7%
Weighted-average grant date fair value
(per share) $ 7.43 $ 10.98 $ 15.60
Intrinsic value of options exercised $ 17 $ 10 $ 34
Fair value of options vested $ 76 $ 101 $ 77