Note 7.  Stockholders’ Equity dividend resulted in adjustments to the conversion rate.  After FCX’s February 2005 quarterly dividend, each share  of preferred stock is now convertible into 18.9794 shares of  FCX common stock, equivalent to a conversion price of  approximately $52.69 per common share. In February 2005,  the Board authorized a supplemental common stock dividend  of $0.50 per share payable on March 31, 2005, which will  result in another adjustment to the conversion price in March  2005. Beginning March 30, 2009, FCX may redeem shares of  the preferred stock by paying cash, FCX common stock or  any combination thereof for $1,000 per share plus unpaid  dividends, but only if FCX’s common stock price has exceeded  130 percent of the conversion price for at least 20 trading  days within a period of 30 consecutive trading days immedi- ately preceding the snotice of redemption. FCX used a portion  of the proceeds from the sale to purchase 23.9 million shares  of FCX common stock owned by Rio Tinto for $881.9 million  (approximately $36.85 per share) and used the remainder for  general corporate purposes. Stock Award Plans.  FCX currently has six stock- based compensation plans. FCX’s Adjusted Stock Award  Plan provided for the issuance of certain stock awards to  employees, officers and directors of Freeport-McMoRan Inc.  (FTX), the former parent of FCX, in connection with FTX’s  distribution of FCX shares to its shareholders in 1995. Under  this plan, FCX made a one-time grant of awards to purchase  up to 10.7 million common shares, including SARs, at prices  equivalent to the original FTX price at date of grant as  adjusted for the proportionate market value of FCX shares at  the time of the distribution. All options granted under this  plan expire 10 years from the original FTX date of grant. FCX’s 1995 Stock Option Plan provides for the issuance of  stock options and other stock-based awards (including SARs)  for up to 10.0 million common shares at no less than market  value at the time of grant. FCX’s 1995 Stock Option Plan  for Non-Employee Directors authorizes FCX to grant options  to purchase up to 2.0 million shares and to grant up to 1.3  million SARs.  Common Stock.  FCX has 473.6 million authorized shares of  capital stock consisting of 423.6 million shares of common  stock and 50.0 million shares of preferred stock. At the 2002  annual shareholder meeting, FCX’s shareholders approved the  conversion of each outstanding share of Class A common  stock into one share of Class B common stock. FCX now has  only one class of common stock. The conversion created a  new measurement date for FCX’s Class A stock options that  were converted to Class B stock options. Under accounting  rules followed by FCX for stock-based compensation, the in- the-money value of these stock options on the new measure- ment date ($8.8 million) must be charged to earnings over  the remaining vesting period of the options, which extends  through January 2006. The related charge to general and  administrative expenses totaled $2.1 million in 2004, $2.3  million in 2003 and $1.6 million in 2002. In 2003, FCX’s Board of Directors approved a new open  market share purchase program for up to 20 million shares,  which replaced FCX’s previous program. Under this new  program, FCX acquired 3.4 million shares during the second  quarter of 2004 for $99.5 million, $29.39 per share average,  and 16.6 million shares remain available. No other shares  were purchased through February 28, 2005. The timing  of future purchases of FCX’s common stock is dependent on  many factors including the price of FCX’s common shares, FCX’s  cash flow and financial position, and general economic and  market conditions. Preferred Stock.  In December 2003, FCX called for  redemption the depositary shares representing its Step-Up  Convertible Preferred Stock. Of the 14.0 million depositary  shares outstanding at the time of call, 13.8 million deposi- tary shares converted into 11.5 million shares of FCX common  stock. The remaining depositary shares outstanding were  redeemed for approximately $7 million in cash.  In March 2004, FCX sold 1.1 million shares of 5  1 /2%  Convertible Perpetual Preferred Stock for $1.1 billion, with  net proceeds totaling $1.067 billion. Each share of preferred  stock was initially convertible into 18.8019 shares of FCX  common stock, equivalent to a conversion price of approxi- mately $53.19 per common share. The conversion rate is  adjustable upon the occurrence of certain events, including  any quarter that FCX’s common stock dividend exceeds  $0.20 per share. In October 2004, FCX’s Board of Directors  increased the annual common stock dividend rate to $1.00  per share ($0.25 per share quarterly). In December 2004, the  Board authorized a supplemental common stock dividend of  $0.25 per share, which was paid on December 29, 2004. The  increased quarterly dividend payments and the supplemental  FCX’s 1999 Stock Incentive Plan (the 1999 Plan) and 2003  Stock Incentive Plan (the 2003 Plan) provide for the issuance  of stock options, SARs, restricted stock units and other  stock-based awards. Each plan allows FCX to grant awards  for up to 8.0 million common shares to eligible participants and  also allows FCX senior executives to elect to receive restricted  stock units in place of all or part of their cash incentive  compensation. Restricted stock unit grants vest over three  years and are valued on the date of grant at 50 percent  above the cash incentive compensation they replace. FCX  granted 0.2 million shares of restricted stock units in 2004  and 0.1 million shares in each of 2003 and 2002. 66 |  FREEPORT-McMoRan COPPER & GOLD INC. Notes To Consolidated Financial Statements