Notes To Consolidated Financial Statements  2004  2003  2002 Net income $202,267  $181,660  $164,654 Other comprehensive income (loss): Change in unrealized derivatives’ fair value, net of taxes of $1.0 million  for 2004 and  $3.1 million for 2002  1,226  5,195  13,615 Reclass to earnings, net of taxes of $4.7 million for 2002  1,448  (7,490)  (1,468) Total comprehensive income  $204,941  $179,365  $176,801 Effective January 1996, Atlantic Copper changed its functional  currency from the peseta (the Spanish currency at the time)  to the U.S. dollar. This change resulted from significant  changes in Atlantic Copper’s operations related to a large  expansion of its smelting and refining operations financed  with U.S. dollar borrowings and the sale of its mining  operations that incurred significant peseta operating costs.  Accumulated Other Comprehensive Income reported in the  Consolidated Statements of Stockholders’ Equity before 2001  totaled $10.2 million and consisted solely of the cumulative  foreign currency translation adjustment at Atlantic Copper  prior to changing its functional currency, for which there  is no tax effect. In accordance with SFAS No. 52, “Foreign  Currency Translation,” the currency translation adjustment  recorded up through the date of the change in functional  currency will only be adjusted in the event of a full or partial  disposition of FCX’s investment in Atlantic Copper. Stock-Based Compensation.  As of December 31, 2004,  FCX has four stock-based employee compensation plans and  two stock-based director compensation plans, which are more  fully described in Note 7. FCX accounts for options granted  under all of its plans under the recognition and measurement  principles of Accounting Principles Board (APB) Opinion No.  25, “Accounting for Stock Issued to Employees,” and related  interpretations, which require compensation cost for stock- based employee compensation plans to be recognized based  on the difference on the date of grant, if any, between  the quoted market price of the stock and the amount an  employee must pay to acquire the stock. Because all the  plans require that the option exercise price be at least the  market price on the date of grant, FCX recognizes no compen- sation expense on the grant or exercise of its employees’  options. See “New Accounting Standards” below for a discus- sion of a recently issued revision to SFAS No. 123, which FCX  must adopt no later than July 1, 2005. The following table  illustrates the effect on net income and earnings per share  if FCX had applied the fair value recognition provisions of  SFAS No. 123, “Accounting for Stock-Based Compensation,”  which requires compensation cost for all stock-based  employee compensation plans to be recognized based on a  fair value method (in thousands, except per share amounts): 2004  2003  2002 Net income applicable to common stock, as reported  $156,776  $154,219  $127,050 Add: Stock-based employee compensation expense included in repor ted net income for  stock option conversions, stock appreciation rights (SARs) and  restricted stock units,  net of taxes and minority interests  4,809  9,512  2,320 Deduct:Total stock-based employee compensation expense determined  under fair value-based  method for all awards, net of taxes and minority interests   (10,049)   (14,225)  (8,833) Pro forma net income applicable to common stock  $151,536  $149,506  $120,537 Earnings per share: Basic – as reported  $  0.86  $  0.99  $  0.88 Basic – pro forma  $  0.83  $  0.96  $  0.83 Diluted – as reported  $  0.85  $  0.97  $  0.87 Diluted – pro forma  $  0.80  $  0.92  $  0.80 For the pro forma computations, the values of option grants  were calculated on the dates of grant using the Black-Scholes  option pricing model. 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 periods presented. 2004 ANNUAL REPORT  | 59