STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

FCX’s authorized shares of capital stock total 1.85 billion shares, consisting of 1.8 billion shares of common stock and 50 million shares of preferred stock.

Common Stock. At December 31, 2012, 23.7 million shares remain available for purchase under FCX's open-market share purchase program, which does not have an expiration date. There have been no purchases under this program since 2008. The timing of future purchases of FCX’s common stock is dependent on many factors, including FCX’s operating results, cash flows and financial position; copper, molybdenum and gold prices; the impact of the proposed acquisitions; the price of FCX’s common stock; and general economic and market conditions.

FCX’s Board of Directors (the Board) authorized increases in the cash dividend on FCX’s common stock to an annual rate of $0.60 per share in April 2010, then to an annual rate of $1.00 per share in October 2010 and then to the current annual rate of $1.25 per share in February 2012. The Board also declared two supplemental cash dividends of $0.50 per share, which were paid in December 2010 and June 2011. On December 26, 2012, the Board declared a regular quarterly dividend of $0.3125 per share, which was paid on February 1, 2013, to common shareholders of record at the close of business on January 15, 2013. The declaration of dividends is at the discretion of the Board and will depend on FCX's financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

Preferred Stock. On March 28, 2007, FCX sold 28.75 million shares of 6¾% Mandatory Convertible Preferred Stock for net proceeds of $2.8 billion. The 6¾% Mandatory Convertible Preferred Stock was automatically converted on May 1, 2010, into 78.9 million shares of FCX common stock.

Stock Award Plans. FCX currently has awards outstanding under its stock-based compensation plans, including two FMC plans resulting from the 2007 acquisition. As of December 31, 2012, only two plans, both of which are stockholder approved and are discussed below, have awards available for grant.

The 2003 Stock Incentive Plan (the 2003 Plan) provides for the issuance of stock options, SARs, restricted stock, restricted stock units and other stock-based awards. The 2003 Plan allows FCX to grant awards for up to 16 million common shares to eligible participants. In 2006, FCX’s stockholders approved the 2006 Stock Incentive Plan (the 2006 Plan), and 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. The 2006 Plan provides for the issuance of stock options, SARs, restricted stock, restricted stock units and other stock-based awards for up to 74 million common shares. As of December 31, 2012, shares available for grant totaled 32.1 million under the 2006 Plan and 2,446 shares under the 2003 Plan.

Stock-Based Compensation Cost. Compensation cost charged against earnings for stock-based awards for the years ended December 31 follows:



	2012			2011			2010
Stock options awarded to employees (including directors)	$	82		$	84		$	84
Stock options awarded to nonemployees	2			1			5
Restricted stock units awarded to employees
(including directors)	16			32			30
Restricted stock awards to employees	—			—			1
SARs	—			(2		)	2
Total stock-based compensation cost^a	100			115			122
Tax benefit	(36		)	(42		)	(45		)
Noncontrolling interests’ share	(3		)	(4		)	(3		)
Impact on net income	$	61		$	69		$	74


a.	Amounts were before Rio Tinto’s share of the cost of employee exercises of in-the-money stock options, which decreased consolidated selling, general and administrative expenses by $3 million in 2011 and $4 million in 2010. There was no Rio Tinto sharing in 2012.

FCX did not capitalize any stock-based compensation costs to property, plant, equipment and development costs during the years ended December 31, 2012, 2011 and 2010.

Stock Options and SARs. Stock options and SARs 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 plans and award agreements provide that participants will receive the following year’s vesting after retirement and provide for accelerated vesting if there is a change in control (as defined in the plans). Therefore, FCX accelerates one year of amortization for retirement-eligible employees.

A summary of options outstanding as of December 31, 2012, including 39,336 SARs, and changes during the year ended December 31, 2012, follows:



	Number of Options		Weighted- Average Option Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance at January 1	27,967,145		$	34.90
Granted	5,050,500		46.32
Exercised	(1,300,273	)	16.68
Expired/Forfeited	(244,813	)	45.23
Balance at December 31	31,472,559		37.40		6.4	$	102

Vested and exercisable at December 31	17,731,809		$	34.41	5.3	$	65

Summaries of options outstanding, including SARs, and changes during the years ended December 31 follow:



	2011				2010
	Number of Options		Weighted- Average Option Price		Number of Options		Weighted- Average Option Price
Balance at January 1	26,930,444		$	30.22	24,921,594		$	27.59
Granted	4,230,500		55.43		8,303,000		36.15
Exercised	(3,044,174	)	21.88		(6,081,650	)	27.54
Expired/Forfeited	(149,625	)	37.61		(212,500	)	30.29
Balance at December 31	27,967,145		34.90		26,930,444		30.22

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model. 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 exercises, forfeitures and expected life of the options. 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 at the grant date. Information related to stock options, including SARs, during the years ended December 31 follows:



	2012			2011			2010
Weighted-average assumptions used to value stock option awards:
Expected volatility	52.0		%	50.9		%	51.9		%
Expected life of options (in years)	4.54			4.34			4.61
Expected dividend rate	3.1		%	1.8		%	0.8		%
Risk-free interest rate	0.7		%	1.6		%	2.2		%
Weighted-average grant date fair value (per share)	$	15.60		$	20.58		$	15.33
Intrinsic value of options exercised	$	34		$	101		$	129
Fair value of options vested	$	77		$	89		$	61

As of December 31, 2012, FCX had $90 million of total unrecognized compensation cost related to unvested stock options expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units. FCX has an annual incentive plan for its executive officers that requires a portion of each executive officer's annual bonus be paid in restricted stock units. The maximum annual incentive award pool is a percentage of FCX’s consolidated operating cash flows adjusted for changes in working capital and other tax payments for the preceding year and funding of the pool is subject to a performance condition. Grants of restricted stock units before 2012 vest ratably over three years and provide that the FCX executive officers will receive the following year’s vesting upon retirement provided the performance condition is met. The fair value of these restricted stock unit grants was estimated based on projected operating cash flows for the applicable year and was 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. In February 2012, the terms of restricted stock unit awards under the annual incentive plan were revised. Beginning with 2012 grants, the level of restricted stock units granted will continue to be based on FCX's consolidated operating cash flows adjusted for changes in working capital and other tax payments for the preceding year, but the award will vest after three years subject to FCX attaining a five-year average return on investment (a performance condition defined in the award agreement) of at least six percent. The awards will also be subject to a 20 percent reduction if FCX performs below a group of its peers as defined in the award agreement. The fair value of the awards is estimated using an appropriate valuation model. The awards continue to vest after the recipients retirement or death; therefore, since all of FCX's executive officers are retirement eligible, FCX charges the cost of these awards to expense in the year the cash flows are generated as performance of services is only required in the calendar year preceding the date of grant.

FCX also granted other restricted stock units that vest over a period of four years to its directors. 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). 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.

Dividends and interest on restricted stock units accrue and are paid upon the award’s vesting.

A summary of outstanding restricted stock units as of December 31, 2012, and activity during the year ended December 31, 2012, follows:



	Number of Restricted Stock Units		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance at January 1	1,265,276
Granted	306,194
Vested	(681,772	)
Balance at December 31	889,698		2.6	$	30

The total grant-date fair value of restricted stock units granted during the year ended December 31, 2012, was $14 million. The total intrinsic value of restricted stock units vested was $28 million during 2012, $69 million during 2011 and $50 million during 2010. As of December 31, 2012, FCX had $1 million of total unrecognized compensation cost related to unvested restricted stock units expected to be recognized.

Other Information. The following table includes amounts related to exercises of stock options and vesting of restricted stock units and restricted stock awards during the years ended December 31:



	2012		2011		2010
FCX shares tendered to pay the exercise price
and/or the minimum required taxes^a	515,558		936,811		934,099
Cash received from stock option exercises	$	15	$	48	$	109
Actual tax benefit realized for tax deductions	$	16	$	45	$	50
Amounts FCX paid for employee taxes	$	16	$	45	$	28


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.

Accumulated Other Comprehensive Loss. A summary of changes in the balances of each component of accumulated other comprehensive loss follows:



	Unrealized Gains/(Losses) on Securities			Translation Adjustment			Defined Benefit Plans			Deferred Tax Valuation Allowance			Total
Balance at January 1, 2010	$	(5	)	$	8		$	(231	)	$	(45	)	$	(273	)
Amounts arising during the period^a	2			—			(53		)	(14		)	(65		)
Amounts reclassified^b	—			—			15			—			15
Balance at December 31, 2010	(3		)	8			(269		)	(59		)	(323		)
Amounts arising during the period^a	(1		)	(2		)	(134		)	(20		)	(157		)
Amounts reclassified^b	—			—			15			—			15
Balance at December 31, 2011	(4		)	6			(388		)	(79		)	(465		)
Amounts arising during the period^a	—			(1		)	(65		)	(1		)	(67		)
Amounts reclassified^b	—			—			26			—			26
Balance at December 31, 2012	$	(4	)	$	5		$	(427	)	$	(80	)	$	(506	)


a.	Amounts arising during the period were net of tax benefits of $39 million for 2012, $81 million for 2011 and $34 million for 2010.


b.	Amounts reclassified from accumulated other comprehensive loss were related to amortization of actuarial losses, which were net of taxes of $15 million for 2012, and $8 million for 2011 and 2010.