## Notes To Consolidated Financial Statements 

## Note 7.  Stockholders’ Equity 

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 

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. 

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. 

