Freeport-McMoRan 2008 Annual Report Download - page 44

Management’s Discussion and Analysis
Cash and Cash Equivalents
At December 31, 2008, we had consolidated cash and cash
equivalents of $872 million. The following table reflects the U.S.
and international components of consolidated cash and cash
equivalents at December 31, 2008 and 2007 (in millions):
December 31, 2008 2007
Cash at domestic companies
a
$ 95 $ 211
Cash at international operations 777 1,415
Total consolidated cash and cash equivalents 872 1,626
Less: Minority interests’ share (267) (363)
Cash, net of minority interests’ share 605 1,263
Taxes and other costs if distributed (151) (241)
Net cash available to FCX $ 454 $ 1,022
a. Includes cash at our parent company and North America operations.
Operating Activities
We generated operating cash flows totaling $3.4 billion in 2008,
which is net of $1.2 billion used for working capital requirements.
Operating cash flows in 2007 totaled $6.2 billion, including $1.0
billion from working capital sources, and operating cash flows in
2006 totaled $1.9 billion, net of $114 million used for working
capital requirements.
Operating cash flows for 2008 were lower than in 2007
primarily because of higher operating costs and higher working
capital requirements, including $598 million to settle the 2007
copper price protection program contract. Operating cash flows
for 2007 were higher than in 2006 primarily reflecting an
additional $4.1 billion of cash flows from the acquired Phelps
Dodge operations and also benefited from higher metal prices.
Consolidated revenues, operating cash flows and net income
vary significantly with fluctuations in the market prices of copper,
gold and molybdenum, sales volumes and other factors. Based
on projected consolidated sales volumes for 2009 and assuming
average prices of $1.50 per pound of copper, $800 per ounce
of gold and $9.00 per pound of molybdenum in 2009, our
consolidated operating cash flows would approximate $1.0 billion
in 2009, which is net of an estimated $0.6 billion for working
capital requirements. Refer to “Overview and Outlook” for further
discussion of projected 2009 operating cash flows.
Investing Activities
Capital expenditures, including capitalized interest, totaled
$2.7 billion in 2008, compared with $1.8 billion in 2007 and
$251 million for 2006. The increase in capital expenditures in
2008, compared with 2007, primarily reflected higher costs
associated with our major development projects. Capital
expenditures, excluding capitalized interest, for our major
development projects totaled approximately $1.6 billion in 2008,
compared with $0.8 billion in 2007 (refer to “Development
Projects” for further discussion). In response to weak economic
conditions, we have deferred capital spending for most of our
project development activities and have also reduced sustaining
capital budgets for 2009. Capital expenditures are expected
to approximate $1.3 billion for 2009, including $0.6 billion for
sustaining capital and $0.7 billion for the Tenke Fungurume
development project in Africa and development projects
in Indonesia.
The increase in capital expenditures for 2007, compared with
2006, primarily resulted from the addition of Phelps Dodge capital
spending beginning March 20, 2007 (approximately $1.3 billion,
which included $345 million associated with the Safford project in
Arizona and $218 million associated with the Tenke Fungurume
project in the DRC).
During 2008, our global reclamation and remediation trusts
decreased by $430 million resulting primarily from reim-
bursement of previously incurred costs for reclamation and
environmental activities.
On March 19, 2007, we issued 136.9 million shares of
common stock and paid $13.9 billion (net of cash acquired) to
acquire Phelps Dodge (refer to Note 18 for further discussion).
During 2007, we received net proceeds of $597 million
associated with the sale of Phelps Dodge International
Corporation (PDIC) (refer to Note 4 for further discussion), and
also received proceeds totaling $260 million primarily related to
sales of marketable securities.
Financing Activities
Total debt approximated $7.4 billion at December 31, 2008 and
$7.2 billion at December 31, 2007.
In February 2009, we completed a public offering of 26.8
million shares of our common stock at an average price of $28.00
per share, which generated gross proceeds of $750 million (net
proceeds of approximately $740 million). Net proceeds will be
used for general corporate purposes, including the repayment of
amounts outstanding under our revolving credit facilities,
working capital and capital expenditures. As of February 17,
2009, we have approximately 412 million common shares
outstanding. Assuming conversion of our 6¾% Mandatory
Convertible Preferred Stock and 5½% Convertible Perpetual
Preferred Stock, we would have approximately 469 million
common shares outstanding.
We have revolving credit facilities available through March
2012. The revolving credit facilities are composed of (i) a
$1.0 billion revolving credit facility available to FCX and (ii) a
$0.5 billion revolving credit facility available to both FCX and
PT Freeport Indonesia. Interest on the revolving credit facilities
accrues at the London Interbank Offered Rate (LIBOR) plus 1.00
percent, subject to an increase or decrease in the interest rate
margin based on the credit ratings assigned by Standard & Poor’s
Rating Services and Moody’s Investor Services. At December 31,
2008, we had $150 million of borrowings and $74 million of letters
of credit issued under the facilities, resulting in availability of
approximately $1.3 billion ($926 million of which could be used
for additional letters of credit). The revolving credit facilities
42 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report