Freeport-McMoRan 2011 Annual Report Download - page 85

2011 ANNUAL REPORT | 83
extinguishment of debt totaling $1 million ($1 million to net
income attributable to FCX common stockholders or less than
$0.01 per diluted share). On the maturity date in June 2011, FCX
paid the outstanding principal amount of $84 million on these
senior notes.
In February 2004, FCX sold $350 million of 6.875% Senior Notes
due February 2014 for net proceeds of $344 million. During 2004,
FCX purchased in open-market transactions $10 million of its
6.875% Senior Notes. On August 20, 2009, FCX redeemed the
remaining $340 million of these notes for $352 million or a
redemption price of 103.439 percent of the principal amount (plus
accrued and unpaid interest) and recorded losses on early
extinguishment of debt totaling $14 million ($13 million to net
income attributable to FCX common stockholders or $0.01 per
diluted share).
All of FCX’s senior notes are unsecured.
In February 2012, FCX issued $3.0 billion in senior notes in three
tranches (see Note 20 for further discussion).
Restrictive Covenants. FCX’s credit facility and senior notes
contain certain restrictive covenants. e credit facility includes
covenants that are typical for investment-grade companies,
including limitations on liens and subsidiary debt. e credit
facility also includes nancial ratios governing maximum total
leverage and minimum interest coverage. If the rating is
downgraded below investment grade by both Standard & Poor’s
Rating Services and Moody’s Investors Service, these covenants
would become eective. e 8.375% Senior Notes and other senior
notes contain limitations on liens that are generally typical for
investment-grade companies.
Maturities. Maturities of debt instruments based on the amounts
and terms outstanding at December31,2011, total $4 million in
2012, less than $1 million in 2013, none for the years 2014 through
2016, and $3.5 billion thereaer.
NOTE 10. Employee Benets
Pension Plans. Following is a discussion of FCX’s pension plans.
FMC Plans. FMC has trusteed, non-contributory pension plans
covering substantially all of its U.S. employees and some employees
of its international subsidiaries hired before 2007. e applicable
FMC plan design determines the manner in which benets are
calculated for any particular group of employees. For certain of
these plans, benets are calculated based on nal average monthly
compensation and years of service. In the case of other plans,
benets are calculated based on a xed amount for each year of
service. Participants in the FMC plans generally vest in their
accrued benets aer ve years of service. Non-bargained FMC
employees hired aer December 31, 2006, are not eligible to
participate in the FMC U.S. pension plan.
FCX’s funding policy for these plans provides that contributions
to pension trusts shall be at least equal to the minimum funding
requirements of the Employee Retirement Income Security Act of
1974, as amended, for U.S. plans; or, in the case of international
plans, the minimum legal requirements that may be applicable in
the various countries. Additional contributions also may be made
from time to time.
FCX’s policy for determining asset-mix targets for the Freeport-
McMoRan Corporation Dened Benet Master Trust (Master
Trust) includes the periodic development of asset/liability studies
to determine expected long-term rates of return and expected
risk for various investment portfolios. FCX’s retirement plan
administration and investment committee considers these studies
in the formal establishment of asset-mix targets. FCX’s investment
objective emphasizes the need to maintain a well-diversied
investment program through both the allocation of the Master
Trust assets among asset classes and the selection of investment
managers whose various styles are fundamentally complementary
to one another and serve to achieve satisfactory rates of return.
Diversication, by asset class and by investment manager, is FCX’s
principal means of reducing volatility and exercising prudent
investment judgment. FCX’s present target asset allocation
approximates 54 percent equity investments (43 percent global
equities, 7 percent emerging markets equities and 4 percent
U.S. equities), 35 percent xed income (18 percent U.S. xed
income, 5 percent international xed income, 5 percent high yield,
4 percent treasury ination-protection securities and 3 percent
emerging markets xed income) and 11 percent alternative
investments (5 percent private equity, 3 percent private real estate
and 3 percent real estate investment trusts).
e expected rate of return on plan assets is evaluated at least
annually, taking into consideration asset allocation, historical
returns on the types of assets held in the Master Trust and the
current economic environment. Based on these factors, FCX
expects the pension assets will earn an average of 7.5 percent per
annum during the 10 years beginning January1, 2012. e
7.5 percent estimation was based on a passive return on a compound
basis of 7.0 percent and a premium for active management of
0.5 percent reecting the target asset allocation and current
investment array.
For estimation purposes, FCX assumes the long-term asset mix
for these plans generally will be consistent with the current mix.
Changes in the asset mix could impact the amount of recorded
pension income or expense, the funded status of the plans and the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS