Freeport-McMoRan 2013 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 ANNUAL REPORT | 93
the market (refer to Note 15 for discussion of valuation technique)
and thus represents a Level 3 measurement.
The Preferred Stock of Plains Offshore is classified as
temporary equity because of its redemption features and is
therefore reported outside of permanent equity in FCX’s
consolidated balance sheet. The redeemable noncontrolling
interest totaled $716 million as of December 31, 2013.
Remeasurement of the redeemable noncontrolling interest
represents its initial carrying amount adjusted for any
noncontrolling interest’s share of net income (loss) or changes to
the redemption value. Additionally, the carrying amount will be
further increased by amounts representing dividends not currently
declared or paid, but which are payable under the redemption
features described above. Future mark-to-market adjustments to
the redemption value, subject to a minimum balance of the original
recorded value ($708 million) on May 31, 2013, shall be reflected in
retained earnings and earnings per share. Changes in the
redemption value are accreted over the period from the date FCX
acquired PXP to the earliest redemption date.
Redeemable Noncontrolling Interest — MMR. The enhanced
“make-whole” conversion rates triggered by FCX’s acquisition of
MMR expired on July 9, 2013, for MMR’s 8% Convertible Perpetual
Preferred Stock and 5.75% Convertible Perpetual Preferred Stock,
Series 1. All of the $259 million of preferred shares converted
during 2013 primarily at the make-whole conversion rates for which
holders received cash of $228 million and 17.7 million royalty trust
units with a fair value of $31 million at the acquisition date.
Unaudited Pro Forma Consolidated Financial Information. The
following unaudited pro forma financial information has been
prepared to reflect the acquisitions of PXP and MMR. The
unaudited pro forma financial information combines the historical
statements of income of FCX, PXP and MMR (including the pro
forma effects of PXP’s GOM acquisition that was completed on
November 30, 2012) for the years ended December 31, 2013 and
2012, giving effect to the mergers as if they had occurred on
January 1, 2012. The historical consolidated financial information
has been adjusted to reflect factually supportable items that are
directly attributable to the acquisitions.
Years Ended December 31, 2013 2012
Revenues $ 23,075 $ 22,713
Operating income 6,267 6,815
Income from continuing operations 3,626 4,277
Net income attributable to FCX common stockholders 2,825 3,301
Net income per share attributable to FCX
common stockholders:
Basic $ 2.71 $ 3.17
Diluted 2.70 3.16
The above unaudited pro forma consolidated information has
been prepared for illustrative purposes only and is not intended to
be indicative of the results of operations that actually would have
occurred, or the results of operations expected in future periods,
Plains Offshore to use its commercially reasonable efforts to
consummate an exit event. An exit event, as defined in the
stockholders agreement, means, at the sole option of Plains
Offshore (i) the purchase by FM O&G or the redemption by Plains
Offshore of all the preferred stock, warrants and common stock held
by the preferred holders for the aggregate fair value thereof; (ii) a
sale of Plains Offshore or a sale of all or substantially all of its
assets, in each case in an arms’ length transaction with a third party,
at the highest price available after reasonable marketing efforts by
Plains Offshore; or (iii) a qualified initial public offering. In the event
that Plains Offshore fails to consummate an exit event prior to the
applicable exit event deadline, the conversion price of the Preferred
Stock and the exercise price of the warrants will immediately and
automatically be adjusted such that all issued and outstanding
shares of Preferred Stock on an as-converted basis taken together
with shares of Plains Offshore common stock issuable upon
exercise of the warrants, in the aggregate, will constitute 49 percent
of the common equity securities of Plains Offshore on a fully diluted
basis. In addition, FM O&G would be required to purchase $300
million of junior preferred stock in Plains Offshore.
In the event of liquidation of Plains Offshore, each preferred
holder is entitled to receive the liquidation preference before any
payment or distribution is made on any Plains Offshore junior
preferred stock or common stock. A liquidation event includes any
of the following events: (i) the liquidation, dissolution or winding
up of Plains Offshore, whether voluntary or involuntary, (ii) a sale,
consolidation or merger of Plains Offshore in which the
stockholders immediately prior to such event do not own at least
a majority of the outstanding shares of the surviving entity, or
(iii) a sale or other disposition of all or substantially all of Plains
Offshore’s assets to a person other than FM O&G or its affiliates.
The liquidation preference, as defined in the stockholders
agreement, is equal to (i) the greater of (a) 1.25 times the initial
offering price or (b) the sum of (1) the fair market value of the
shares of common stock issuable upon conversion of the
Preferred Stock and (2) the applicable tax adjustment amount,
plus (ii) any accrued and accumulated dividends.
The non-detachable warrants may be exercised on the earlier of
(i) November 17, 2019, the eighth anniversary of the original issue
date or (ii) a termination event. A termination event is defined as
the occurrence of any of (a) the conversion of the Preferred Stock,
(b) the redemption of the Preferred Stock, (c) the repurchase by
FM O&G or any of its affiliates of the Preferred Stock or (d) a
liquidation event of Plains Offshore, described above. The
non-detachable warrants are considered to be embedded
derivative instruments for accounting purposes and have been
assessed as not being clearly and closely related to the Preferred
Stock. Therefore, the warrants are classified as a long-term
liability in the accompanying consolidated balance sheet and are
adjusted to fair value each reporting period with adjustments
recorded in other income (expense). The fair value measurement
of the warrants is based on significant inputs not observable in