Freeport-McMoRan 2003 Annual Report Download - page 36

34 FREEPORT-McMoRan COPPER & GOLD INC. 2003 Annual Report
Puncakjaya Power is the owner of assets supplying
power to PT Freeport Indonesia’s operations, including
the 3x65 megawatt coal-fired power facilities. PT
Freeport Indonesia purchases power from Puncakjaya
Power under infrastructure asset financing arrange-
ments. At December 31, 2003, PT Freeport Indonesia
had infrastructure asset financing obligations to
Puncakjaya Power totaling $295.5 million. As a result
of this transaction, our consolidated balance sheet no
longer reflects PT Freeport Indonesia’s obligation to
Puncakjaya Power, but instead reflects the Puncakjaya
Power bank debt which totaled $235.5 million and a
receivable from Rio Tinto totaling $83.9 million for its
share of the obligation to Puncakjaya Power at
December 31, 2003. The transaction is expected to
have a net positive prospective effect on consolidated
earnings of approximately $12 million per year, prima-
rily from reduced interest costs.
Financing Activities
During the first quarter of 2003, we completed two
senior note offerings. On January 29, 2003, we sold
$500 million of 10
1
/ 8 % Senior Notes due 2010.
Interest on the notes is payable semiannually on
February 1 and August 1 of each year, beginning
August 2003. We may redeem some or all of the
notes at our option at a make-whole redemption price
prior to February 1, 2007, and afterwards at stated
redemption prices. The indenture governing the notes
contains restrictions and limitations on incurring debt,
creating liens, entering into sale leaseback transac-
tions, taking actions to limit distributions from certain
subsidiaries, selling assets, entering into transactions
with affiliates, paying cash dividends on common
stock, repurchasing or redeeming common or pre-
ferred equity, prepaying subordinated debt and making
investments. Pursuant to the restricted payment
covenant, the amount available for dividend and other
restricted payments as of December 31, 2003, was
approximately $525 million.
On February 11, 2003, we sold $575 million of 7%
Convertible Senior Notes due 2011. Interest on the
notes is payable semiannually on March 1 and
September 1 of each year, beginning September
2003. The notes are convertible, at the option of the
holder, at any time on or prior to maturity into shares
of our common stock at a conversion price of
$30.87 per share, which is equal to a conversion
rate of approximately 32.39 shares of common stock
per $1,000 principal amount of notes.
We used a portion of the $1.046 billion in net pro-
ceeds from our two note offerings to repay all out-
standing amounts under our bank credit facilities. In
October 2003, FCX and PT Freeport Indonesia
entered into an amended revolving credit facility that
provides a commitment of $165 million, which may
be increased to $350 million with additional lender
commitments, and matures in September 2006. We
recorded charges totaling $5.6 million ($3.7 million
to net income or $0.02 per share) in 2003 to accel-
erate amortization of deferred financing costs related
to the prior credit facility.
In February 2003, our Board of Directors author-
ized the initiation of an annual cash dividend on our
common stock of $0.36 per share ($0.09 payable
quarterly). Our Board approved $0.09 per share divi-
dends on our common stock payable May 1, 2003,
August 1, 2003, and November 1, 2003. In October
2003, our Board authorized an increase in the
common stock dividend from an annual rate of
$0.36 per share to $0.80 per share. The Board also
approved a new open market share purchase pro-
gram for up to 20 million shares, which replaced our
previous program. The declaration and payment of
dividends is at the discretion of our Board and will
depend on our financial results, cash requirements,
future prospects and other factors deemed relevant
by the Board. The timing of future purchases of our
common stock is dependent upon many factors
including the price of our common shares, our cash
flow and financial position, and general economic
and market conditions. Two of our senior notes and,
in certain circumstances, our credit facility (see Note
5 of “Notes to Consolidated Financial Statements”)
contain limitations on restricted payments, including
dividends and common stock purchases.
In April 2003, we concluded tender offers to pur-
chase our outstanding 7.20% Senior Notes due
2026 and our 7.50% Senior Notes due 2006. Of the
$450 million outstanding at March 31, 2003, notes
with a face amount of $234.0 million were tendered
for $239.0 million cash. We recorded a charge to
other expenses of $6.6 million ($4.8 million to net
income or $0.03 per share) in the second quarter of
2003 associated with these early extinguishments of
debt. In July 2003, we purchased an additional
$76.0 million face amount of our 7.20% Senior
Notes for $77.2 million, and recorded a $1.3 million
($0.9 million to net income or $0.01 per share)
charge to losses on extinguishment of debt in the
third quarter of 2003. In October 2003, the holders
of $68.9 million of the remaining $73.5 million of
outstanding 7.20% Senior Notes elected early repay-
ment in November 2003 as permitted under their
terms. There is currently outstanding $4.5 million
of our 7.20% Senior Notes and $66.5 million of our
7.50% Senior Notes.
In August 2003, we redeemed 6.0 million shares
of Gold-Denominated Preferred Stock for $210.5 mil-
lion and partially redeemed our Silver-Denominated
MANAGEMENT’S DISCUSSION AND ANALYSIS