Freeport-McMoRan 2004 Annual Report Download - page 37

Management’s Discussion and Analysis
2004 ANNUAL REPORT |฀35
Our฀capital฀expenditures฀for฀2005฀are฀expected฀to฀total฀
approximately฀$180฀million,฀including฀approximately฀$19฀
million฀for฀the฀DOZ฀expansion฀and฀$17฀million฀for฀other฀long-
term฀development฀projects.฀We฀expect฀to฀fund฀our฀2005฀
capital฀expenditures฀with฀operating฀cash฀flows฀and฀available฀
cash.฀Capital฀expenditures฀are฀estimated฀to฀average฀approxi-
mately฀$145฀million฀per฀year฀over฀the฀next฀five฀years.
In฀November฀2004,฀a฀joint฀venture฀in฀which฀we฀own฀a฀50฀
percent฀interest฀completed฀the฀sale฀to฀a฀real฀estate฀developer฀
of฀a฀parcel฀of฀land฀in฀Arizona฀where฀the฀joint฀venture฀previ-
ously฀was฀engaged฀in฀a฀copper฀mining฀research฀project.฀Our฀
share฀of฀net฀cash฀proceeds฀from฀the฀sale฀totaled฀$21.6฀million.฀
In฀December฀2004,฀Atlantic฀Copper฀completed฀a฀sale฀of฀its฀
wire฀rod฀and฀wire฀assets฀and฀received฀$18.3฀million฀cash.
In฀2001,฀we฀sold฀$603.8฀million฀of฀8฀1 /4%฀Convertible฀
Senior฀Notes฀due฀2006.฀The฀terms฀of฀the฀notes฀required฀that฀
we฀use฀$139.8฀million฀of฀the฀proceeds฀to฀purchase฀a฀portfolio฀
of฀U.S.฀government฀securities฀to฀secure฀and฀pay฀for฀the฀first฀
six฀semiannual฀interest฀payments.฀We฀sold฀$6.7฀million฀of฀
these฀restricted฀investments฀in฀2004,฀$46.6฀million฀in฀2003฀
and฀$47.9฀million฀in฀2002฀to฀pay฀interest.฀Conversions฀of฀
these฀notes฀allowed฀us฀to฀sell฀$15.1฀million฀of฀our฀restricted฀
investments฀during฀2004฀and฀$27.0฀million฀during฀2003฀
(see฀below).฀
In฀July฀2003,฀we฀acquired฀the฀85.7฀percent฀ownership฀
interest฀in฀PT฀Puncakjaya฀Power฀owned฀by฀affiliates฀of฀Duke฀
Energy฀Corporation฀for฀$68.1฀million฀cash,฀net฀of฀$9.9฀million฀
of฀cash฀acquired.฀PT฀Freeport฀Indonesia฀purchases฀power฀
from฀Puncakjaya฀Power฀under฀infrastructure฀asset฀financing฀
arrangements.
Financing Activities
We฀completed฀several฀financing฀transactions฀over฀the฀last฀
several฀years฀to฀improve฀our฀balance฀sheet฀and฀debt฀maturity฀
profile฀and฀enhance฀our฀financial฀flexibility.฀We฀are฀continuing฀
to฀review฀opportunities฀to฀use฀a฀portion฀of฀future฀operating฀
cash฀flow฀to฀reduce฀debt฀in฀advance฀of฀scheduled฀maturities฀
and฀to฀further฀improve฀our฀debt฀maturity฀profile.฀In฀January฀
2004,฀we฀completed฀a฀tender฀offer฀and฀privately฀negotiated฀
transactions฀for฀a฀portion฀of฀our฀remaining฀8฀1 /4%฀Convertible฀
Senior฀Notes฀due฀2006฀resulting฀in฀the฀early฀conversion฀
of฀$226.1฀million฀of฀notes฀into฀15.8฀million฀shares฀of฀FCX฀
common฀stock.฀We฀recorded฀a฀$10.9฀million฀charge฀to฀losses฀
on฀early฀extinguishment฀and฀conversion฀of฀debt฀in฀connec-
tion฀with฀these฀conversions.฀The฀$10.9฀million฀charge฀
included฀$6.4฀million฀of฀previously฀accrued฀interest฀costs,฀
resulting฀in฀an฀equivalent฀reduction฀in฀interest฀expense.฀
In฀June฀2004,฀we฀called฀for฀redemption฀on฀July฀31,฀2004,฀all฀
of฀the฀remaining฀$66.5฀million฀of฀8฀1 /4%฀Convertible฀Senior฀
Notes.฀During฀July,฀all฀remaining฀notes฀were฀converted฀into฀
4.7฀million฀shares฀of฀FCX฀common฀stock.฀As฀of฀July฀31,฀2004,฀
all฀of฀the฀8฀1 /4%฀Convertible฀Senior฀Notes,฀which฀totaled฀
$603.8฀million฀at฀issuance฀in฀2001,฀had฀been฀converted฀into฀
42.2฀million฀shares฀of฀FCX฀common฀stock.
On฀February฀3,฀2004,฀we฀sold฀$350฀million฀of฀6฀7/8%฀Senior฀
Notes฀due฀2014฀for฀net฀proceeds฀of฀$344.4฀million.฀We฀used฀a฀
portion฀of฀the฀proceeds฀to฀repay฀$162.4฀million฀of฀Atlantic฀
Copper฀borrowings฀and฀to฀refinance฀other฀FCX฀2004฀debt฀
maturities.฀Atlantic฀Copper฀recorded฀a฀$3.7฀million฀charge฀to฀
losses฀on฀early฀extinguishment฀of฀debt฀to฀accelerate฀amor-
tization฀of฀deferred฀financing฀costs.฀Interest฀on฀the฀notes฀
is฀payable฀semiannually฀on฀February฀1฀and฀August฀1฀of฀each฀
year,฀beginning฀August฀1,฀2004.฀We฀may฀redeem฀some฀or฀all฀
of฀the฀notes฀at฀our฀option฀at฀a฀make-whole฀redemption฀price฀
prior฀to฀February฀1,฀2009,฀and฀afterwards฀at฀stated฀redemp-
tion฀prices.฀The฀indenture฀governing฀the฀notes฀contains฀
certain฀restrictions,฀including฀restrictions฀on฀incurring฀debt,฀
creating฀liens,฀selling฀assets,฀entering฀into฀transactions฀
with฀affiliates,฀paying฀cash฀dividends฀on฀common฀stock,฀
repurchasing฀or฀redeeming฀common฀or฀preferred฀equity,฀
prepaying฀subordinated฀debt฀and฀making฀investments.฀
During฀the฀second฀quarter฀of฀2004,฀we฀purchased฀in฀the฀
open฀market฀$9.7฀million฀of฀the฀6฀7/8%฀Senior฀Notes฀for฀$8.8฀
million,฀which฀resulted฀in฀a฀gain฀of฀$0.8฀million฀recorded฀as฀
a฀reduction฀to฀losses฀on฀early฀extinguishment฀and฀conversion฀
of฀debt,฀including฀related฀deferred฀financing฀cost.
On฀March฀30,฀2004,฀we฀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฀our฀
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฀our฀common฀stock฀dividend฀exceeds฀$0.20฀
per฀share.฀As฀a฀result฀of฀the฀common฀stock฀dividends฀discussed฀
below฀and฀a฀quarterly฀dividend฀paid฀on฀February฀1,฀2005,฀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,฀our฀Board฀of฀Directors฀authorized฀a฀supplemental฀
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,฀we฀may฀
redeem฀shares฀of฀the฀preferred฀stock฀by฀paying฀cash,฀our฀
common฀stock฀or฀any฀combination฀thereof฀for฀$1,000฀per฀
share฀plus฀unpaid฀dividends,฀but฀only฀if฀our฀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฀immediately฀preceding฀the฀notice฀of฀redemption.฀
We฀used฀a฀portion฀of฀the฀proceeds฀from฀the฀sale฀to฀purchase฀