Freeport-McMoRan 2004 Annual Report Download - page 38

Management’s Discussion and Analysis
36฀| FREEPORT-McMoRan COPPER & GOLD INC.
23.9฀million฀shares฀of฀FCX฀common฀stock฀owned฀by฀Rio฀Tinto฀
for฀$881.9฀million฀(approximately฀$36.85฀per฀share)฀and฀used฀
the฀remainder฀for฀general฀corporate฀purposes.฀Rio฀Tinto฀no฀
longer฀owns฀any฀equity฀interest฀in฀FCX;฀however,฀it฀is฀still฀
PT฀Freeport฀Indonesia’s฀joint฀venture฀partner.
As฀of฀December฀31,฀2004,฀we฀had฀total฀unrestricted฀cash฀
and฀cash฀equivalents฀of฀$551.5฀million฀and฀total฀outstanding฀
debt฀of฀$1.95฀billion.฀In฀February฀2003,฀our฀Board฀of฀Directors฀
authorized฀the฀initiation฀of฀an฀annual฀cash฀dividend฀on฀our฀
common฀stock฀of฀$0.36฀per฀share,฀increased฀the฀dividend฀
in฀October฀2003฀to฀an฀annual฀rate฀of฀$0.80฀per฀share฀and฀
increased฀the฀dividend฀again฀in฀October฀2004฀to฀an฀annual฀
rate฀of฀$1.00฀per฀share.฀In฀December฀2004,฀our฀Board฀of฀
Directors฀authorized฀a฀supplemental฀common฀stock฀dividend฀
of฀$0.25฀per฀share,฀which฀was฀paid฀on฀December฀29,฀2004.฀
Dividend฀payments฀on฀common฀stock฀totaled฀$198.8฀million฀
in฀2004฀and฀$41.7฀million฀in฀2003.฀As฀discussed฀above,฀in฀
February฀2005฀the฀Board฀authorized฀a฀supplemental฀common฀
stock฀dividend฀of฀$0.50฀per฀share฀payable฀March฀31,฀2005.฀
The฀declaration฀and฀payment฀of฀dividends฀is฀at฀the฀discre-
tion฀of฀our฀Board.฀The฀amount฀of฀our฀current฀quarterly฀cash฀
dividend฀on฀our฀common฀stock฀and฀the฀possible฀payment฀of฀
additional฀future฀supplemental฀cash฀dividends฀will฀depend฀
on฀our฀financial฀results,฀cash฀requirements,฀future฀prospects฀
and฀other฀factors฀deemed฀relevant฀by฀the฀Board.฀Pursuant฀to฀
the฀restricted฀payment฀covenants฀in฀our฀10฀1/8%฀Senior฀Notes฀
and฀6฀7/8%฀Senior฀Notes,฀the฀amount฀available฀for฀dividend฀
payments฀and฀other฀restricted฀payments฀as฀of฀December฀31,฀
2004,฀was฀approximately฀$510฀million.
In฀August฀2004,฀we฀funded฀the฀sixth฀of฀eight฀scheduled฀
annual฀redemption฀payments฀on฀our฀Silver-Denominated฀
Preferred฀Stock฀for฀$13.9฀million.฀The฀mandatory฀redemption฀
resulted฀in฀a฀$12.5฀million฀decrease฀in฀debt฀and฀a฀hedging฀
loss฀to฀revenues฀of฀$1.4฀million฀($0.7฀million฀to฀net฀income฀
or฀less฀than฀$0.01฀per฀share)฀in฀2004.฀Mandatory฀partial฀
redemptions฀of฀our฀Silver-Denominated฀Preferred฀Stock฀totaled฀
$10.8฀million฀in฀2003฀and฀$11.7฀million฀in฀2002.
In฀2003,฀the฀Board฀approved฀a฀new฀open฀market฀share฀
purchase฀program฀for฀up฀to฀20฀million฀shares,฀which฀replaced฀
our฀previous฀program.฀Under฀this฀new฀program,฀we฀acquired฀
3.4฀million฀shares฀during฀the฀second฀quarter฀of฀2004฀for฀
$99.5฀million,฀$29.39฀per฀share฀average,฀and฀16.6฀million฀
shares฀remain฀available.฀No฀shares฀were฀purchased฀during฀
the฀second฀half฀of฀2004฀and฀through฀February฀28,฀2005.฀The฀
timing฀of฀future฀purchases฀of฀our฀common฀stock฀is฀dependent฀
on฀many฀factors฀including฀the฀price฀of฀our฀common฀shares,฀
our฀cash฀flow฀and฀financial฀position,฀and฀general฀economic฀
and฀market฀conditions.
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.฀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฀certain฀restrictions฀on฀
incurring฀debt,฀creating฀liens,฀entering฀into฀sale฀leaseback฀
transactions,฀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฀preferred฀equity,฀
prepaying฀subordinated฀debt฀and฀making฀investments.
In฀February฀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.฀The฀
notes฀are฀convertible,฀at฀the฀option฀of฀the฀holder,฀at฀any฀
time฀on฀or฀prior฀to฀maturity฀into฀shares฀of฀FCX’s฀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฀proceeds฀from฀the฀two฀
first-quarter฀2003฀note฀offerings฀to฀repay฀all฀of฀the฀then-
outstanding฀amounts฀under฀our฀bank฀credit฀facilities.
In฀April฀2003,฀we฀concluded฀tender฀offers฀to฀purchase฀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฀of฀
$6.6฀million฀($4.8฀million฀to฀net฀income฀or฀$0.03฀per฀share)฀
in฀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฀less฀
than฀$0.01฀per฀share)฀charge฀to฀losses฀on฀extinguishment฀of฀
debt.฀In฀October฀2003,฀the฀holders฀of฀$68.9฀million฀of฀the฀
remaining฀$73.5฀million฀of฀outstanding฀7.20%฀Senior฀Notes฀
elected฀early฀repayment฀in฀November฀2003.฀We฀currently฀have฀
outstanding฀$4.5฀million฀of฀7.20%฀Senior฀Notes฀and฀$66.5฀
million฀of฀7.50%฀Senior฀Notes.
In฀August฀2003,฀we฀redeemed฀6.0฀million฀shares฀of฀Gold-
Denominated฀Preferred฀Stock฀for฀$210.5฀million฀and฀partially฀
redeemed฀our฀Silver-Denominated฀Preferred฀Stock฀for฀$10.8฀
million.฀The฀mandatory฀redemptions฀resulted฀in฀a฀$245.1฀
million฀decrease฀in฀debt฀and฀a฀hedging฀gain฀to฀revenues฀of฀
$23.8฀million฀($12.2฀million฀to฀net฀income฀or฀$0.08฀per฀share).
In฀August฀2003,฀we฀privately฀negotiated฀the฀early฀conver-
sion฀of฀51.5฀percent฀of฀our฀8฀1 /4%฀Convertible฀Senior฀Notes,฀
which฀resulted฀in฀a฀$311.1฀million฀reduction฀in฀debt.฀The฀
holders฀converted฀their฀notes฀into฀21.76฀million฀shares฀of฀
FCX฀common฀stock฀and฀received฀$23.0฀million฀in฀cash฀from฀
restricted฀investments฀held฀in฀escrow฀for฀payment฀of฀future฀