Freeport-McMoRan 2004 Annual Report Download - page 66

Notes To Consolidated Financial Statements
Notes Payable.฀As฀discussed฀in฀Note฀2,฀FCX฀acquired฀the฀
85.7฀percent฀ownership฀interest฀in฀Puncakjaya฀Power฀owned฀
by฀affiliates฀of฀Duke฀Energy฀Corporation฀in฀July฀2003.฀
Puncakjaya฀Power’s฀bank฀debt฀is฀secured฀by฀the฀power-related฀
assets฀operated฀by฀Puncakjaya฀Power.
At฀December฀31,฀2003,฀FCX฀and฀PT฀Freeport฀Indonesia฀had฀
vendor-financed฀equipment฀loans฀secured฀by฀certain฀PT฀
Freeport฀Indonesia฀assets.฀The฀FCX฀loan฀had฀a฀$19.3฀million฀
balance.฀PT฀Freeport฀Indonesia฀had฀three฀equipment฀loans฀
with฀this฀vendor฀($43.4฀million฀outstanding฀at฀December฀31,฀
2003)฀and฀had฀capital฀leases฀with฀this฀vendor฀totaling฀
$47.6฀million฀at฀December฀31,฀2003.฀Interest฀rates฀on฀all฀of฀
the฀equipment฀loans฀and฀the฀leases฀are฀variable.฀In฀2004,฀
FCX฀and฀PT฀Freeport฀Indonesia฀paid฀the฀outstanding฀balances฀
of฀their฀loans฀and฀PT฀Freeport฀Indonesia฀had฀capital฀leases฀
totaling฀$72.5฀million฀at฀December฀31,฀2004.
Atlantic฀Copper฀has฀a฀variable-rate฀project฀loan฀(the฀
Atlantic฀Copper฀facility).฀In฀February฀2004,฀FCX฀used฀a฀portion฀
of฀the฀proceeds฀from฀the฀sale฀of฀the฀6฀7 /8%฀Senior฀Notes฀(see฀
below)฀to฀repay฀$162.4฀million฀of฀Atlantic฀Copper’s฀borrowings฀
and฀to฀refinance฀certain฀other฀FCX฀debt฀maturities.฀Atlantic฀
Copper฀recorded฀a฀$3.7฀million฀charge฀for฀losses฀on฀early฀extin-
guishment฀of฀debt฀for฀repayment฀of฀certain฀of฀its฀debt.฀As฀of฀
December฀31,฀2004,฀the฀variable-rate฀project฀loan,฀nonrecourse฀
to฀FCX,฀consisted฀of฀a฀$50.0฀million฀working฀capital฀revolver฀
($4.4฀million฀outstanding฀at฀December฀31,฀2004)฀that฀matures฀
December฀2007.฀Subsequent฀to฀December฀31,฀2004,฀the฀
commitment฀was฀reduced฀to฀$44.0฀million.฀The฀Atlantic฀Copper฀
facility฀restricts฀other฀borrowings฀and฀borrowings฀under฀the฀
facility฀are฀secured฀by฀certain฀Atlantic฀Copper฀receivables฀and฀
inventory.฀Atlantic฀Copper’s฀other฀working฀capital฀revolver฀
required฀20฀percent฀of฀amounts฀borrowed฀under฀the฀facility฀
to฀be฀deposited฀in฀a฀restricted฀account฀which฀totaled฀$11.0฀
million฀at฀December฀31,฀2003.
FCX฀and฀PT฀Freeport฀Indonesia฀have฀a฀$195฀million฀revolving฀
credit฀facility,฀which฀matures฀in฀September฀2006.฀The฀facility฀
sets฀limitations฀on฀liens฀and฀limitations฀on฀transactions฀with฀
affiliates,฀and฀requires฀that฀certain฀financial฀ratios฀be฀main-
tained.฀The฀credit฀facility฀allows฀common฀stock฀dividends,฀
common฀stock฀purchases฀and฀investments฀as฀long฀as฀avail-
ability฀under฀the฀facility฀plus฀available฀cash฀exceeds฀$200฀
million฀or฀otherwise฀as฀long฀as฀certain฀other฀thresholds฀
are฀exceeded.฀Security฀for฀obligations฀outstanding฀under฀
the฀credit฀facility฀includes฀over฀80฀percent฀of฀PT฀Freeport฀
Indonesia’s฀assets,฀50.1฀percent฀of฀the฀outstanding฀stock฀
of฀PT฀Freeport฀Indonesia,฀the฀outstanding฀stock฀of฀
PT฀Indocopper฀Investama฀owned฀by฀FCX,฀and฀a฀pledge฀of฀
PT฀Freeport฀Indonesia’s฀rights฀under฀its฀Contract฀of฀Work฀
(see฀Note฀10).฀PT฀Freeport฀Indonesia฀and฀FCX฀guarantee฀each฀
other’s฀obligations฀under฀the฀credit฀facility.฀No฀amounts฀are฀
currently฀outstanding฀under฀the฀facility.฀FCX฀and฀PT฀Freeport฀
Indonesia฀recorded฀charges฀to฀other฀expense฀totaling฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
$5.6฀million,฀$3.7฀million฀to฀net฀income,฀in฀2003฀to฀accelerate฀
amortization฀of฀deferred฀financing฀costs฀related฀to฀the฀prior฀
credit฀facility.
Senior Notes.฀In฀February฀2003,฀FCX฀sold฀$575฀million฀
of฀7%฀Convertible฀Senior฀Notes฀due฀2011฀for฀net฀proceeds฀of฀
$559.1฀million.฀Interest฀on฀the฀notes฀is฀payable฀semian-
nually฀on฀March฀1฀and฀September฀1฀of฀each฀year,฀beginning฀
September฀1,฀2003.฀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.฀The฀notes฀are฀unsecured.
In฀January฀2003,฀FCX฀sold฀$500฀million฀of฀10฀1 /8%฀Senior฀
Notes฀due฀2010฀for฀net฀proceeds฀of฀$487.3฀million.฀Interest฀
on฀the฀notes฀is฀payable฀semiannually฀on฀February฀1฀and฀
August฀1฀of฀each฀year,฀beginning฀August฀1,฀2003.฀FCX฀may฀
redeem฀some฀or฀all฀of฀the฀notes฀at฀its฀option฀at฀a฀make-
whole฀redemption฀price฀prior฀to฀February฀1,฀2007,฀and฀after-
wards฀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฀certain฀transactions฀
with฀affiliates,฀paying฀cash฀dividends฀on฀common฀stock,฀
repurchasing฀or฀redeeming฀common฀or฀preferred฀equity,฀
prepaying฀subordinated฀debt฀and฀making฀investments.฀The฀
notes฀are฀unsecured.
In฀February฀2004,฀FCX฀sold฀$350฀million฀of฀6฀7/8%฀
Senior฀Notes฀due฀2014฀for฀net฀proceeds฀of฀$344.4฀million.฀
Interest฀on฀the฀notes฀is฀payable฀semiannually฀on฀February฀
1฀and฀August฀1฀of฀each฀year,฀beginning฀August฀1,฀2004.฀
FCX฀may฀redeem฀some฀or฀all฀of฀the฀notes฀at฀its฀option฀at฀
a฀make-whole฀redemption฀price฀prior฀to฀February฀1,฀2009,฀
and฀afterwards฀at฀stated฀redemption฀prices.฀The฀indenture฀
governing฀the฀notes฀contains฀certain฀restrictions,฀including฀
restrictions฀on฀incurring฀debt,฀creating฀liens,฀selling฀assets,฀
entering฀into฀certain฀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,฀FCX฀purchased฀in฀the฀open฀market฀$9.7฀million฀of฀
the฀6฀7/8%฀Senior฀Notes฀for฀$8.8฀million,฀which,฀including฀
deferred฀financing฀costs,฀resulted฀in฀a฀gain฀of฀$0.8฀million฀
recorded฀as฀a฀reduction฀to฀losses฀on฀early฀extinguishment฀
and฀conversion฀of฀debt.
In฀April฀2003,฀FCX฀concluded฀tender฀offers฀for฀its฀7.20%฀
Senior฀Notes฀due฀2026฀and฀its฀7.50%฀Senior฀Notes฀due฀2006.฀
Of฀the฀total฀$450฀million฀outstanding฀at฀December฀31,฀2002,฀
64฀| FREEPORT-McMoRan COPPER & GOLD INC.