Freeport-McMoRan 2007 Annual Report Download - page 89

Financial & Operating Information 87
Notes to Consolidated Financial Statements
rate notes was 7.85 percent at December 31, 2007. These notes are
redeemable in whole or in part, at the option of FCX, at make-whole
redemption prices prior to the redemption dates, and afterwards at
stated redemption prices. The terms of the agreements allow for
optional make-whole redemptions prior to April 1, 2009, for the senior
floating rate notes; April 1, 2011, for the 8.25% Senior Notes; and
April 1, 2012, for the 8.375% Senior Notes. The indenture governing the
notes contains restrictions on incurring debt, creating liens, selling
assets, making restricted payments and entering into certain
transactions with affiliates.
In February 2004, FCX sold $350 million of 6 7/8% Senior Notes due
February 2014 for net proceeds of $344 million. Interest on the notes is
payable semiannually on February 1 and August 1. These notes are
redeemable in whole or in part, at the option of FCX, at a make-whole
redemption price prior to February 1, 2009, and afterwards at stated
redemption prices. During 2004, FCX purchased in open market
transactions $10 million of its 6 7/8% Senior Notes. The indenture
governing the notes contains certain restrictions on incurring debt,
creating liens, selling assets, making restricted payments and entering
into certain transactions with affiliates. At the time of the Phelps Dodge
acquisition, the 6 7/8% Senior Notes received the benefit of the same
guarantees and subsidiary pledges provided under the FCX senior credit
facility. This security could be released under certain circumstances
involving changes in FCX’s capital structure.
The 9 1/2% Senior Notes due June 2031 and the 8 3/4% Senior
Notes due June 2011 bear interest payable semiannually on June 1 and
December 1. These notes are redeemable in whole or in part, at the
option of FCX, at a make-whole redemption price. In March 2007, in
connection with the acquisition of Phelps Dodge, FCX assumed these
senior notes with a stated value of $306 million, which was increased
by $54 million to reflect the fair market value of these obligations at the
acquisition date. The increase in value will be amortized over the
term of the notes and recorded as a reduction of interest expense. At
December 31, 2007, the principal amount of the 9 1/2% Senior Notes was
$194 million and the 8 3/4% Senior Notes was $108 million. In February
2008, FCX purchased in an open market transaction $33 million of the
9 1/2% Senior Notes for $46 million, which will result in a net charge of
$6 million ($5 million to net income) in the first quarter of 2008.
The 6 1/8% Senior Notes due March 2034 bear interest payable
semiannually on March 15 and September 15. These notes are
redeemable in whole or in part, at the option of FCX, at a make-whole
redemption price. In March 2007, in connection with the acquisition
of Phelps Dodge, FCX assumed these senior notes with a stated value of
$150 million, which was reduced by $11 million to reflect the fair
market value of these obligations at the acquisition date. The decrease
in value will be amortized over the term of the notes and recorded as
additional interest expense. During 2007, FCX purchased in an open
market transaction $26 million of these notes and recorded charges of
$2 million ($2 million to net income or less than $0.01 per diluted
share) as a result of this transaction. At December 31, 2007, the
principal amount of these senior notes was $124 million.
The 7 1/8% Debentures due November 2027 bear interest payable
semiannually on May 1 and November 1. The debentures are
redeemable in whole or in part, at the option of FCX, at a make-whole
redemption price. In March 2007, in connection with the acquisition
of Phelps Dodge, FCX assumed these debentures with a stated and fair
value of $115 million. At December 31, 2007, the principal amount of
these debentures was $115 million.
In February 2003, FCX sold $575 million of 7% Convertible Senior
Notes due February 2011 for net proceeds of $559 million. Interest on
the notes is payable semiannually on March 1 and September 1. The
notes were initially 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 was equal to a conversion
rate of approximately 32.39 shares of common stock per $1,000
principal amount of notes. The conversion rate is adjustable when
dividends over a twelve-month period exceed a certain threshold. As a
result of FCX’s cumulative twelve-month dividends through February
2007, the conversion price was adjusted to $30.16 per share, which is
equal to a conversion rate of approximately 33.16 shares of common
stock per $1,000 principal amount of notes. No further adjustments to
the conversion price have been required since that time. In 2005, FCX
privately negotiated transactions to induce conversion of $251 million of
these notes into 8.1 million shares of FCX common stock, which
resulted in a 2005 net charge of $25 million ($23 million to net income
or $0.11 per diluted share). In 2006, FCX completed a tender offer and
privately negotiated transactions to induce conversions of $317 million
of these notes into 10.3 million shares of FCX common stock, which
resulted in a 2006 net charge of $31 million ($30 million to net income
or $0.13 per diluted share). In 2007, $6 million of these notes were
converted into 0.2 million shares of FCX common stock and the balance
at December 31, 2007, was $1 million.
In January 2003, FCX sold $500 million of 10 1/8% Senior Notes due
2010 for net proceeds of $487 million. In 2005, FCX purchased in open
market transactions $216 million of these notes and recorded
transaction-related charges of $27 million ($17 million to net income or
$0.08 per diluted share). In 2006, FCX purchased in an open market
transaction $11 million of these notes and recorded transaction-related
charges of $1 million ($1 million to net income or less than $0.01 per
diluted share). During 2007, FCX purchased in an open market
transaction the remaining $273 million of these notes and recorded
transaction-related charges of $17 million ($10 million to net income or
$0.02 per diluted share).
All of FCX’s senior notes are unsecured, except for the 6 7/8%
Senior Notes.