Freeport-McMoRan 2008 Annual Report Download - page 45

Management’s Discussion and Analysis
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 43
contain restrictions on the amount available for dividend
payments, purchases of our common stock and certain debt
prepayments (refer to Note 11 for further discussion). However,
these restrictions do not apply as long as availability under the
revolvers plus domestic cash exceeds $750 million. As of
December 31, 2008, we had availability under the revolvers plus
available domestic cash totaling approximately $1.4 billion.
In February 2008, we purchased, in an open-market
transaction, $33 million of our 9½% Senior Notes for $46 million.
In connection with financing the acquisition of Phelps Dodge,
we used $2.5 billion of available cash (including cash acquired
from Phelps Dodge) and funded the remainder with term loan
borrowings totaling $10.0 billion under a new $11.5 billion senior
credit facility and from the offering of $6.0 billion in senior notes
(which generated net proceeds of $5.9 billion). Following the
close of the acquisition of Phelps Dodge and in accordance with
our plan to reduce debt, during 2007, we fully repaid the
$10.0 billion in term loans (including incremental borrowings and
payments of approximately $2.5 billion) using a combination of
equity proceeds and internally generated cash flows. The equity
transactions included the sale of 47.15 million shares of common
stock at $61.25 per share for net proceeds of $2.8 billion and
28.75 million shares of 6¾% Mandatory Convertible Preferred
Stock for net proceeds of $2.8 billion. In addition to repaying
the term loans, we had net repayments of other debt totaling
$325 million in 2007.
In April 2008, Standard & Poor’s Rating Services and Fitch
Ratings raised our corporate credit rating and the ratings on our
unsecured debt to BBB- (investment grade). As a result of the
upgrade of our unsecured notes to investment grade, the
restricted payment covenants contained in our $6.0 billion in
senior notes used to finance the acquisition of Phelps Dodge and
in our 67/8% Senior Notes were suspended (refer to Note 11 for
further discussion). To the extent the rating is downgraded below
investment grade, the covenants would again become effective.
During 2006, we had a net reduction to debt of $576 million,
primarily reflecting the completion of a tender offer and privately
negotiated transactions to induce conversion of $317 million of
our 7% Convertible Senior Notes into FCX common stock, and the
mandatory redemption of $167 million of our Gold-Denominated
Preferred Stock, Series II.
In July 2008, our Board of Directors approved an increase in
the open-market share purchase program for up to 30 million
shares. During 2008, we acquired 6.3 million shares for $500
million ($79.15 per share average). Because of recent financial
market turmoil and the declines in copper and molybdenum
prices, we suspended purchases of shares under this program
during September 2008. There are 23.7 million shares remaining
under this program. The timing of future purchases of our
common stock is dependent on many factors, including our
operating results; cash flows and financial position; copper, gold
and molybdenum prices; the price of our common shares; and
general economic and market conditions. This program replaced
our previous open-market share purchase program that was
approved in 2003 for up to 20 million shares and under which we
acquired 2.0 million shares for $100 million ($49.94 per share
average) in 2006.
The declaration and payment of dividends is at the discretion
of our Board of Directors. In December 2007, our Board of
Directors increased the annual cash dividend on our common
stock from $1.25 per share to $1.75 per share; the annual cash
dividend on our common stock was again increased on July 21,
2008, to $2.00 per share. In December 2008, our Board of Directors
suspended the cash dividend on our common stock because
of further deterioration in copper and molybdenum prices and
economic conditions. The Board of Directors will continue to
review our financial policy on an ongoing basis. The amount of
our cash dividend on our common stock is dependent upon our
financial results, cash requirements, future prospects and other
factors deemed relevant by our Board of Directors. Common
stock dividends paid totaled $693 million ($1.8125 per share) in
2008, $421 million ($1.25 per share) in 2007 and $916 million
($4.75 per share) in 2006, which included four supplemental
dividends totaling $678 million ($3.50 per share).
In December 2008, through privately negotiated transactions,
we induced conversion of 0.3 million shares of our 5½%
Convertible Perpetual Preferred Stock with a liquidation
preference of $268 million into 5.8 million shares of FCX common
stock. To induce conversion of these shares, we issued to the
holders an additional 1.0 million shares of FCX common stock
valued at $22 million. Preferred dividend savings from these
transactions will total approximately $15 million per year.
Preferred stock dividends paid totaled $255 million in 2008
and $175 million in 2007 representing dividends on our 5½%
Convertible Perpetual Preferred Stock and 6¾% Mandatory
Convertible Preferred Stock (refer to Note 13 for further
discussion). In 2006, preferred stock dividends totaled
approximately $61 million representing dividends on our 5½%
Convertible Perpetual Preferred Stock. Annual preferred stock
dividends currently approximate $240 million.
On December 30, 2008, FCX declared a regular quarterly
dividend of $1.6875 per share on our 6¾% Mandatory Convertible
Preferred Stock and a regular quarterly dividend of $13.75 per
share on our 5½% Convertible Perpetual Preferred Stock, which
were paid on February 1, 2009, to shareholders of record at the
close of business on January 15, 2009.
Cash dividends paid to minority interests totaled $730 million
in 2008 and $967 million in 2007, reflecting dividends paid to the
minority interest owners of PT Freeport Indonesia and of our
South America copper mines. Cash dividends of $161 million in
2006 primarily reflected dividends paid to the minority interest
owners of PT Freeport Indonesia.