Freeport-McMoRan 2008 Annual Report Download - page 90

Notes to Consolidated Financial Statements
88 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
FCX also sponsors savings plans for the majority of its U.S.
employees. The plans allow employees to contribute a portion of
their pre-tax and/or after-tax income in accordance with specified
guidelines. These savings plans are principally qualified 401(k)
plans for all U.S. salaried and non-bargained hourly employees. In
these plans, participants exercise control and direct the
investment of their contributions and account balances among a
broad range of investment options. FCX matches a percentage of
employee pre-tax deferral contributions up to certain limits,
which varies by plan. In addition, the FMC principal savings plan
includes a profit sharing feature for its non-bargained employees.
During 2000, FCX and FM Services Company enhanced their
primary savings plan for substantially all their employees
following their decision to terminate their defined benefit pension
plans. Subsequent to the enhancement, FCX and FM Services
Company contribute amounts to individual accounts totaling
either 4 percent or 10 percent of each employee’s pay, depending
on a combination of each employee’s age and years of service as
of June 30, 2000. For employees whose eligible compensation
exceeds certain levels, FCX provides an unfunded defined
contribution plan. The balance of this liability totaled $43 million
on December 31, 2008, and $32 million on December 31, 2007.
As a result of the acquisition of Phelps Dodge, FCX also has a
defined contribution plan for eligible FMC employees hired on or
after January 1, 2007. Under this plan, FCX contributes amounts
to individual accounts depending on a combination of each
employee’s annual salary and years of service.
The costs charged to operations for FCX’s, FM Services
Company’s, and FMC’s employee savings plans and defined
contribution plans totaled $58 million in 2008, $43 million in 2007
and $7 million in 2006.
FCX has other employee benefit plans, certain of which are
related to FCX’s financial results, which are recognized in
operating costs.
NOTE 13. STOCKHOLDERS’ EQUITY AND STOCK-BASED
COMPENSATION
Common Stock. At the 2008 annual stockholder meeting, FCX’s
stockholders approved an increase in FCX’s authorized shares of
capital stock to 1.85 billion shares, consisting of 1.8 billion shares
of common stock and 50 million shares of preferred stock.
In July 2008, FCX’s Board of Directors approved an increase in
the open-market share purchase program for up to 30 million
shares, which replaced FCX’s previous program. During 2008,
FCX acquired 6.3 million shares for $500 million ($79.15 per share
average) and 23.7 million shares remain available under this
program. Under a previous 20 million share purchase program,
FCX acquired 2.0 million shares for $100 million ($49.94 per share
average) in 2006. The timing of future purchases of FCX’s
common stock is dependent on many factors, including FCX’s
operating results, cash flows and financial position; copper,
molybdenum and gold prices; the price of FCX’s common stock;
and general economic and market conditions. During September
2008, because of the financial turmoil and the decline in copper
and molybdenum prices, FCX suspended its purchases of shares
under its open-market share purchase program.
In February 2009, FCX completed a public offering of 26.8
million shares of FCX common stock at an average price of $28.00
per share, which generated gross proceeds of $750 million (net
proceeds of approximately $740 million).
Preferred Stock. On March 28, 2007, FCX sold 28.75 million
shares of 6¾% Mandatory Convertible Preferred Stock, with a
liquidation preference of $100 per share, for net proceeds of $2.8
billion. The 6¾% Mandatory Convertible Preferred Stock will
automatically convert on May 1, 2010, into shares of FCX common
stock. The conversion rate is adjustable upon the occurrence of
certain events, including the payment in any quarter of common
stock dividends exceeding $0.3125 per share; however,
adjustments required as a result of dividends that do not exceed
one percent are carried forward and must be made no later than
August 1 of each year. As a result of the quarterly common stock
dividends paid through December 31, 2008, each share of
preferred stock is now convertible on May 1, 2010, into between
1.3654 and 1.6386 shares of FCX common stock, depending on
the applicable market value of FCX’s common stock. The
conversion rate per $100 face amount of the preferred stock will
be 1.6386 when the FCX common stock price is at or below
$61.03 and 1.3654 when the FCX common stock price is at or
above $73.24. For FCX common stock prices between these
levels, the conversion rate will be equal to $100 divided by FCX’s
common stock price. Holders may elect to convert at any time
prior to May 1, 2010, at a conversion rate equal to 1.3654 shares
of FCX common stock, or an aggregate of approximately 39
million shares. Dividends are payable quarterly on February 1,
May 1, August 1 and November 1.
In March 2004, FCX sold 1.1 million shares of 5½% Convertible
Perpetual Preferred Stock for net proceeds of $1.1 billion. The
conversion rate is adjustable upon the occurrence of certain
events, including the payment in any quarter of common stock
dividends exceeding $0.20 per share. As a result of the quarterly
and supplemental common stock dividends paid through
December 31, 2008, each share of preferred stock is now
convertible into 21.5305 shares of FCX common stock, equivalent
to a conversion price of approximately $46.45 per common share,
or an aggregate of approximately 18 million shares of FCX
common stock. Beginning March 30, 2009, FCX may redeem
shares of the preferred stock by paying cash, FCX common stock
or any combination thereof for $1,000 per share plus unpaid
dividends, but only if FCX’s 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