Freeport-McMoRan 2010 Annual Report Download - page 50

MANAGEMENT’S DISCUSSION AND ANALYSIS
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
48
Preferred stock dividends paid totaled $95 million in 2010
representing dividends on our 6¾% Mandatory Convertible Preferred
Stock. Preferred stock dividends totaled $229 million in 2009 and
$255 million in 2008 representing dividends on our 5½% Convertible
Perpetual Preferred Stock and 6¾% Mandatory Convertible Preferred
Stock. During 2010, our 6¾% Mandatory Convertible Preferred Stock
converted into 78.9 million shares of our common stock, and in 2009,
we redeemed our 5½% Convertible Perpetual Preferred Stock in
exchange for 35.8 million shares of our common stock (refer to
Note 11 for further discussion). As a result of these transactions, we
no longer have requirements to pay preferred stock dividends.
Cash dividends and distributions paid to noncontrolling interests
totaled $816 million in 2010, $535 million in 2009 and $730 million
in 2008, reflecting dividends and distributions paid to the
noncontrolling interest owners of PT Freeport Indonesia and our
South America mines.
CONTRACTUAL OBLIGATIONS
We have contractual and other long-term obligations, including debt
maturities, which we expect to fund with projected operating
cash flows, availability under our revolving credit facilities or future
financing transactions, if necessary. A summary of these various
obligations at December 31, 2010, follows (in millions):
Total 2011 2012 to 2013 2014 to 2015 Thereafter
Debt maturities $ 4,755 $ 95 $ 2 $ 1,081 $ 3,577
Scheduled interest payment obligations
a
2,728 381 755 711 881
Reclamation and environmental obligations
b
4,881 207 287 211 4,176
Take-or-pay contracts
c
2,831 2,026 650 37 118
Operating lease obligations 183 33 39 27 84
Atlantic Copper obligation to insurance company
d
58 10 19 19 10
PT Freeport Indonesia mine closure and reclamation fund
e
19 2 1 1 15
Total
f
$ 15,455 $ 2,754 $ 1,753 $ 2,087 $ 8,861
a. Scheduled interest payment obligations were calculated using stated coupon rates for fixed-rate debt and interest rates applicable at December 31, 2010, for variable-rate debt.
b. Represents estimated cash payments, on an undiscounted and unescalated basis, associated with reclamation and environmental activities. The timing and the amount of these payments
could change as a result of changes in regulatory requirements, changes in scope and costs of reclamation activities and as actual spending occurs. Refer to Note 13 for additional discussion
of environmental and reclamation matters.
c. Represents contractual obligations for purchases of goods or services that are defined by us as agreements that are enforceable and legally binding and that specify all significant terms.
Take-or-pay contracts primarily comprise the procurement of copper concentrates and cathodes ($2.1 billion), transportation ($201 million), electricity ($144 million) and oxygen ($143 million).
Some of our take-or-pay contracts are settled based on the prevailing market rate for the service or commodity purchased, and in some cases, the amount of the actual obligation may
change over time because of market conditions. Obligations for copper concentrates and cathodes provide for deliveries of specified volumes, at market-based prices, primarily to Atlantic
Copper and the North America copper mines. Transportation obligations are primarily for South America contracted ocean freight rates and for North America natural gas transportation.
Electricity obligations are primarily for contractual minimum demand at the South America and Tenke mines. Oxygen obligations provide for deliveries of specified volumes, at fixed prices,
primarily to Atlantic Copper.
d. In August 2002, Atlantic Copper complied with Spanish legislation by agreeing to fund 7.2 million euros annually for 15 years to an approved insurance company for an estimated 72 million
euro contractual obligation to supplement amounts paid to certain retired employees. Atlantic Copper had $48 million recorded for this obligation at December 31, 2010.
e. Represents PT Freeport Indonesia’s commitments to contribute amounts to a cash fund designed to accumulate at least $100 million, including interest, by the end of our Indonesia mining
activities to pay for mine closure and reclamation.
f. This table excludes certain other obligations in our consolidated balance sheets, including estimated funding for pension obligations as the funding may vary from year-to-year based on
changes in the fair value of plan assets and actuarial assumptions, and accrued liabilities totaling $133 million that relate to unrecognized tax benefits where the timing of settlement is not
determinable. This table also excludes purchase orders for the purchase of inventory and other goods and services, as purchase orders typically represent authorizations to purchase rather
than binding agreements.
In addition to our debt maturities and other contractual obligations,
we have other commitments, which we expect to fund with projected
operating cash flows, available credit facilities or future financing
transactions, if necessary. These include (i) PT Freeport Indonesia’s
commitment to provide one percent of its annual revenue for the
development of the local people in its area of operations through the
Freeport Partnership Fund for Community Development, (ii) Cerro
Verde’s local mining fund contributions equal to 3.75 percent of
after-tax profits (refer to Note 14), (iii) Tenke’s commitment to
provide 0.3 percent of its annual revenue for the development of the
local people in its area of operations and (iv) other commercial
commitments, including standby letters of credit, surety bonds and
guarantees (refer to Notes 13 and 14 for further discussion).
ENVIRONMENTAL AND RECLAMATION MATTERS
Environmental. The cost of complying with environmental laws
is a fundamental and substantial cost of our business. We had
$1.4 billion at December 31, 2010, and $1.5 billion at December 31,
2009, recorded in our consolidated balance sheets for environmental
obligations attributed to CERCLA or analogous state programs and
for estimated future costs associated with environmental matters at
closed facilities and closed portions of certain operating facilities.
Refer to Note 13 for further information about environmental
regulation, including significant environmental matters.
During 2010, we incurred environmental capital expenditures
and other environmental costs (including our joint venture partners’
shares) of $372 million for programs to comply with applicable
environmental laws and regulations that affect our operations,
compared to $289 million in 2009 and $377 million in 2008. The
increase in environmental costs for 2010, compared with 2009,