|
|
UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
|
FORM
10-Q
|
|
(Mark
One)
|
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the quarterly period ended March 31, 2007
|
OR
|
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from
|
|
To
|
Commission
File Number: 1-9916
|
|
|
|
Freeport-McMoRan
Copper & Gold Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
74-2480931
|
(State
or other jurisdiction of
|
(IRS
Employer Identification No.)
|
incorporation
or organization)
|
|
|
|
One
North Central Avenue
|
|
Phoenix,
AZ
|
85004-4414
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(602)
366-8100
|
(Registrant's
telephone number, including area code)
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
R
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one): Large accelerated filer
R
Accelerated
filer
o
Non-accelerated
filer
o
ÿ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
ÿ
o
Yes
R
No
On
April
30, 2007, there were issued and outstanding 381,139,775 shares of the
registrant’s Common Stock, par value $0.10 per share.
TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
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Page
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3
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3
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4
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5
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6
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7
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29
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30
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71
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71
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72
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72
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76
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88
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88
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89
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90
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E-1
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TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,126.5
|
|
|
$
|
907.5
|
|
Accounts
receivable
|
|
|
2,254.4
|
|
|
|
485.8
|
|
Inventories
|
|
|
2,590.9
|
|
|
|
724.2
|
|
Mill
and leach stockpiles
|
|
|
340.4
|
|
|
|
-
|
|
Prepaid
expenses, restricted cash and other
|
|
|
241.7
|
|
|
|
33.5
|
|
Total
current assets
|
|
|
8,553.9
|
|
|
|
2,151.0
|
|
Property,
plant, equipment and development costs, net
|
|
|
23,730.1
|
|
|
|
3,098.5
|
|
Other
assets
|
|
|
716.1
|
|
|
|
140.3
|
|
Trust
assets
|
|
|
623.2
|
|
|
|
-
|
|
Long-term
mill and leach stockpiles
|
|
|
431.7
|
|
|
|
-
|
|
Goodwill
|
|
|
7,379.0
|
|
|
|
-
|
|
Total
assets
|
|
$
|
41,434.0
|
|
|
$
|
5,389.8
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,641.5
|
|
|
$
|
789.0
|
|
Accrued
income taxes
|
|
|
785.1
|
|
|
|
164.4
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
199.2
|
|
|
|
19.1
|
|
Total
current liabilities
|
|
|
3,625.8
|
|
|
|
972.5
|
|
Long-term
debt, less current portion:
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
7,230.0
|
|
|
|
620.0
|
|
Term
loan
|
|
|
4,382.0
|
|
|
|
-
|
|
Project
financing, equipment loans and other
|
|
|
224.9
|
|
|
|
41.0
|
|
Total
long-term debt, less current portion
|
|
|
11,836.9
|
|
|
|
661.0
|
|
Accrued
postretirement benefits and other liabilities
|
|
|
1,206.1
|
|
|
|
297.9
|
|
Deferred
income taxes
|
|
|
6,992.8
|
|
|
|
800.3
|
|
Total
liabilities
|
|
|
23,661.6
|
|
|
|
2,731.7
|
|
Minority
interests
|
|
|
1,473.7
|
|
|
|
213.0
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
5½%
Convertible perpetual preferred stock
|
|
|
1,100.0
|
|
|
|
1,100.0
|
|
6¾%
Mandatory convertible preferred stock
|
|
|
2,875.0
|
|
|
|
-
|
|
Common
stock
|
|
|
49.5
|
|
|
|
31.0
|
|
Capital
in excess of par value
|
|
|
13,266.5
|
|
|
|
2,668.1
|
|
Retained
earnings
|
|
|
1,833.5
|
|
|
|
1,414.8
|
|
Accumulated
other comprehensive loss
|
|
|
(3.0
|
)
|
|
|
(19.9
|
)
|
Common
stock held in treasury
|
|
|
(2,822.8
|
)
|
|
|
(2,748.9
|
)
|
Total
stockholders’ equity
|
|
|
16,298.7
|
|
|
|
2,445.1
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
41,434.0
|
|
|
$
|
5,389.8
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
|
Three
Months Ended March 31,
|
|
|
2007
|
|
2006
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
2,302.9
|
|
$
|
1,086.1
|
|
Cost
of sales:
|
|
|
|
|
|
|
Production
and delivery
|
|
952.1
|
|
|
477.9
|
|
Depreciation,
depletion and amortization
|
|
116.3
|
|
|
43.3
|
|
Total
cost of sales
|
|
1,068.4
|
|
|
521.2
|
|
Exploration
and research expenses
|
|
6.5
|
|
|
2.6
|
|
Selling,
general and administrative expenses
|
|
48.9
|
|
|
30.6
|
|
Total
costs and expenses
|
|
1,123.8
|
|
|
554.4
|
|
Operating
income
|
|
1,179.1
|
|
|
531.7
|
|
Interest
expense, net
|
|
(51.9
|
)
|
|
(22.7
|
)
|
Losses
on early extinguishment and conversion of debt, net
|
|
(87.8
|
)
|
|
(2.0
|
)
|
Other
income, net
|
|
23.6
|
|
|
5.0
|
|
Equity
in affiliated companies’ net earnings
|
|
4.5
|
|
|
3.6
|
|
Income
before income taxes and minority interests
|
|
1,067.5
|
|
|
515.6
|
|
Provision
for income taxes
|
|
(460.2
|
)
|
|
(221.7
|
)
|
Minority
interests in net income of consolidated subsidiaries
|
|
(114.4
|
)
|
|
(27.1
|
)
|
Net
income
|
|
492.9
|
|
|
266.8
|
|
Preferred
dividends
|
|
(16.7
|
)
|
|
(15.1
|
)
|
Net
income applicable to common stock
|
$
|
476.2
|
|
$
|
251.7
|
|
|
|
|
|
|
|
|
Net
income per share of common stock:
|
|
|
|
|
|
|
Basic
|
|
$2.20
|
|
|
$1.34
|
|
Diluted
|
|
$2.02
|
|
|
$1.23
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
216.8
|
|
|
187.9
|
|
Diluted
|
|
244.0
|
|
|
221.5
|
|
|
|
|
|
|
|
|
Dividends
paid per share of common stock
|
|
$0.3125
|
|
|
$0.8125
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
492.9
|
|
|
$
|
266.8
|
|
Adjustments
to reconcile net income to net cash provided by (used in)
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Unrealized
losses on copper collars and copper put options
|
|
|
38.1
|
|
|
|
-
|
|
Depreciation,
depletion and amortization
|
|
|
116.3
|
|
|
|
43.3
|
|
Minority
interests' in net income of consolidated subsidiaries
|
|
|
114.4
|
|
|
|
27.1
|
|
Noncash
compensation and benefits
|
|
|
25.5
|
|
|
|
17.0
|
|
Losses
on early extinguishment and conversion of debt, net
|
|
|
87.8
|
|
|
|
2.0
|
|
Deferred
income taxes
|
|
|
(46.0
|
)
|
|
|
41.9
|
|
Elimination
(recognition) of profit on PT Freeport Indonesia sales
|
|
|
|
|
|
|
|
|
to
PT Smelting
|
|
|
35.7
|
|
|
|
(20.8
|
)
|
Other
|
|
|
6.4
|
|
|
|
-
|
|
(Increases)
decreases in working capital, excluding amounts
|
|
|
|
|
|
|
|
|
acquired
from Phelps Dodge:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(398.0
|
)
|
|
|
65.2
|
|
Inventories
|
|
|
80.7
|
|
|
|
(40.3
|
)
|
Prepaid
expenses, restricted cash and other
|
|
|
0.8
|
|
|
|
(7.3
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(30.0
|
)
|
|
|
(250.4
|
)
|
Accrued
income taxes
|
|
|
144.3
|
|
|
|
(268.3
|
)
|
Increase
in working capital
|
|
|
(202.2
|
)
|
|
|
(501.1
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
668.9
|
|
|
|
(123.8
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
(13,888.1
|
)
|
|
|
-
|
|
PT
Freeport Indonesia capital expenditures
|
|
|
(74.0
|
)
|
|
|
(48.6
|
)
|
Phelps
Dodge capital expenditures
|
|
|
(60.9
|
)
|
|
|
-
|
|
Other
capital expenditures
|
|
|
(7.5
|
)
|
|
|
(3.5
|
)
|
Sale
of assets and other
|
|
|
1.0
|
|
|
|
1.7
|
|
Net
cash used in investing activities
|
|
|
(14,029.5
|
)
|
|
|
(50.4
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
10,000.0
|
|
|
|
-
|
|
Repayments
of term loans under bank credit facility
|
|
|
(5,618.0
|
)
|
|
|
-
|
|
Net
proceeds from sales of senior notes
|
|
|
5,880.0
|
|
|
|
-
|
|
Net
proceeds from sale of 6¾% mandatory convertible preferred
stock
|
|
|
2,803.1
|
|
|
|
-
|
|
Net
proceeds from sale of common stock
|
|
|
2,815.7
|
|
|
|
-
|
|
Proceeds
from other debt
|
|
|
100.9
|
|
|
|
55.5
|
|
Repayments
of other debt
|
|
|
(48.3
|
)
|
|
|
(201.0
|
)
|
Cash
dividends paid:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
(62.9
|
)
|
|
|
(153.2
|
)
|
Preferred
stock
|
|
|
(15.1
|
)
|
|
|
(15.1
|
)
|
Minority
interests
|
|
|
(47.0
|
)
|
|
|
(18.7
|
)
|
Net
(payments for) proceeds from exercised stock options
|
|
|
(44.9
|
)
|
|
|
11.1
|
|
Excess
tax benefit from exercised stock options
|
|
|
1.1
|
|
|
|
16.1
|
|
Bank
credit facilities fees and other
|
|
|
(185.0
|
)
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
15,579.6
|
|
|
|
(305.3
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,219.0
|
|
|
|
(479.5
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
907.5
|
|
|
|
763.6
|
|
Cash
and cash equivalents at end of period
|
|
$
|
3,126.5
|
|
|
$
|
284.1
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Convertible
Perpetual
|
|
Mandatory
Convertible
|
|
|
|
|
|
|
|
Other
|
|
Common
Stock
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Compre-
|
|
Held
in Treasury
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
|
|
hensive
|
|
Number
|
|
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
Retained
|
|
Income
|
|
of
|
|
At
|
|
Stockholders’
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Earnings
|
|
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
|
|
(In
Millions)
|
|
Balance
at December 31, 2006
|
|
1.1
|
|
$
|
1,100.0
|
|
|
-
|
|
$
|
-
|
|
|
309.9
|
|
$
|
31.0
|
|
$
|
2,668.1
|
|
$
|
1,414.8
|
|
$
|
(19.9
|
)
|
|
113.0
|
|
$
|
(2,748.9
|
)
|
$
|
2,445.1
|
|
Sale
of 6¾% mandatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
preferred stock
|
|
-
|
|
|
-
|
|
|
28.8
|
|
|
2,875.0
|
|
|
-
|
|
|
-
|
|
|
(71.9
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,803.1
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
acquire Phelps Dodge
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
136.9
|
|
|
13.7
|
|
|
7,767.5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,781.2
|
|
Sale
of common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47.2
|
|
|
4.7
|
|
|
2,811.0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,815.7
|
|
Exercised
stock options, issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock and other
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
0.1
|
|
|
52.6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52.7
|
|
Stock-based
compensation costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36.1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36.1
|
|
Tax
benefit for stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
option
exercises
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3.1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3.1
|
|
Tender
of shares for exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options and restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
(73.9
|
)
|
|
(73.9
|
)
|
Adjustment
to initially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
apply
FIN 48
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4.3
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4.3
|
|
Dividends
on common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61.8
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61.8
|
)
|
Dividends
on preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16.7
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16.7
|
)
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
492.9
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
492.9
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss),
net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12.8
|
|
|
-
|
|
|
-
|
|
|
12.8
|
|
Translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.5
|
|
|
-
|
|
|
-
|
|
|
0.5
|
|
Change
in unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
fair value
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
Reclass
to earnings
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.3
|
|
|
-
|
|
|
-
|
|
|
1.3
|
|
Change
in unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts
(SFAS 158)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
Amortization
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrecognized
amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(SFAS
158)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.5
|
|
|
-
|
|
|
-
|
|
|
1.5
|
|
Other
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16.9
|
|
|
-
|
|
|
-
|
|
|
16.9
|
|
Total
comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
509.8
|
|
Balance
at March 31, 2007
|
|
1.1
|
|
$
|
1,100.0
|
|
|
28.8
|
|
$
|
2,875.0
|
|
|
495.2
|
|
$
|
49.5
|
|
$
|
13,266.5
|
|
$
|
1,833.5
|
|
$
|
(3.0
|
)
|
|
114.2
|
|
$
|
(2,822.8
|
)
|
$
|
16,298.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with the instructions to Form 10-Q and do not include all information
and disclosures required by generally accepted accounting principles (GAAP)
in
the United States (U.S.). Therefore, this information should be read in
conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated
financial statements and notes contained in its 2006 Annual Report on Form
10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods reported. With the exception of certain adjustments associated
with the acquisition of Phelps Dodge Corporation (Phelps Dodge), all such
adjustments are, in the opinion of management, of a normal recurring nature.
Operating results for the three-month period ended March 31, 2007, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2007.
For
comparative purposes, certain amounts for the first quarter of 2006 have been
reclassified to conform to current period presentation.
As
further discussed in Note 2, on March 19, 2007, FCX completed its acquisition
of
Phelps Dodge. First-quarter 2007 financial results include Phelps Dodge’s
results beginning March 20, 2007.
2.
|
ACQUISITION
OF PHELPS DODGE
|
On
March
19, 2007, FCX acquired Phelps Dodge. Phelps Dodge, now a wholly owned subsidiary
of FCX, is a fully integrated producer of copper and molybdenum, with mines
in
North and South America and processing capabilities for other minerals as
by-products, such as gold, silver and rhenium, and several development projects,
including the Tenke Fungurume mine in the Democratic Republic of Congo (DRC).
Additionally, Phelps Dodge has an international manufacturing division, Phelps
Dodge International Corporation (PDIC), which manufactures engineered products
principally for the global energy sector. The estimated fair value of assets
acquired and liabilities assumed and the results of Phelps Dodge’s operations
are included in FCX’s consolidated financial statements beginning March 20,
2007.
In
the
acquisition, each share of Phelps Dodge common stock was exchanged for 0.67
of a
share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9
million shares and paid $18.0 billion in cash to Phelps Dodge shareholders.
The
acquisition has been accounted for under the purchase method as required by
Statement of Financial Accounting Standards (SFAS) No. 141, “Business
Combinations,” with FCX as the accounting acquirer. Below is a summary of the
$25.9 billion purchase price, which was funded through a combination of common
shares issued, borrowings under a new $11.5 billion senior credit facility,
proceeds from the offering of $6 billion of senior notes (refer to Note 8 for
further discussion) and available cash resources (in millions, except exchange
ratio):
Phelps
Dodge common stock outstanding
|
|
|
|
and
issuable at March 19, 2007
|
|
204.3
|
|
Exchange
offer ratio of FCX common stock for each
|
|
|
|
Phelps
Dodge common share
|
|
0.67
|
|
Shares
of FCX common stock issued
|
|
136.9
|
|
|
|
|
|
Cash
consideration of $88.00 for each Phelps Dodge common share
|
$
|
17,979
|
a
|
Fair
value of FCX common stock
|
|
7,781
|
b
|
Estimated
change of control costs and related employee benefits
|
|
69
|
|
Estimated
transaction costs
|
|
62
|
|
Total
purchase price
|
$
|
25,891
|
|
a.
|
Cash
consideration includes cash paid in lieu of any fractional shares
of FCX
stock.
|
b.
|
Measurement
of the common stock component of the purchase price based on a weighted
average closing price of FCX’s common stock of $56.85 for the two days
prior to through two days after the public announcement of the merger
on
November 19, 2006.
|
In
accordance with SFAS No. 141, the purchase price paid is determined at the
date
of the public announcement of the transaction and is allocated to the assets
acquired and liabilities assumed based upon their estimated fair values on
the
closing date of March 19, 2007. The estimated fair values were based on internal
estimates and are subject to change as FCX completes its analysis. In valuing
acquired assets and assumed liabilities, fair values are based on, but are
not
limited to: quoted market prices, where available; the intent of FCX with
respect to whether the assets purchased are to be held, sold or abandoned;
expected future cash flows; current replacement cost for similar capacity for
certain fixed assets; market rate assumptions for contractual obligations;
and
appropriate discount rates and growth rates. The excess of the purchase price
over the estimated fair value of the net assets acquired has been recorded
as
goodwill. A significant decline in copper or molybdenum prices from those used
to estimate the fair values of the acquired assets could result in impairment
to
the carrying amounts assigned to inventories; mill and leach stockpiles;
property, plant, equipment and development costs and goodwill.
Below
provides a summary of the preliminary purchase price allocation as of March
31,
2007 (in billions):
|
|
|
|
|
Preliminary
|
|
|
|
|
|
|
Purchase
|
|
|
Historical
|
|
Fair
Value
|
|
Price
|
|
|
Balances
|
|
Adjustments
|
|
Allocation
|
|
Cash
and cash equivalents
|
$
|
4.2
|
|
$
|
-
|
|
$
|
4.2
|
|
Metals
inventories and mill and leach stockpiles
a
|
|
0.7
|
|
|
1.7
|
|
|
2.4
|
|
Property,
plant, equipment and development costs
b
|
|
6.0
|
|
|
14.6
|
|
|
20.6
|
|
Other
assets
|
|
3.3
|
|
|
(0.4
|
)
|
|
2.9
|
|
Allocation
to goodwill
c
|
|
-
|
|
|
7.4
|
|
|
7.4
|
|
Total
assets
|
|
14.2
|
|
|
23.3
|
|
|
37.5
|
|
Deferred
income taxes (current and long-term)
d
|
|
(0.7
|
)
|
|
(5.6
|
)
|
|
(6.3
|
)
|
Other
liabilities
|
|
(4.1
|
)
|
|
-
|
|
|
(4.1
|
)
|
Minority
interests
|
|
(1.2
|
)
|
|
-
|
|
|
(1.2
|
)
|
Total
|
$
|
8.2
|
|
$
|
17.7
|
|
$
|
25.9
|
|
a.
|
Inventories
and stockpiles were valued using estimated discounted cash flows
based on
estimated selling prices less selling and completion costs and a
reasonable profit allowance. Application of fair value principles
to
metals inventories and stockpiles resulted in a significantly higher
value
being applied to inventory compared with the historical cost carrying
amounts recorded by Phelps Dodge. Consequently, when inventory on
hand as
of the date of acquisition is subsequently sold, FCX will recognize
incremental noncash costs and realize a significantly smaller profit
margin with respect to this
inventory.
|
b.
|
Includes
amounts based on estimated discounted cash flows from future production
of
proven and probable reserves and for values of properties other than
proven and probable reserves (VBPP). Carrying amounts assigned to
proven
and probable reserves are depleted using the unit of production method
over the estimated lives of the reserves. Carrying amounts assigned
to
VBPP are not charged to income until the VBPP becomes associated
with
proven and probable reserves or are determined to be
impaired.
|
The
concept of VBPP is described in Emerging Issue Task Force (EITF) Issue
No. 04-3, “
Mining
Assets: Impairment and Business Combinations,”
and has
been interpreted differently by different mining companies. FCX’s preliminary
adjustment to property, plant, equipment and development costs includes VBPP
attributable to mineralized material that FCX believes could be brought into
production with the establishment or modification of required permits and should
market conditions and technical assessments warrant. Mineralized material is
a
mineralized body that has been delineated by appropriately spaced drilling
and/or underground sampling to support reported tonnage and average
grade
of
metal(s). Such a deposit may not qualify as proven and probable reserves until
legal and economic feasibility are confirmed based upon a comprehensive
evaluation of development costs, unit costs, grades, recoveries and other
material factors. The carrying amount for property, plant, equipment and
development costs includes preliminary adjustments attributable to inferred
mineral resources and exploration potential. FCX is continuing to analyze VBPP
and the final values may vary significantly from preliminary
estimates.
c.
|
The
final valuation of assets acquired and liabilities assumed is not
complete
and the net adjustments to those values will result in changes to
goodwill
and other carrying amounts assigned to assets and liabilities based
on the
preliminary analyses. None of the $7.4 billion allocation to goodwill
is
deductible for tax purposes.
|
d.
|
Deferred
income taxes have been recognized based on the estimated fair value
adjustments to net assets.
|
As
of
March 31, 2007, FCX had not identified any material pre-acquisition
contingencies where the related asset, liability or impairment is probable
and
the amount of the asset, liability or impairment can be reasonably estimated.
Prior to the end of the purchase price allocation period, if information becomes
available that
an
asset
existed, a liability had been incurred or an asset had been impaired as of
the
acquisition date, and
the
amounts can be reasonably estimated, such items will be included in the purchase
price allocation.
FCX
paid
a premium (
i.e.
,
goodwill) over the fair value of the net tangible and identified intangible
assets acquired for a number of potential strategic and financial benefits
that
are expected to be realized, including, but not limited to, the
following:
·
|
The
combined company’s increased scale of operations, management depth and
strengthened cash flow provide an improved platform to capitalize
on
growth opportunities in the global
market.
|
·
|
The
combined company is well-positioned to benefit from the positive
copper
market at a time when there is a scarcity of large-scale copper
development projects combined with strong global demand for
copper.
|
·
|
The
combined company has long-lived, geographically diverse reserves,
totaling
approximately 77 billion pounds of copper, 38 million ounces of gold
and 2
billion pounds of molybdenum, net of minority interests as of December
31,
2006.
|
·
|
The
combined company has exploration rights with significant potential
in
copper regions around the world, including FCX’s prospective acreage in
Papua, Indonesia, and Phelps Dodge’s opportunities at its Tenke Fungurume
concessions in the DRC.
|
TABLE OF CONTENTS
Pro
Forma Financial Information.
The
following pro forma information assumes that FCX acquired Phelps Dodge effective
January 1, 2007 for the three-month period ended March 31, 2007, and effective
January 1, 2006, for the three-month period ended March 31, 2006 (in millions,
except per share data):
|
Historical
|
|
Pro
forma
|
|
|
|
|
|
|
|
|
Phelps
|
|
Purchase
|
|
Pro
forma
|
|
Three
months ended March 31, 2007
|
FCX
|
|
Dodge
a
|
|
Adjustments
|
|
Consolidated
|
|
Revenues
|
$
|
2,302.9
|
|
$
|
2,536.7
|
|
$
|
-
|
|
$
|
4,839.6
|
b
|
Operating
income
|
$
|
1,179.1
|
|
$
|
817.2
|
|
$
|
(375.7
|
)
c
|
$
|
1,620.6
|
b
|
Income
before income taxes and minority
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
$
|
1,067.5
|
c,d,e
|
$
|
861.4
|
|
$
|
(469.0
|
)
c,e
|
$
|
1,459.9
|
b
|
Net
income applicable to common stock
|
$
|
476.2
|
c,d,e
|
$
|
508.0
|
|
$
|
(363.0
|
)
c
|
$
|
621.2
|
b
|
Diluted
net income per share of common stock
|
$
|
2.02
|
|
|
N/A
|
|
$
|
-
|
|
$
|
1.51
|
|
Diluted
weighted average shares outstanding
|
|
244.0
|
|
|
N/A
|
|
|
N/A
|
|
|
453.6
|
g
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,086.1
|
f
|
$
|
2,224.6
|
|
$
|
-
|
|
$
|
3,310.7
|
b
|
Operating
income
|
$
|
531.7
|
f
|
$
|
574.2
|
|
$
|
(686.8
|
)
c
|
$
|
419.1
|
b
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interests
|
$
|
515.6
|
e,f
|
$
|
603.7
|
|
$
|
(895.4
|
)
c,e
|
$
|
223.9
|
b
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
applicable
to common stock
|
$
|
251.7
|
e,f
|
$
|
350.7
|
|
$
|
(669.1
|
)
c,e
|
$
|
(66.7
|
)
b
|
Diluted
income (loss) per share from continuing operations
|
$
|
1.23
|
|
$
|
1.72
|
|
$
|
-
|
|
$
|
(0.18
|
)
|
Weighted
average shares outstanding
|
|
221.5
|
|
|
203.4
|
|
|
N/A
|
|
|
372.2
|
g
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
First-quarter
2007 represents the results of Phelps Dodge’s operations from January 1,
2007, through March 19, 2007. Beginning March 20, 2007, the results
of
Phelps Dodge’s operations are included in FCX’s consolidated financial
statements.
|
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on
Phelps
Dodge’s copper collar price protection program totaling $58.3 million
($35.6 million to net income or $0.08 per share) in the first quarter
of
2007, and $392.6 million ($298.4 million to net loss or $0.80 per
share)
in the first quarter of 2006.
|
c.
|
Includes
charges to production and delivery costs of $425.3 million ($267.9
million
to net income) for first-quarter 2007 and $494.1 million ($311.3
million
to net loss) for first-quarter 2006 resulting from the purchase accounting
impacts of higher values for metals inventories, and also includes
charges
to depreciation, depletion and amortization of $185.5 million ($116.9
million to net income) for first-quarter 2007 and $196.5 million
($123.8
million to net loss) for first-quarter 2006 resulting from the purchase
accounting impacts of the increase in the carrying value of Phelps
Dodge’s
property, plant and equipment costs.
|
d.
|
Excludes
net losses on early extinguishment of debt totaling $87.8 million
($74.6
million to net income, or $0.16 per share) for financing transactions
related to the acquisition of Phelps
Dodge.
|
e.
|
Includes
interest expense from the debt issued in connection with the acquisition
of Phelps Dodge.
|
f.
|
Includes
a charge to revenues on the redemption of FCX’s Gold-Denominated Preferred
Stock, Series II totaling $69.0 million ($36.6 million to net loss
or
$0.10 per share) in the first quarter of
2006.
|
g.
|
Pro
forma diluted weighted average shares outstanding for the three months
ended March 31, 2007 and 2006, were estimated as follows (in
millions):
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Average
number of basic shares of historical FCX common stock
|
|
|
|
|
|
outstanding
|
|
197.2
|
|
187.9
|
|
Dilutive
securities
|
|
25.2
|
|
-
|
a
|
Shares
of FCX common stock issued in acquisition
|
|
137.1
|
|
137.1
|
|
Sale
of FCX shares
b
|
|
47.2
|
|
47.2
|
|
Mandatory
convertible preferred stock
b
|
|
46.9
|
|
-
|
a
|
Pro
forma average number of FCX common shares outstanding
|
|
453.6
|
|
372.2
|
|
a.
These
securities were not dilutive because of the pro forma loss for the
period.
b.
Refer
to
Note 8 for additional information.
The
above
pro forma consolidated information has been prepared for illustrative purposes
only and is not intended to be indicative of the results that would actually
have occurred, or the results expected in future periods, had the events
reflected herein occurred on the dates indicated.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
As
a
result of the acquisition of Phelps Dodge, the following supplements the
significant accounting policies contained in FCX’s 2006 Annual Report on Form
10-K for the year ended December 31, 2006.
Basis
of Presentation.
Effective March 20, 2007, FCX began consolidating its wholly owned subsidiary,
Phelps Dodge. Phelps Dodge’s financial information consolidates the results of
operations and the assets and liabilities of majority-owned subsidiaries and
reports the minority interest. Investments in unincorporated joint ventures,
including Phelps Dodge’s Morenci copper mine, are reflected using the
proportionate consolidation method. All significant intercompany transactions
and balances have been eliminated.
Investments
in unconsolidated companies owned 20 percent or more are recorded on an equity
basis. Investments in companies owned less than 20 percent, and for which FCX
does not exercise significant influence, are carried at cost.
Foreign
Currencies.
Except
as noted below, the assets and liabilities of foreign subsidiaries are
translated at current exchange rates, while revenues and expenses are translated
at average rates in effect for the period. The related translation gains and
losses are included in accumulated other comprehensive income (loss) within
stockholders’ equity. For the translation of the financial statements of certain
foreign subsidiaries dealing predominantly in U.S. dollars, assets receivable
and liabilities payable in cash are translated at current exchange rates, and
inventories and other non-monetary assets and liabilities are translated at
historical rates. Gains and losses resulting from translation of such financial
statements are included in operating results, as are gains and losses incurred
on foreign currency transactions.
Mill
and Leach Stockpiles.
Mill and
leach stockpiles acquired in connection with the Phelps Dodge acquisition are
stated at the lower of cost or market. FCX uses the average cost method for
recording its mill and leach stockpiles.
Both
mill
and leach stockpiles contain low-grade ore that has been extracted from the
ore
body and is available for copper recovery. For mill stockpiles, recovery is
through milling, concentrating, smelting and refining or, alternatively, by
concentrate leaching, and for leach stockpiles through exposure to acidic
solutions that dissolve contained copper and deliver it in solution to
extraction processing facilities. The recorded cost of
mill
and
leach stockpiles include mining and haulage costs incurred to deliver ore to
stockpiles, including associated depreciation, depletion, amortization and
overhead costs.
Because
the determination of copper contained in mill and leach stockpiles by physical
count is often impracticable, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying
of
blasthole cuttings determine the estimated copper grades of material delivered
to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately. Estimates of copper contained in mill stockpiles
are adjusted as material is added or removed and fed to the mill.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type.
Ultimate
recovery of copper contained in leach stockpiles can vary from a low percentage
to more than 90 percent depending on several variables, including type of copper
recovery, mineralogy and particle size of the rock. Although as much as 70
percent of the copper ultimately recoverable may be extracted during the first
year, the remaining copper is recovered over several years. Processes and
recovery rates are monitored continuously. Recovery rate estimates are adjusted
periodically as additional information becomes available and as related
technology changes.
Goodwill.
Goodwill
has an indefinite useful life and is not amortized, but rather is tested for
impairment at least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the fair value
of a
related reporting unit below its carrying amount.
Goodwill
totaling $7.4 billion at March 31, 2007, was recorded as a result of the Phelps
Dodge acquisition. This amount, which represents the excess of the purchase
price over the fair value of assets acquired and liabilities assumed, is subject
to adjustment as FCX completes its analysis of these fair values, which may
take
up to one year after the acquisition date. In accordance with accounting rules,
goodwill resulting from a business combination is assigned to the acquiring
entity's reporting units that are expected to benefit from the business
combination, regardless of whether other assets or liabilities of the acquired
entity have been assigned to those reporting units. FCX is in the process of
determining the appropriate definition of reporting units for the allocation
of
goodwill, which could range from either an individual mine to an aggregation
of
several mines. The allocation of goodwill to reporting units will be completed
at the conclusion of this analysis.
Intangible
Assets.
Intangible assets acquired as a result of the Phelps Dodge acquisition include
water rights, land easements and trademarks primarily at North American mining
sites. The principal amortization method for such intangible assets is the
computation of an overall unit rate applied to pounds of principal products
sold
from mine production. As of March 31, 2007, FCX has not completed the
identification and valuation of intangible assets resulting from the acquisition
of Phelps Dodge. FCX expects to record additional intangible assets, which
could
include such items as customer relationships and patents, as it identifies
and
values them, which will result in a reduction of the amount allocated to
goodwill.
Environmental
Expenditures.
Environmental expenditures are expensed or capitalized, depending upon their
future economic benefits. Liabilities for such expenditures are recorded when
it
is probable that obligations have been incurred and the costs can be reasonably
estimated. For closed facilities and closed portions of operating facilities
with environmental obligations, an environmental liability is accrued when
a
decision to close a facility, or a portion of a facility, is made by management
and the environmental liability is considered to be probable. Environmental
liabilities attributed to the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion,
and
FCX, or any of its subsidiaries, have been associated with the site. Other
environmental remediation liabilities are considered probable based on specific
facts and circumstances. FCX’s estimates of these costs are based on an
evaluation of various factors, including
currently
available facts, existing technology, presently enacted laws and regulations,
remediation experience, whether or not FCX is a potentially responsible party
(PRP) and the ability of other PRPs to pay their allocated portions. With the
exception of those obligations assumed in the acquisition of Phelps Dodge (see
Note 11), environmental obligations are recorded on an undiscounted basis.
Where
the available information is sufficient to estimate the amount of liability,
that estimate has been used. Where the information is only sufficient to
establish a range of probable liability and no point within the range is more
likely than any other, the lower end of the range has been used. Possible
recoveries of some of these costs from other parties are not recognized in
the
consolidated financial statements until they become probable. Legal costs
associated with environmental remediation, as defined in Statement of Position
96-1, “Environmental Remediation Liabilities,” are included as part of the
estimated liability.
At
March
31, 2007, FCX recorded approximately $356 million in the consolidated balance
sheet to reflect the fair value of environmental liabilities assumed in the
Phelps Dodge acquisition. At March 31, 2007, the unescalated, undiscounted
environmental reserve totaled approximately $382 million, leaving approximately
$26 million to be accreted over time.
4.
|
PENSION
AND POSTRETIREMENT BENEFITS
|
With
the
acquisition of Phelps Dodge, FCX acquired trusteed, non-contributory pension
plans covering substantially all of Phelps Dodge’s U.S. employees. The
applicable plan design determines the manner in which benefits are calculated
for any particular group of employees. With respect to certain of these plans,
benefits are calculated based on final average monthly compensation and years
of
service. In the case of other plans, benefits are calculated based on a fixed
amount for each year of service. Participants in the Phelps Dodge plans
generally vest in their accrued benefits after five years of service. At the
date of acquisition, Phelps Dodge had both underfunded and overfunded pension
plans. The funded status of Phelps Dodge’s overfunded pension plans was
approximately $129 million, which represents the fair value of plans assets
of
approximately $1,363 million less the projected benefit obligation of
approximately $1,234 million. The funded status of Phelps Dodge’s underfunded
pension plans was approximately $(70) million, which represents a projected
benefit obligation of approximately $81 million less the fair value of plan
assets of approximately $11 million. The majority of plan assets are invested
in
a diversified portfolio of stocks, bonds and cash and cash equivalents, which
consist primarily of equity and fixed-income securities. As of March 19, 2007,
a
discount rate of 5.78 percent and a wage increase assumption of 4.25 percent
were used to estimate the projected benefit obligation, and the long-term
expected rate of return on plan assets was 8.5 percent. Under the merger
agreement between FCX and Phelps Dodge, FCX will continue all of Phelps Dodge’s
existing pension plans until at least December 31, 2008.
In
addition to
the
pension benefits, Phelps Dodge provides postretirement medical and life
insurance benefits for certain U.S. employees and, in some cases, employees
of
international subsidiaries. These postretirement benefits vary among plans,
and
many plans require contributions from retirees. The expected cost of providing
such postretirement benefits is accrued during the years employees render the
necessary service. At the date of acquisition, the funded status of the Phelps
Dodge postretirement medical and life insurance benefits was approximately
$(80)
million, which represents a benefit obligation of approximately $253 million
less the fair value of plan assets of approximately $173 million. The plan
assets consist of two Voluntary Employees’ Beneficiary Association (VEBA)
trusts, which FCX acquired through the acquisition of Phelps Dodge. One trust
is
dedicated to funding postretirement medical obligations and the other to funding
postretirement life insurance obligations for eligible U.S. retirees. The
majority of the assets of the VEBA trusts are invested in U.S. fixed-income
securities. FCX’s funding policy provides that contributions to the VEBA trusts
shall be at least sufficient to pay plan benefits as they come due. Additional
contributions may be made from time to time. For participants not eligible
to
receive payments from the VEBA trusts, FCX’s funding policy provides that
contributions shall be at least equal to the cash basis obligations. As of
March
19, 2007, a discount rate of 5.62 percent was used to estimate the accumulated
postretirement benefit obligation for the medical plans and 5.66 percent for
the
retiree life insurance plan. The long-term expected rate of return on plan
assets for the VEBA medical and life insurance trusts was 3.7 percent and 4.5
percent, respectively.
Net
periodic benefit cost for pension and postretirement benefits for Phelps
Dodge
have been included in the consolidated financial statements beginning March
20,
2007. The components of net periodic benefit cost for pension and postretirement
benefits for all of FCX’s plans for the three-month periods ended March 31, 2007
and 2006, follow (in millions):
|
|
|
|
|
|
|
Phelps
|
|
|
FCX
|
|
PT
Freeport Indonesia
|
|
Atlantic
Copper
|
|
Dodge
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
Service
cost
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
1.2
|
|
$
|
1.0
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.8
|
|
Interest
cost
|
|
0.3
|
|
|
0.4
|
|
|
1.4
|
|
|
1.2
|
|
|
1.1
|
|
|
1.1
|
|
|
2.5
|
|
Expected
return on plan assets
|
|
(0.1
|
)
|
|
0.3
|
|
|
(0.8
|
)
|
|
(0.6
|
)
|
|
-
|
|
|
-
|
|
|
(3.5
|
)
|
Amortization
of prior service cost
|
|
1.1
|
|
|
1.1
|
|
|
0.2
|
|
|
0.2
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of net actuarial loss
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
-
|
|
Net
periodic benefit cost
|
$
|
1.4
|
|
$
|
1.9
|
|
$
|
2.2
|
|
$
|
1.9
|
|
$
|
1.3
|
|
$
|
1.3
|
|
$
|
(0.2
|
)
|
FCX’s
basic net income per share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average number of common shares
outstanding during the year. The following is a reconciliation of net income
and
weighted-average common shares outstanding for purposes of calculating diluted
net income per share (in millions, except per share amounts):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Net
income before preferred dividends
|
|
$
|
492.9
|
|
$
|
266.8
|
|
Preferred
dividends
|
|
|
(16.7
|
)
|
|
(15.1
|
)
|
Net
income applicable to common stock
|
|
|
476.2
|
|
|
251.7
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
15.1
|
|
|
15.1
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
1.6
|
|
|
-
|
|
7%
Convertible Senior Notes
|
|
|
0.1
|
|
|
5.1
|
|
Diluted
net income applicable to common stock
|
|
$
|
493.0
|
|
$
|
271.9
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
216.8
|
|
|
187.9
|
|
Add:
|
|
|
|
|
|
|
|
Shares
issuable upon conversion, exercise or vesting of:
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
23.3
|
|
|
21.7
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
2.0
|
|
|
-
|
|
7%
Convertible Senior Notes
|
|
|
0.2
|
|
|
10.2
|
|
Dilutive
stock options
|
|
|
1.0
|
|
|
1.1
|
|
Restricted
stock
|
|
|
0.7
|
|
|
0.6
|
|
Weighted
average common shares outstanding for purposes of
calculating
|
|
|
|
|
|
|
|
diluted
net income per share
|
|
|
244.0
|
|
|
221.5
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share of common stock
|
|
$
|
2.02
|
|
$
|
1.23
|
|
Outstanding
stock options with exercise prices greater than the average market price of
FCX’s common stock during the period are excluded from the computation of
diluted net income per share of common stock. FCX’s convertible instruments are
also excluded when including the conversion of these instruments increases
reported diluted net income per share. A summary of the excluded amounts
follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
Weighted
average outstanding options (in thousands)
|
|
996.4
|
|
677.5
|
|
Weighted
average exercise price
|
|
$63.76
|
|
$63.77
|
|
TABLE OF CONTENTS
A
summary
of inventories, which were recorded using the average cost method (except where
otherwise indicated) and include the impact of purchase accounting adjustments
as described in Note 2, follows (in millions):
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1.7
|
|
$
|
-
|
|
Work-in-process
|
|
|
91.5
|
|
|
10.9
|
|
Finished
goods
a
|
|
|
1,300.4
|
|
|
3.8
|
|
Stockpiles
|
|
|
772.1
|
|
|
-
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Concentrates
- First in, first out (FIFO)
|
|
|
63.8
|
|
|
189.1
|
|
Work-in-process
- FIFO
|
|
|
276.7
|
|
|
168.1
|
|
Finished
goods - FIFO
|
|
|
5.5
|
|
|
12.3
|
|
PDIC:
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
122.7
|
|
|
-
|
|
Work-in-process
|
|
|
12.9
|
|
|
-
|
|
Finished
goods
|
|
|
62.8
|
|
|
-
|
|
Total
product inventories
|
|
|
2,710.1
|
|
|
384.2
|
|
Total
materials and supplies, net
b
|
|
|
652.9
|
|
|
340.0
|
|
Total
inventories
|
|
$
|
3,363.0
|
|
$
|
724.2
|
|
|
|
|
|
|
|
|
|
a.
|
Finished
goods inventory associated with mining operations primarily includes
concentrates and cathodes.
|
b.
|
Materials
and supplies inventories are net of obsolescence reserves totaling
$16.7
million at March 31, 2007, and $16.4 million at December 31,
2006.
|
Following
is a summary of FCX’s trust assets, which were acquired in connection with the
acquisition of Phelps Dodge, at March 31, 2007 (in millions):
Global
reclamation and remediation
|
$
|
422.4
|
|
Financial
assurance
|
|
99.4
|
a
|
Non-qualified
retirement benefits
|
|
58.9
|
|
Change
of control
|
|
42.3
|
|
Other
|
|
0.2
|
|
Total
trust assets
|
$
|
623.2
|
|
a.
|
Represents
legally restricted funds for the use of asset retirement obligation
activities at Chino, Tyrone and Cobre
.
|
8.
|
DEBT
AND EQUITY TRANSACTIONS
|
At
March
31, 2007, FCX had $12.0 billion in debt, including $10.4 billion in acquisition
debt, $0.9 billion in Phelps Dodge debt and $0.7 billion of previously existing
FCX debt. In connection with financing its acquisition of Phelps Dodge, FCX
used
$2.5 billion of cash and funded the remainder with proceeds from the following
debt transactions:
·
|
borrowed
$10.0 billion under a new $11.5 billion senior credit facility;
and
|
·
|
issued
$6.0 billion in senior notes.
|
Additionally,
in accordance with its plan to reduce debt, FCX completed the following equity
transactions immediately following the closing of the acquisition, using the
net
proceeds to reduce borrowings under the credit facility:
·
|
sold
47.15 million shares of common stock at $61.25 per share for net
proceeds
of $2.8 billion; and
|
·
|
sold
28.75 million shares of 6¾% mandatory convertible preferred stock for net
proceeds of $2.8 billion.
|
A
summary
of the financing transactions associated with the Phelps Dodge acquisition
and
the related debt balances at March 31, 2007, follows (in billions):
|
|
|
|
|
|
|
March
31,
|
|
|
Borrowings
|
|
Repayments
|
|
2007
|
|
$11.5
billion senior credit facility:
|
|
|
|
|
|
|
|
|
|
$2.5
billion senior term loan due March 2012
|
$
|
2.5
|
|
$
|
(2.5
|
)
|
$
|
-
|
|
$7.5
billion senior term loan due March 2014
|
|
7.5
|
|
|
(3.1
|
)
|
|
4.4
|
|
$1.5
billion revolving credit facilities
|
|
-
|
|
|
-
|
|
|
-
|
|
$6.0
billion in senior notes:
|
|
|
|
|
|
|
|
|
|
$1.0
billion of senior floating rate notes due April 2015
|
|
1.0
|
|
|
-
|
|
|
1.0
|
|
$1.5
billion of 8¼% Senior Notes due April 2015
|
|
1.5
|
|
|
-
|
|
|
1.5
|
|
$3.5
billion of 8⅜% Senior Notes due April 2017
|
|
3.5
|
|
|
-
|
|
|
3.5
|
|
|
$
|
16.0
|
|
$
|
(5.6
|
)
|
$
|
10.4
|
|
Senior
Credit Facility.
At the
close of the Phelps Dodge acquisition, the senior credit facility consisted
of a
$2.5 billion term loan due March 2012, a $7.5 billion term loan due March 2014
and $1.5 billion in revolving credit facilities due March 2012. The revolving
credit facilities are composed of a $1.0 billion line of credit available to
FCX
and a $0.5 billion line of credit available to both FCX and PT Freeport
Indonesia. The $0.5 billion line of credit represents an amendment and
restatement to the FCX/PT Freeport Indonesia $465 million revolver that was
scheduled to mature in 2009. Following the closing of the Phelps Dodge
acquisition, FCX applied the net proceeds from the issuance and sale of its
common stock and mandatory convertible preferred stock to repay in full the
$2.5
billion term loan due March 2012 and to partially repay $3.1 billion of the
$7.5
billion term loan due March 2014. At March 31, 2007, $4.4 billion of the term
loan due March 2014 was outstanding.
Interest
on the $1.5 billion revolving credit facilities currently accrues at the London
Interbank Offered Rate (LIBOR) plus a margin 1.25 percent, subject to an
increase or decrease in the interest rate margin based on the credit rating
assigned by Standard & Poor’s and Moody’s to the senior credit facility.
Interest on the term loan due March 2014 accrues at LIBOR plus 1.75
percent.
The
senior credit facility contains covenants, including limitations on
indebtedness, liens, asset sales, prepayments of indebtedness and transactions
with affiliates. Financial leverage ratios must be met in order to incur certain
indebtedness and are required to be maintained when there are amounts drawn
or
letters of credits outstanding under the revolving credit facilities. The senior
credit facility is guaranteed by certain wholly owned subsidiaries of FCX and
is
secured by the pledge of equity in substantially all of these subsidiary
guarantors and certain other non-guarantor subsidiaries of FCX, and intercompany
indebtedness owed to
FCX.
Borrowings by FCX and PT Freeport Indonesia under the $0.5 billion revolver
are
also secured with a pledge of 50.1 percent of the outstanding stock of PT
Freeport Indonesia, over 90 percent of the assets of PT Freeport Indonesia
and,
with respect to borrowings by PT Freeport Indonesia, a pledge of the Contract
of
Work.
Senior
Notes.
Interest
on the senior notes is payable semiannually on April 1 and October 1, beginning
on October 1, 2007. Interest on the $1.0 billion of senior floating rate notes
due April 2015 accrues at the six-month LIBOR plus 3.25 percent. FCX may redeem
some or all of the notes at its option at make-whole redemption prices, and
afterwards at stated redemption prices. FCX may make these optional make-whole
redemptions prior to April 1, 2009, for the senior floating rate notes; April
1,
2011, for the 8¼% Senior Notes due April 2015; and April 1, 2012, for the 8⅜%
Senior Notes due April 2017. The indenture governing the notes contains
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.
Preferred
Stock.
On May
10, 2010, the 6¾% mandatory convertible preferred stock will automatically
convert into between approximately 39 million and 47 million shares of FCX
common stock at a conversion rate that will be determined based on FCX’s common
stock price. The conversion rate per $100 face amount of mandatory preferred
will be 1.6327 when the FCX common stock price is at or below $61.25 and 1.3605
when the FCX common stock price is at or above $73.50. For FCX common stock
prices between these levels, the conversion rate will be equal to $100 divided
by FCX’s common stock price. Prior to May 1, 2010, holders may convert their 6¾%
mandatory convertible preferred stock at a conversion rate of 1.3605. Beginning
August 1, 2007, dividends are payable quarterly on February 1, May 1, August
1
and November 1.
In
the
first quarter of 2007, FCX recorded net charges totaling $87.8 million ($74.6
million to net income or $0.31 per share) associated with the accelerated
amortization of deferred financing costs for the credit facility.
In
May
2007, FCX redeemed its 10⅛% Senior Notes ($272.4 million balance) for $286.2
million. FCX also prepaid an additional $500 million of term debt in April
2007.
As a result of these transactions, FCX will record charges totaling
approximately $24 million (approximately $21 million to net income) in the
second quarter of 2007 related to the premiums paid and the accelerated
recognition of deferred financing costs associated with these debt reductions.
FCX’s
first-quarter 2007 income tax provision resulted from taxes on earnings of
international operations ($505.7 million), offset by a tax benefit from losses
in the U.S. ($45.5 million). The first-quarter 2007 income tax provision
primarily related to the operations of PT Freeport Indonesia, FCX’s Indonesian
mining unit. Also included is $33.5 million associated with Phelps Dodge’s
earnings for the 12-day period ending March 31, 2007. FCX’s income tax provision
($221.7 million) for first-quarter 2006 resulted from taxes on PT Freeport
Indonesia’s earnings.
FCX’s
effective income tax rate was approximately 43 percent for first-quarter 2007
and 2006. The difference between the effective income tax rates for the first
quarters of 2007 and 2006 and the U.S. federal statutory rate of 35 percent
primarily was attributable to withholding taxes incurred in connection with
earnings from Indonesian mining operations and income taxes incurred by PT
Indocopper Investama.
Effective
January 1, 2007, FCX adopted FASB Interpretation No. 48 (FIN 48), “Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,”
which prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Upon adoption, FCX recognized a cumulative
effect adjustment to increase beginning retained earnings of approximately
$4
million. Following adoption of FIN 48, FCX no longer classifies interest and
penalties accrued for unrecognized tax benefits within the calculation of the
provision for income taxes. The following provides a summary of first-quarter
2007 activity associated with the reserve for unrecognized tax benefits,
interest and penalties (in millions):
|
Unrecognized
|
|
|
|
|
|
|
|
Tax
Benefit
|
|
Interest
|
|
Penalties
|
Balance,
at beginning of period
|
$
|
40.8
|
|
$
|
10.6
|
|
$
|
-
|
Additions:
|
|
|
|
|
|
|
|
|
Acquisition
of Phelps Dodge
|
|
220.4
|
|
|
6.6
|
|
|
1.7
|
Prior
year tax positions
|
|
1.2
|
|
|
1.0
|
|
|
-
|
Balance,
March 31, 2007
|
$
|
262.4
|
|
$
|
18.2
|
|
$
|
1.7
|
The
reserve for unrecognized tax benefits of $262.4 million at March 31, 2007,
includes $123.6 million ($116.3 million net of income tax benefits) that, if
recognized, would reduce FCX’s provision for income taxes.
For
first-quarter 2006, interest and penalties accrued for unrecognized tax benefits
recorded in the provision for income taxes totaled $3.1 million.
FCX
or
its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The tax years of FCX and its
significant subsidiaries that remain subject to examination are as
follows:
Jurisdiction
|
Years
Under Examination
|
Additional
Open Years
|
U.S.
Federal
|
1997-2005
|
2006
|
Indonesia
|
-
|
2002-2006
|
Peru
|
2003
|
1999-2002,
2004-2006
|
Chile
|
-
|
2003-2006
|
Arizona
|
-
|
2002-2006
|
New
Mexico
|
-
|
2003-2006
|
FCX
has
not identified any uncertain tax position for which it is reasonably possible
that the total amount of unrecognized tax benefit will significantly increase
or
decrease within the 12-month period following the date of adoption.
Interest
expense excludes capitalized interest of $6.8 million in the first quarter
of
2007 and $1.8 million in the first quarter of 2006.
11.
|
ENVIRONMENTAL,
RECLAMATION AND CLOSURE
|
FCX
has
the following environmental, reclamation and closure obligations following
its
acquisition of Phelps Dodge:
Environmental.
FCX
is
subject to various stringent federal, state and local environmental laws and
regulations that govern emissions of air pollutants; discharges of water
pollutants; and generation, handling, storage and disposal of hazardous
substances, hazardous wastes and other toxic materials. FCX also is subject
to
potential liabilities arising under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) or similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances,
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the environment,
including damages to natural resources. In addition, FCX is subject to potential
liabilities under the Resource Conservation and Recovery Act (RCRA) and
analogous state laws that require responsible parties to remediate releases
of
hazardous or solid waste constituents into the environment associated with
past
or present activities.
Phelps
Dodge or its subsidiaries previously have been advised by EPA, the U.S. Forest
Service and several state agencies that, under CERCLA or similar state laws
and
regulations, they may be liable for costs of responding to environmental
conditions at a number of sites that have been or are being investigated by
EPA,
the U.S. Forest Service or states to determine whether releases of hazardous
substances have occurred and, if so, to develop and implement remedial actions
to address environmental concerns. Phelps Dodge or its
subsidiaries
also have previously been advised by trustees for natural resources that it
may
be liable under CERCLA or similar state laws for damages to natural resources
caused by releases of hazardous substances.
At
March
31, 2007, environmental reserves totaled approximately $356 million, which
reflected the fair value of the estimated obligations. The long-term portion
of
these reserves is included in accrued post retirement benefits and other
liabilities on the consolidated balance sheets and amounted to $250.4 million
at
March 31, 2007. At March 31, 2007, the unescalated, undiscounted environmental
reserve totaled approximately $382 million, leaving approximately $26 million
to
be accreted over time. These environmental obligations were estimated based
on
projected cash flows, which included an estimated long-term inflation rate
of
2.25 percent, and then discounted using a credit-adjusted risk-free interest
rate of 7.8 percent.
Pinal
Creek.
The
Pinal
Creek site located near Miami, Arizona, has the most significant environmental
reserve of all sites totaling approximately $96 million. The Pinal Creek site
was listed under the Arizona Department of Environmental Quality (ADEQ) Water
Quality Assurance Revolving Fund program in 1989 for contamination in the
shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona.
Since that time, environmental remediation has been performed by the members
of
the Pinal Creek Group (PCG), consisting of Phelps Dodge Miami, Inc., a
wholly owned subsidiary of Phelps Dodge, and two other companies. In 1998,
the
District Court approved a Consent Decree between the PCG members and the state
of Arizona resolving all matters related to an enforcement action contemplated
by the state of Arizona against the PCG members with respect to the groundwater
matter. The Consent Decree committed Phelps Dodge Miami, Inc. and the other
PCG
members to complete the remediation work outlined in the Consent Decree. That
work continues at this time pursuant to the Consent Decree and consistent with
state law and the National Contingency Plan prepared by EPA under
CERCLA.
Phelps
Dodge Miami, Inc. and the other PCG members have been pursuing contribution
litigation against three other parties involved with the site. Phelps Dodge
Miami, Inc. dismissed its contribution claims against one defendant when another
PCG member agreed to be responsible for any share attributable to that
defendant. Phelps Dodge Miami, Inc. and the other PCG members settled their
contribution claims against another defendant in April 2005. While the terms
of
the settlement are confidential, the proceeds of the settlement will be used
to
address remediation at the Pinal Creek site. The trial on the issue of
allocating liability has been postponed because of a discovery dispute and
related orders and appeals, and has not yet been rescheduled.
While recoveries
or payments may result from the contribution litigation, FCX cannot reasonably
estimate the amount and, therefore, has not taken this into consideration in
its
reserve estimates.
Phelps
Dodge Miami, Inc.’s share of the planned remediation work based on the interim
agreements between the parties has a cost range on an undiscounted and
unescalated basis for reasonably expected outcomes estimated to be from $90
million to $203 million. Approximately $96 million (based on discounted present
value calculations) remained in FCX’s Pinal Creek remediation reserve at March
31, 2007.
Other.
At
March
31, 2007, the cost range for reasonably possible outcomes for all reservable
environmental remediation sites on an undiscounted and unescalated basis
(including Pinal Creek’s estimate of approximately $90 million to $203 million)
was approximately $336 million to $624 million (of which approximately $356
million has been reserved). Significant work is expected to be completed in
the
next several years to remediate these sites.
FCX
believes it has other potential claims for recovery from other third parties,
including the U.S. government and other potentially responsible parties (PRPs).
Neither claims nor offsets are recognized unless realization of such offsets
is
considered probable.
FCX
has
several sites for which no environmental reserve has been recognized because
it
is not probable that a successful claim will be made against FCX for those
sites, but for which there is a reasonably possible likelihood of an
environmental remediation liability. While liabilities, if any, ultimately
arising from potential environmental obligations that have not been reserved
at
this time may be material to the operating results of any single future quarter
or year, management does not believe such liability is likely to have a material
adverse
effect on FCX’s liquidity or financial position as such obligations could be
satisfied over a period of years.
The
following table summarizes environmental reserve activities for the period
ended
March 31, 2007 (in millions):
Balance,
beginning of period
|
$
|
-
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
358.4
|
|
Spending
against reserves
|
|
(2.3
|
)
|
Balance,
end of period
|
$
|
356.1
|
|
Asset
Retirement Obligations.
In
connection with its acquisition of Phelps Dodge, FCX has recorded the following
asset retirement obligations (AROs) at March 31, 2007, accounted for in
accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” (in
millions):
Asset
Retirement Obligations
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$
|
-
|
|
Liabilities
assumed in acquisition of Phelps Dodge
|
|
406.2
|
|
Accretion
expense
|
|
1.0
|
|
Payments
|
|
(1.3
|
)
|
Balance,
end of period
|
$
|
405.9
|
|
At
March
31, 2007, FCX estimated its share of the total cost of AROs, including
anticipated future disturbances and cumulative payments, at approximately $1.3
billion (unescalated, undiscounted and on a third-party cost basis), leaving
approximately $900 million remaining to be accreted over time. These aggregate
costs may increase or decrease materially in the future as a result of changes
in regulations, engineering designs and technology, permit modifications or
updates, mine plans or other factors and as actual reclamation spending occurs.
ARO activities and expenditures generally are made over an extended period
of
time commencing near the end of the mine life; however, certain reclamation
activities could be accelerated if they are determined to be economically
beneficial.
At
March
31, 2007, FCX had a trust dedicated to funding global reclamation and
remediation activities totaling $422.4 million, and also had trust assets that
are legally restricted, totaling $99.4 million, to fund a portion of its asset
retirement obligations for Chino, Tyrone and Cobre as required for New Mexico
financial assurance.
FCX
has
the following additional contingencies in connection with the acquisition of
Phelps Dodge:
Letters
of Credit and Surety Bonds.
Standby
letters of credit totaled approximately $98 million at March 31, 2007, primarily
for reclamation, environmental obligations and workers’ compensation insurance
programs. In addition, FCX had surety bonds totaling approximately $94 million
at March 31, 2007, associated with reclamation, closure and environmental
obligations (approximately $66 million or 70 percent - see discussion below),
self-insurance bonds primarily for workers’ compensation (approximately $23
million or 25 percent) and miscellaneous bonds (approximately $5 million or
5
percent).
Insurance
.
FCX
purchases a variety of insurance products to mitigate insurable losses. The
various insurance products typically have specified deductible amounts, or
self-insured retentions, and policy limits. FCX and Phelps Dodge each purchase
all-risk property insurance with varying site deductibles. FCX is in the process
of integrating the Phelps Dodge operations into its global property insurance
program and expects to complete this process by the end of second-quarter 2007.
FCX generally is self-insured for U.S. workers’ compensation, but purchases
excess insurance up to statutory limits. An actuarial study is performed twice
a
year by an independent, third-party actuary for various FCX casualty programs,
including workers’ compensation, to estimate required insurance reserves.
Insurance reserves totaled approximately $56 million at March 31,
2007.
Environmental
and Reclamation Programs.
With
regard to the disclosed environmental, reclamation and closure obligations
discussed in Note 11, following provides a summary of the significant Arizona
and New Mexico environmental and reclamation programs and related
contingencies.
Significant
Arizona Environmental and Reclam
ation
Programs.
FCX’s
Arizona properties are subject to regulatory oversight and compliance in several
areas. The ADEQ has adopted regulations for its aquifer protection permit (APP)
program that replaced previous Arizona groundwater quality protection permit
regulations. APP regulations require permits for certain facilities, activities
and structures for mining, concentrating and smelting and requires compliance
with aquifer water quality standards at an applicable point of compliance well
or location. The APP program also may require mitigation and discharge reduction
or elimination of some discharges.
An
application for an APP requires a description of a closure strategy to meet
applicable groundwater protection requirements following cessation of operations
and a cost estimate to implement the closure strategy. An APP may specify
closure requirements, which may include post-closure monitoring and maintenance
requirements. A more detailed closure plan must be submitted within 90 days
after a permitted entity notifies ADEQ of its intent to cease operations. A
permit applicant must demonstrate its financial capability to meet the closure
costs required under the APP.
Portions
of the acquired Phelps Dodge Arizona mining facilities that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation measures specified in the plan.
Financial assurance must be provided under AMLRA covering the estimated cost
of
performing the reclamation plan.
At
March
31, 2007, FCX had accrued closure costs of approximately $71 million for its
Arizona operations. The amount of financial assurance currently demonstrated
for
Arizona closure and reclamation activities is approximately $183 million.
The
Tohono facility is located on Tohono O’odham Nation (the Nation) property in
southern Arizona. Tohono’s leases and Mine Plans of Operations (MPOs) impose
certain environmental compliance, closure and reclamation requirements, with
closure and reclamation actions required upon termination of the leases, which
currently expire between 2012 and 2017, unless terminated earlier in accordance
with the terms of the leases. Previous studies indicate that closure and
reclamation requirements are estimated at approximately $5 million. Phelps
Dodge
previously provided interim financial assurance in the amount of $5.1 million,
of which $5.0 million is in the form of a corporate performance guarantee.
Tohono has informally obtained an extension from the Nation to update the
previous closure and reclamation studies and associated cost estimates by June
2008.
Significant
New Mexico Environmental and Re
clamation
Programs.
FCX’s
New
Mexico operations are subject to regulation under the New Mexico Water Quality
Act and the Water Quality Control Commission (WQCC) regulations adopted under
that Act. The New Mexico Environment Department (NMED) has required each of
these operations to submit closure plans for NMED’s approval. The closure plans
must describe measures to be taken to prevent groundwater quality standards
from
being exceeded following the closure of discharging facilities and to abate
any
groundwater or surface water contamination.
FCX’s
New
Mexico operations also are subject to regulation under the New Mexico Mining
Act
(the Mining Act), which was enacted in 1993, and the Mining Act Rules, which
are
administered by Mining Minerals Division (MMD). Under the Mining Act, mines
are
required to submit and obtain approval of closeout plans describing the
reclamation to be performed following closure of the mines or portions of the
mines.
Chino,
Tyrone and Cobre each have NMED-issued closure permits and MMD-approved closeout
plans. Chino’s closure permit was appealed to the WQCC by a third party. The
appeal originally was dismissed by the WQCC on procedural grounds, but that
decision was overturned by the New Mexico Court of Appeals. The WQCC has
postponed the hearing on the Chino closure permit pending a report by the
parties regarding
settlement
discussions. Tyrone appealed certain conditions in its closure permit to the
WQCC, which upheld the permit conditions. Tyrone appealed the WQCC’s decision to
the Court of Appeals, and on June 15, 2006, the Court of Appeals overturned
two
conditions that Tyrone had challenged in its closure permit. The New Mexico
Supreme Court denied Petitions for Certiorari filed by other parties. The case
has been remanded to the WQCC for further proceedings to address the Court
of
Appeals decision and a hearing before the WQCC is set for June 12, 2007. Hidalgo
has applied for renewal of its discharge permit, which includes a requirement
for an updated closure plan. Hidalgo expects NMED to issue a new permit,
including permit conditions regarding closure and financial
assurance.
The
terms
of the NMED closure permits and MMD-approved closeout plans for Chino, Tyrone
and Cobre require the facilities to conduct supplemental studies concerning
closure and closeout, including feasibility studies to evaluate additional
closure and reclamation alternatives. The feasibility studies are due, along
with amended closure plans, before the end of the five-year permit terms, which
end in 2008 for Chino and Tyrone and in 2009 for Cobre. Chino’s feasibility
study report was submitted in February 2007. The terms of the NMED closure
permits also require the facilities to prepare and submit abatement plans to
address groundwater that exceeds New Mexico groundwater quality standards as
well as potential sources of future groundwater contamination. Changes to the
existing closure plans and additional requirements arising from the abatement
plans could increase or decrease the cost of closure and closeout. Cobre
submitted an application to MMD and NMED for a standby permit to defer
implementation of closure and reclamation requirements, which was approved
on
December 5, 2006. Cobre continues on care-and-maintenance status.
Internal
cost estimates to perform the work (internal cost basis) generally are lower
than the cost estimates used for financial assurance because of savings from
the
use of internal personnel and equipment as opposed to third-party contractor
costs, and opportunities to prepare the site for more efficient reclamation
as
mining progresses, among other factors. FCX estimates its total cost, on an
internal cost basis, to perform the requirements of the approved closure and
closeout permits to be approximately $283 million for Chino, $338 million for
Tyrone and $39 million for Cobre (undiscounted and unescalated) over the
100-year period of the closure and closeout plans. Cost estimates, on a
third-party cost basis used to determine the fair value of closure and closeout
accrual for SFAS No. 143 totaled approximately $391 million for Chino, $438
million for Tyrone and $47 million for Cobre (undiscounted and unescalated).
At
March 31, 2007, FCX had accrued approximately $53 million for Chino, $201
million for Tyrone, $9 million for Cobre and $4 million for Hidalgo.
The
terms
of the permits also require Chino, Tyrone, Cobre and Hidalgo to provide and
maintain financial assurance based upon the estimated cost to the state of
New
Mexico to implement the closure and closeout plans, including any long-term
operation and maintenance obligations, in the event of a default by the
operators. The third-party cost estimates for financial assurance under the
existing permits are $395 million for Chino, $373 million for Tyrone and $45
million for Cobre on an undiscounted and unescalated basis over the 100-year
period of the closure and closeout plans. Hidalgo is updating its cost estimate
as part of its pending closure permit renewal. These cost estimates are
converted to a discounted present value basis to determine the amount of
financial assurance required for each facility. Financial assurance amounts
as
of March 31, 2007, which reflected reductions for work completed through 2006
and agreed upon by NMED and MMD, were $185 million for Chino and $29 million
for
Cobre. As of April 23, 2007, Tyrone’s financial assurance requirement was
adjusted to $218 million.
Up
to 70
percent of the financial assurance for Chino, Tyrone and Cobre is in the form
of
third-party guarantees provided by Phelps Dodge. The terms of the applicable
regulations and the guarantees require Phelps Dodge to meet certain financial
tests. Phelps Dodge provided demonstrations that it met the applicable financial
tests under the terms of the applicable regulations and the guarantees as of the
end of 2006. If it is determined that Phelps Dodge no longer meets the
applicable financial tests following its acquisition by FCX, the Phelps Dodge
guarantees would have to be replaced with financial assurance in another form.
Legal.
Columbian
Chemicals Company (Columbian), formerly a subsidiary of Phelps Dodge, together
with several other companies, is a defendant in an action entitled
Technical
Industries, Inc. v. Cabot Corporation, et al.
,
No. CIV
03-10191 WGY, filed on January 30, 2003, in the U.S. District Court in Boston,
Massachusetts, and 14 other actions filed in four U.S. district courts, on
behalf of a purported class of all individuals or entities who purchased carbon
black directly from the defendants since January 1999. The Judicial Panel on
Multidistrict
Litigation consolidated all of these actions in the U.S. District Court for
the
District of Massachusetts under the caption
In
Re
Carbon Black Antitrust Litigation
.
The
consolidated amended complaint, which alleges that the defendants fixed the
prices of carbon black and engaged in other unlawful activities in violation
of
the U.S. antitrust laws, seeks treble damages in an unspecified amount and
attorney’s fees. The court certified a class that includes all direct purchasers
of carbon black in the United States from January 30, 1999, through January
18,
2005. On March 20, 2007, the court approved a $4 million settlement by one
group
of defendants. The motion for summary judgment filed by Columbian and the other
remaining defendants is still pending. The court has scheduled a trial date
of
July 23, 2007, if the motion is not granted.
A
separate action entitled
Carlisle
Companies Incorporated, et al. v. Cabot Corporation, et al.
,
was
filed against Columbian and other defendants on behalf of a group of affiliated
companies that opted out of the federal class action. This action, which asserts
similar claims as the class action, was filed in the Northern District of New
York on July 28, 2005, but was transferred to the District of Massachusetts,
where the class action is pending, and was consolidated with the class action
for pretrial purposes. No separate proceedings have occurred in this action,
which is not subject to the summary judgment motion in the class
action.
Actions
are pending in state courts in California, Florida, Kansas, South Dakota and
Tennessee on behalf of purported classes of indirect purchasers of carbon black
in those and six other states, alleging violations of state antitrust and
deceptive trade practices laws. Motions to dismiss are pending in the Kansas
and
South Dakota actions. A motion for class certification has been filed in the
Tennessee action. Similar actions filed in state courts in New Jersey and North
Carolina, and additional actions in Florida and Tennessee, have been dismissed.
Columbian also received a demand for relief on behalf of indirect purchasers
in
Massachusetts, but no lawsuit has been filed.
Phelps
Dodge retained responsibility for the claims against Columbian pursuant to
the
agreement for the sale of Columbian. Columbian has committed to provide
appropriate assistance to defend these matters. FCX believes the claims are
without merit and intends to defend the lawsuits vigorously.
Since
approximately 1990, Phelps Dodge or its subsidiaries have been named as a
defendant in a large number of product liability or premises
lawsuits claiming injury from exposure to asbestos found in electrical
wire products produced or marketed many years ago, or from asbestos at certain
Phelps Dodge properties. FCX believes its liability, if any, in these
matters will not have a material adverse effect, either individually or in
the
aggregate, upon its business, financial condition, liquidity, results of
operations or cash flow. There can be no assurance, however, that future
developments will not alter this conclusion.
13.
|
COMMITMENTS
AND GUARANTEES
|
Following
its acquisition of Phelps Dodge, FCX has unconditional purchase obligations
(take-or-pay contracts with terms in excess of one year) of $774.2 million,
comprising the procurement of copper anodes, transportation, electricity, other
supplies and services, sulfuric acid, port fee commitments and oxygen that
are
essential to its worldwide operations. A summary of the maturities of these
take-or-pay obligations at March 31, 2007, follows (in millions):
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
+5
Years
|
Take-or-pay
obligations
|
$
|
774.2
|
|
$
|
398.2
|
|
$
|
288.8
|
|
$
|
64.8
|
|
$
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
its acquisition of Phelps Dodge, FCX is also a guarantor in financial guarantees
(including option guarantees and indirect guarantees of the indebtedness of
others) and indemnities. At its Morenci mine in Arizona, FCX has a venture
agreement dated February 7, 1986, with its business partner, Sumitomo Metal
Mining Arizona, Inc. (Sumitomo), which includes a put/call option guarantee
clause. FCX holds an 85 percent undivided interest in the Morenci complex.
Under
certain conditions defined in the venture agreement, Sumitomo has the right
to
sell its 15 percent share to FCX. Likewise, under certain conditions, FCX has
the right to exercise its purchase option to acquire Sumitomo’s share of the
venture. Based on calculations defined in the venture agreement, at March 31,
2007, the maximum potential payment FCX is obligated to
make to Sumitomo upon exercise of the put option
(or FCX’s exercise of
its call option) totaled $146.7 million. As of March 31, 2007, FCX had
not recorded any liability in its consolidated financial statements in
connection with this guarantee as FCX does not believe, based on information
available, that it is probable that any
amounts
will be paid under this guarantee as the fair value of Sumitomo’s 15 percent
share is well in excess of the exercise price.
Prior
to
its acquisition by FCX, Phelps Dodge and its subsidiaries have, as part of
merger, acquisition, divestiture and other transactions entered into during
the
ordinary course of business (including transactions involving the purchase
and
sale of property), from time to time, indemnified certain sellers, buyers or
other parties related to the transaction from and against certain liabilities
associated with conditions in existence (or claims associated with actions
taken) prior to the closing date of the transaction. As part of certain
transactions, Phelps Dodge indemnified the counterparty from and against certain
excluded or retained liabilities existing at the time of sale that would
otherwise have been transferred to the party at closing. These indemnity
provisions generally now require FCX to indemnify the party against certain
liabilities that may arise in the future from the pre-closing activities of
Phelps Dodge for assets sold or purchased. The indemnity classifications include
environmental, tax and certain operating liabilities, claims or litigation
existing at closing and various excluded liabilities or obligations. Most of
these indemnity obligations arise from transactions that closed many years
ago,
and given the nature of these indemnity obligations, it is impossible to
estimate the maximum potential exposure. Except as described in the following
sentence, FCX does not consider any of such obligations as having a probable
likelihood of payment that is reasonably estimable, and accordingly, has not
recorded any obligations associated with these indemnities. With respect to
FCX’s environmental indemnity obligations, any expected costs from these
guarantees are accrued when potential environmental obligations are considered
by management to be probable and the costs can be reasonably estimated.
14.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
In
connection with the acquisition of Phelps Dodge, we acquired certain derivative
instruments entered into by Phelps Dodge. The most significant of these
derivatives are zero-premium copper collars (consisting of both put and call
options) and copper put options. These derivative instruments do not qualify
for
hedge accounting and are adjusted to fair market value based on the forward
curve price and implied volatility as of the last day of the respective
reporting period, with the gain or loss recorded in revenues. The fair values
of
derivative instruments of Phelps Dodge following its acquisition by FCX are
based on valuations provided by third parties, purchased derivative pricing
models or widely published market closing prices at period end. A summary of
the
most significant acquired derivative financial instruments as of March 31,
2007,
follows (in millions, except per unit prices):
|
|
|
Expired
Derivative
|
|
|
|
|
Positions
|
|
|
|
|
Hedged
|
|
|
|
|
Open
Derivative Positions
|
|
Sales
|
|
|
|
|
Open
|
|
Gain/
|
|
|
|
Price
Per
|
|
Gain/
|
|
|
Position
|
|
(Loss)
a
|
|
Maturity
|
|
Unit
|
|
(Loss)
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
price protection (lbs.)
b
|
1,215.6
|
|
$
|
(38.1
|
)
|
December
2007
|
|
$
|
-
|
|
$
|
-
|
|
Copper
fixed-price rod sales (lbs.)
|
121.0
|
|
|
12.8
|
|
November
2008
|
|
|
3.07/lb.
|
|
|
2.2
|
|
Metal
purchase (lbs.)
|
55.4
|
|
|
0.3
|
|
June
2008
|
|
|
-
|
|
|
0.1
|
|
a.
|
Gains/losses
are recognized in the consolidated statements of income for the
March
20, 2007 to March 31, 2007 period.
|
b.
|
With
the acquisition of Phelps Dodge, FCX assumed copper hedging contracts
whereby 486 million pounds of copper for 2007
are
capped at $2.00 per pound. Mark-to-market accounting adjustments
on these
contracts resulted in charges of $38.1 million to revenues for the
first
quarter of 2007. At March 31, 2007, the liability associated with
these
contracts is $461.5 million (refer to discussion of copper price
protection program below for additional
information).
|
A
summary
of the significant hedging strategies and the derivative instruments used in
FCX’s risk management programs are provided below:
Metals
Hedging
Copper
Price Protection Program.
Following
the acquisition of Phelps Dodge,
FCX
has
Phelps Dodge’s 2007 copper price protection program, which consists of
zero-premium copper collars for 486 million pounds of copper, capped at $2.00
per pound and put options for 730 million pounds with a floor price of $0.95
per
pound. Hedge gains or losses from the protection program are recognized in
revenue. The 2007 copper price protection program matures December 31, 2007,
and
will settle in the first quarter of 2008 based on the annual average London
Metal Exchange (LME) price. FCX does not currently intend to enter into similar
hedging programs in the future.
Copper
Fixed-Price Rod Sales.
Some
copper wire customers request a fixed sales price instead of the New York
Commodity Exchange (COMEX) average price in the month of shipment. This
fixed-price sales exposure is hedged in a manner that allows FCX to receive
the
COMEX average price in the month of shipment while customers receive the
requested fixed price. Gains or losses from these contracts are recognized
in
revenue.
Metal
Purchase.
FCX’s
international manufacturing operations may enter into metal (aluminum, copper
and lead) swap contracts to hedge metal purchase price exposure on fixed-price
sales contracts to allow FCX to lock in the cost of the metal used in
fixed-price sales of cable to customers. These swap contracts are generally
settled during the month of finished product shipment and result in a net LME
metal price consistent with that agreed with FCX’s customers. Gains or losses
from the swap contracts are recognized in production and delivery
costs.
With
the
acquisition of Phelps Dodge, FCX’s business consists of three primary operating
divisions - Indonesian mining, North American mining and South American mining.
A discussion of the reportable segments included in these operating divisions,
as well as FCX’s other reportable segments - Atlantic Copper and PDIC, follows.
FCX continues to evaluate reportable segments in conjunction with its review
of
its management reporting structure following the acquisition of Phelps Dodge,
and therefore, the following reportable segments may change in the future.
Indonesian
Mining.
Indonesian mining includes PT Freeport Indonesia’s copper and gold mining
operations and PT Puncakjaya Power’s power-generating operations (after
eliminations with PT Freeport Indonesia).
North
American Mining.
North
American mining comprises copper operations from mining through rod production,
molybdenum operations from mining through conversion to chemical and
metallurgical products, marketing and sales. The North American mining operating
division includes one reportable copper production segment (Morenci), and also
includes as reportable segments Primary Molybdenum and Manufacturing.
The
Morenci open-pit mine, located in southeastern Arizona, primarily produces
electrowon copper cathodes and copper concentrates. In addition to copper,
the
Morenci mine produces molybdenum. FCX owns an 85 percent undivided interest
in
Morenci, an unincorporated joint venture, and applies the proportional
consolidation method of accounting. The remaining 15 percent is owned by
Sumitomo Metal Mining Arizona, Inc., a jointly owned subsidiary of Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation. Each partner takes in kind
its
share of Morenci’s production.
The
Manufacturing segment consists of copper conversion facilities, including a
smelter, refinery, rod mills and specialty copper products facility. This
segment processes copper produced at the North American mines and copper
purchased from others into copper anode, cathode, rod and custom copper shapes.
The Miami smelter is the most significant source of sulfuric acid for the
various North American leaching operations. In addition, at times it smelts
and
refines copper and produces copper rod and shapes for customers on a toll basis.
Toll arrangements require the tolling customer to deliver appropriate
copper-bearing material to FCX’s facilities for processing into a product that
is returned to the customer. The customer pays FCX for processing its material
into the specified products.
The
Primary Molybdenum segment includes FCX’s wholly owned Henderson and Climax
molybdenum mines in Colorado, related conversion facilities and a technology
center. This segment is an integrated producer of molybdenum, with mining,
roasting and processing facilities that produce high-purity, molybdenum-based
chemicals, molybdenum metal powder and metallurgical products, which are sold
to
customers around the world. In addition, at times this segment roasts and/or
processes material on a toll basis. Toll arrangements require the tolling
customer to deliver appropriate molybdenum-bearing material to FCX’s facilities
for processing into a product that is returned to the customer. The customer
pays FCX for processing its material into the specified products. This segment
also includes a technology center whose primary activity is developing new
engineered products and applications.
Other
North American mining operations, although not reportable segments, include
FCX’s other southwestern U.S. copper mines - Bagdad, Sierrita, Chino, Cobre,
Tyrone, Miami, Bisbee and Tohono. In addition to copper, the Bagdad, Sierrita
and Chino mines produce molybdenum, gold, silver and rhenium. Other North
American mining operations also include the Safford project, which is currently
under development and a sales company, which functions as an agent to purchase
and sell copper from the North American mines and the Manufacturing segment
and
also purchases and sells any copper not sold by the South American mines to
third parties.
Intersegment
revenues of individual North American mines represent an internal allocation
based on sales to unaffiliated customers and realized copper prices.
Intersegment sales by the South American mines are based upon arms-length prices
at the time of the sale. Intersegment sales of any individual mine may not
be
reflective of the actual prices ultimately realized because of a variety of
factors, including additional processing, timing of sales to unaffiliated
customers and transportation premiums.
South
American Mining.
South
American mining includes one reportable copper production segment (Cerro Verde).
The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces
electrowon copper cathodes and copper concentrates. In addition to copper,
the
Cerro Verde mine produces molybdenum and silver. FCX owns a 53.56 percent equity
interest in Cerro Verde, which it fully consolidates and reports the minority
interest. The remaining 46.44 percent is held by SMM Cerro Verde Netherlands
B.V., Compañía de Minas Buenaventura S.A.A. and other minority shareholders
through shares publicly traded on the Lima Stock Exchange.
Cerro
Verde has recently completed an approximate $900 million expansion project,
which permits the mining of a primary sulfide ore body beneath the leachable
ore
body currently in production. Through the expansion, approximately 1.5 billion
tons of sulfide ore reserves averaging 0.47 percent copper and 0.02 percent
molybdenum will be processed through the new concentrator. Processing of the
sulfide ore began in the fourth quarter of 2006, and the mill is on schedule
to
reach design capacity during the second quarter of 2007. With the completion
of
the expansion, copper production at Cerro Verde initially is expected to
approximate 650 million pounds per year (approximately 348 million pounds per
year for FCX’s share). In addition, the expansion is expected to produce an
average of approximately 8 million pounds of molybdenum per year (approximately
4 million pounds per year for FCX’s share) for the next 10 years.
Other
South American mining operations, although not reportable segments, include
FCX’s other South American copper mines - Candelaria, Ojos del Salado and El
Abra - which include open-pit and underground mining, sulfide ore concentrating,
leaching, solution extraction and electrowinning. In addition to copper, the
Candelaria and Ojos del Salado mines produce gold and silver. FCX owns an 80
percent partnership interest in both the Candelaria and Ojos del Salado mines,
and owns a 51 percent partnership interest in the El Abra mine. FCX fully
consolidates these operations and reports the minority interest. Other South
American mining operations also includes other ancillary
operations.
Atlantic
Copper Smelting & Refining.
Atlantic
Copper smelting & refining includes FCX’s smelting and refining operations
in Spain.
PDIC.
PDIC
is
FCX’s international manufacturing division, which produces engineered products
principally for the global energy sector. Its operations are characterized
by
products with internationally competitive costs
and
quality, and specialized engineering capabilities. Its factories, which are
located in nine countries throughout Latin America, Asia and Africa, manufacture
energy cables for international markets. Three of PDIC’s international
manufacturing companies have continuous-cast copper rod facilities, and three
have continuous-cast aluminum rod facilities.
In
addition to the allocation of revenues, FCX allocates certain operating costs,
expenses and capital to the individual segments that may not be reflective
of
market conditions. FCX does not allocate all costs and expenses applicable
to a
mine or operation from the division or corporate offices. Accordingly, the
following segment information reflects management determinations that may not
be
indicative of actual financial performance of each segment as if it was an
independent entity.
(in
millions)
|
Indonesia
|
|
North
America
|
|
South
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Other
|
|
Total
|
|
Atlantic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
North
|
|
|
|
South
|
|
South
|
|
Copper
|
|
|
|
Corporate,
|
|
|
|
|
|
|
|
|
Manufac-
|
|
Primary
|
|
American
|
|
American
|
|
Cerro
|
|
American
|
|
American
|
|
Smelting
|
|
|
|
Other
&
|
|
FCX
|
|
First-Quarter
2007
|
Grasberg
|
|
Morenci
|
|
turing
|
|
Molybdenum
|
|
Mining
|
|
Mining
|
|
Verde
|
|
Mining
|
|
Mining
|
|
&
Refining
|
|
PDIC
|
|
Eliminations
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
1,331.9
|
a
|
-
|
|
206.6
|
|
52.2
|
|
60.4
|
|
319.2
|
|
14.4
|
|
125.1
|
|
139.5
|
|
454.0
|
|
57.0
|
|
1.3
|
|
2,302.9
|
|
Intersegment
|
|
376.6
|
|
21.6
|
|
8.8
|
|
-
|
|
(6.1
|
)
|
24.3
|
|
96.8
|
|
25.4
|
|
122.2
|
|
-
|
|
0.1
|
|
(523.2
|
)
|
-
|
|
Production
and delivery
|
|
322.5
|
|
29.5
|
|
209.8
|
|
51.8
|
|
61.0
|
|
352.1
|
b
|
44.6
|
|
71.4
|
|
116.0
|
b
|
427.0
|
|
48.6
|
|
(314.1
|
)
|
952.1
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
59.2
|
|
5.0
|
|
0.4
|
|
3.3
|
|
5.3
|
|
14.0
|
|
8.8
|
|
19.6
|
|
28.4
|
|
10.5
|
|
0.5
|
|
3.7
|
|
116.3
|
|
Exploration
and research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
0.2
|
|
0.2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6.3
|
|
6.5
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
43.8
|
|
-
|
|
-
|
|
0.5
|
|
0.3
|
|
0.8
|
|
-
|
|
-
|
|
-
|
|
4.1
|
|
0.9
|
|
(0.7
|
)
|
48.9
|
|
Operating
income (loss)
|
$
|
1,283.0
|
|
(12.9
|
)
|
5.2
|
|
(3.4
|
)
|
(12.5
|
)
|
(23.6
|
)
|
57.8
|
|
59.5
|
|
117.3
|
|
12.4
|
|
7.1
|
|
(217.1
|
)
|
1,179.1
|
|
Interest
expense, net
|
$
|
4.0
|
|
-
|
|
0.2
|
|
-
|
|
(0.2
|
)
|
-
|
|
0.4
|
|
(0.2
|
)
|
0.2
|
|
7.2
|
|
0.3
|
|
40.2
|
|
51.9
|
|
Equity
in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
companies’
net earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
0.2
|
|
0.2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4.3
|
|
4.5
|
|
Provision
for income taxes
|
$
|
452.9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
21.7
|
|
19.2
|
|
40.9
|
|
-
|
|
-
|
|
(33.6
|
)
|
460.2
|
|
Minority
interests in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
of consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
25.3
|
|
21.8
|
|
47.1
|
|
-
|
|
0.7
|
|
66.6
|
|
114.4
|
|
Total
assets at March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
$
|
4,549.3
|
|
4,775.5
|
|
779.0
|
|
1,918.1
|
|
8,635.7
|
|
16,108.3
|
|
4,010.6
|
|
4,484.9
|
|
8,495.5
|
|
1,074.8
|
|
1,119.5
|
|
10,086.6
|
|
41,434.0
|
|
Capital
expenditures
|
$
|
74.0
|
|
15.3
|
|
1.7
|
|
1.5
|
|
34.3
|
|
52.8
|
|
0.6
|
|
1.6
|
|
2.2
|
|
7.5
|
|
0.5
|
|
5.4
|
|
142.4
|
|
First-Quarter
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
568.4
|
a
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
516.1
|
|
-
|
|
1.6
|
|
1,086.1
|
|
Intersegment
|
|
228.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(228.4
|
)
|
-
|
|
Production
and delivery
|
|
286.7
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
491.4
|
|
-
|
|
(300.2
|
)
|
477.9
|
|
Depreciation,
depletion and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
33.8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7.4
|
|
-
|
|
2.1
|
|
43.3
|
|
Exploration
and research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2.6
|
|
2.6
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
82.3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3.8
|
|
-
|
|
(55.5
|
)
|
30.6
|
|
Operating
income (loss)
|
$
|
394.0
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13.5
|
|
-
|
|
124.2
|
|
531.7
|
|
Interest
expense, net
|
$
|
3.3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5.4
|
|
-
|
|
14.0
|
|
22.7
|
|
Equity
in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
companies’
net earnings
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3.6
|
|
3.6
|
|
Provision
for income taxes
|
$
|
144.6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
77.1
|
|
221.7
|
|
Minority
interests in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
of consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries
|
$
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
27.1
|
|
27.1
|
|
Total
assets at March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
$
|
3,724.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
963.6
|
|
-
|
|
108.2
|
|
4,796.2
|
|
Capital
expenditures
|
$
|
48.9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3.5
|
|
-
|
|
(0.3
|
)
|
52.1
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $584.3 million in
the 2007 quarter and $282.5 million in the 2006
quarter.
|
b.
|
Includes
the purchase accounting impact of the increase in the carrying amount
of
Phelps Dodge’s metals inventories totaling $47.8 million for North
American mining and $47.8 million for South American
mining.
|
TABLE OF CONTENTS
TO
THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.:
We
have
reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper
& Gold Inc. as of March 31, 2007, the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 2007 and
2006,
and the related consolidated statement of stockholders’ equity for the
three-month period ended March 31, 2007. These financial statements are the
responsibility of the Company’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It
is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective
of
which is the expression of an opinion regarding the financial statements
taken
as a whole. Accordingly, we do not express such an opinion.
Based
on
our review, we are not aware of any material modifications that should be
made
to the condensed consolidated financial statements referred to above for
them to
be in conformity with U.S. generally accepted accounting
principles.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
Freeport-McMoRan Copper & Gold Inc. as of December 31, 2006, and the related
consolidated statements of income, stockholder’s equity, and cash flows for the
year then ended (not presented herein), and in our report dated February
26,
2007, we expressed an unqualified opinion on those consolidated financial
statements and which report included an explanatory paragraph for the Company’s
adoption of Statement of Financial Accounting Standards No. 123 (revised
2004),
“Share-Based Payment,” effective January 1, 2006; Emerging Issues Task Force
Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in
the Mining Industry,” effective January 1, 2006; and Statement of Financial
Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106
and 132R,” effective December 31, 2006. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 2006, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ERNST
& YOUNG LLP
New
Orleans, Louisiana
May
8,
2007
TABLE OF CONTENTS
OVERVIEW
In
management’s discussion and analysis, “we,” “us” and “our” refer to
Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries,
including, except as otherwise stated, Phelps Dodge Corporation (Phelps Dodge)
and its subsidiaries, which we acquired March 19, 2007. You should read this
discussion in conjunction with our financial statements, the related discussion
and analysis of financial condition and results of operations and the discussion
of our “Business and Properties” in our Form 10-K for the year ended December
31, 2006, filed with the Securities and Exchange Commission. The results of
operations reported and summarized below are not necessarily indicative of
future operating results. In particular, the financial results discussed include
the operations of Phelps Dodge for only 12 days, not the full first quarter
of
2007 because of the accounting treatment for the acquisition. References to
“Notes” are Notes included in our “Notes to Consolidated Financial
Statements.”
Throughout
management's discussion and analysis of financial condition and results of
operations, all references to earnings or losses per share are based on diluted
earnings or losses per common share.
Through
our majority-owned subsidiary, PT Freeport Indonesia, and our wholly owned
subsidiary, Phelps Dodge, we are one of the world’s largest copper, gold and
molybdenum mining companies in terms of reserves and production. Our principal
asset is the Grasberg minerals district, which based on available year-end
2005
copper reserve data and year-end 2006 gold reserve data provided by third-party
industry consultants, contains the largest single copper reserve and the largest
single gold reserve of any mine in the world.
On
March
19, 2007, we acquired Phelps Dodge, a fully integrated producer of copper and
molybdenum, with mines in North and South America and processing capabilities
for other by-product minerals, such as gold, silver and rhenium, and several
development projects, including the Tenke Fungurume mine in the Democratic
Republic of Congo (DRC). Additionally, Phelps Dodge has an international
manufacturing division, Phelps Dodge International Corporation (PDIC), which
manufactures engineered products principally for the global energy sector.
Through
Phelps Dodge, we have five operating open-pit copper mines in North America
-
Morenci, Bagdad and Sierrita in Arizona and Chino/Cobre and Tyrone in New
Mexico, and two primary molybdenum mines - Henderson and Climax (not currently
operating) in Colorado. In addition, a new copper mine is under construction
at
Safford, Arizona. All of these mining operations are wholly owned, except for
Morenci. FCX records its 85 percent interest in Morenci, an unincorporated
joint
venture, using the proportionate consolidation method. The North American mining
operations are operated in an integrated fashion and have long-lived reserves
with additional development potential.
Additionally,
through Phelps Dodge, we have four copper mines in South America - Candelaria,
Ojos del Salado and El Abra in Chile and Cerro Verde in Peru. We own an 80
percent partnership interest in both Candelaria and Ojos del Salado, a 51
percent partnership interest in El Abra and a 53.56 percent equity interest
in
Cerro Verde.
FCX
fully
consolidates the results of these operations and reports the minority
interest.
ACQUISITION
OF PHELPS DODGE
Phelps
Dodge became a wholly owned subsidiary of FCX on March 19, 2007. In the
acquisition, each share of Phelps Dodge common stock was exchanged for 0.67
of a
share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9
million shares and paid approximately $18.0 billion in cash to Phelps Dodge
shareholders. The estimated fair value of assets acquired and liabilities
assumed and the results of Phelps Dodge’s operations are included in FCX’s
consolidated financial statements beginning March 20, 2007.
FCX
paid
a premium (
i.e.
,
goodwill) over the estimated fair value of the net tangible and identified
intangible assets acquired for a number of potential strategic and financial
benefits that are expected to be realized. Refer to Note 2 for a discussion
of
these potential benefits.
Accounting
for the Acquisition of Phelps Dodge.
The
acquisition of Phelps Dodge is being accounted for under the purchase method
as
required by Statement of Financial Accounting Standards (SFAS) No. 141,
“Business Combinations,” with FCX as the accounting acquirer. Refer to Note 2
for a summary of the $25.9 billion purchase price, which was funded through
a
combination of common shares issued, borrowings under a new $11.5 billion senior
credit facility, proceeds from the offering of $6 billion senior notes and
available cash resources.
In
accordance with the purchase method of accounting, the purchase price paid
for
our acquisition of Phelps Dodge was determined at the date of the public
announcement of the transaction and has been allocated to the assets acquired
and liabilities assumed based upon their estimated fair values on the closing
date of March 19, 2007. The estimated fair values were based on internal
estimates and are subject to change as we complete our analyses. In valuing
acquired assets and liabilities, fair values were based on, but were not limited
to: quoted market prices, where available; our intent with respect to whether
the assets purchased are to be held, sold or abandoned; expected future cash
flows; current replacement cost for similar capacity for certain fixed assets;
market rate assumptions for contractual obligations; and appropriate discount
rates and growth rates. A significant decline in copper or molybdenum prices
from those used to estimate the fair values of the acquired assets could result
in an impairment to the carrying amounts assigned to inventories, mill and
leach
stockpiles, property, plant and equipment, and goodwill.
The
following table summarizes the estimated impacts of fair value adjustments
on
2007 production and delivery costs and depreciation, depletion and amortization
expense. These amounts do not affect cash flows and are based on the preliminary
purchase price allocations and projected sales volumes (refer to Note 2 for
a
summary of the March 31, 2007, preliminary purchase price allocation). Changes
to fair value estimates of inventories (including mill and leach stockpiles)
and/or property, plant and equipment, as well as, changes in the timing of
quarterly sales volumes, could result in actual amounts differing significantly
from those shown below. Additionally, inventories (including mill and leach
stockpiles) are subject to lower of cost or market assessments, and significant
declines in metals prices could result in future impairment
charges.
|
2007
|
|
|
First
|
|
Second
|
|
Second
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Half
|
|
Total
|
|
(In
Millions)
|
Actual
|
|
Estimate
|
|
Estimate
|
|
Estimate
|
|
Depreciation,
depletion and amortization
|
$
|
28
|
|
$
|
200
|
|
$
|
450
|
|
$
|
678
|
|
Production
costs
|
|
96
|
|
|
340
|
|
|
250
|
|
|
686
|
|
Total
|
$
|
124
|
|
$
|
540
|
|
$
|
700
|
|
$
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
reduction in net income
|
$
|
79
|
|
$
|
340
|
|
$
|
440
|
|
$
|
859
|
|
COPPER,
GOLD AND MOLYBDENUM MARKETS
As
shown
in the graphs below, world metal prices for copper have fluctuated during the
period from 1992 through April 2007 with the London Metal Exchange (LME) spot
copper price varying from a low of approximately $0.60 per pound in 2001 to
a
high of approximately $4.00 per pound in May 2006. World gold prices have
fluctuated during the period from 1998 through April 2007 from a low of
approximately $250 per ounce in 1999 to a high of approximately $725 per ounce
in May 2006. During the past 15 years,
Metals
Week
Dealer
Oxide prices for molybdenum have ranged from a low of $1.82 per pound in 1992
to
a high of $40.00 per pound in June 2005. Copper, gold and molybdenum prices
are
affected by numerous factors beyond our control as described further in our
“Risks Factors” contained in Part II, Item 1A of this Quarterly Report on Form
10-Q.
*
Excludes Shanghai stocks, producer, consumer and merchant stocks.
The
graph
above presents LME spot copper prices and reported stocks of copper at the
LME
and New York Commodity Exchange (COMEX) through April 30, 2007. From 2003
through 2005, global demand exceeded supply, evidenced by the decline in
exchange warehouse inventories. LME and COMEX inventories have risen from the
2005 lows but combined stocks of approximately 211,000 metric tons at March
31,
2007, remain at historically low levels, representing less than one week of
global consumption. Disruptions associated with strikes, unrest and other
operational issues resulted in low levels of inventory throughout 2006. However,
in December 2006 and early 2007, prices declined on concerns about reduced
demand, especially in the United States (U.S.), and rising inventories. LME
copper prices averaged $2.69 per pound in the first quarter of 2007, with prices
ranging from $2.37 per pound to approximately $3.15 per pound. Copper prices
have risen recently and the LME spot price closed at $3.55 per pound on April
30, 2007. Future copper prices are expected to continue to be influenced by
demand from China, economic performance in the U.S. and other industrialized
countries, the timing of the development of new supplies of copper, production
levels of mines and copper smelters and the level of direct participation by
investors. We consider the current underlying supply and demand conditions
in
the global copper markets to be positive for our company.
After
reaching new 25-year highs above $700 per ounce in May 2006, gold prices
declined in the second half of 2006. Gold prices averaged approximately $650
per
ounce in the first quarter of 2007, with prices ranging from approximately
$608
per ounce to approximately $686 per ounce. Gold prices continued to be supported
by increased investment demand for gold, ongoing geopolitical tensions, a weak
U.S. dollar, inflationary pressures, falling production from older mines,
limited development of new mines and actions by gold producers to reduce hedge
positions. The London gold price closed at approximately $677 per ounce on
April
30, 2007.
Molybdenum
markets have been strong in recent years as demand has exceeded available
supplies. In 2006, the molybdenum market was generally balanced with prices
ranging from $20.50 per pound to $28.40 per pound and averaging $24.75 per
pound. Demand for molybdenum continued to be strong in the first quarter of
2007. With strong demand and a constrained supply environment, prices averaged
$25.99 per pound in the first quarter of 2007, ranging from $24.50 per pound
to
$28.13 per pound. The
Metals
Week
Dealer
Oxide price was $28.33 per pound on April 30, 2007.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
conformity with generally accepted accounting principles in the United States
(U.S.). The preparation of these statements requires that we make estimates
and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. We base these estimates on historical experience and on
assumptions that we consider reasonable under the circumstances; however,
reported results could differ from those based on the current estimates under
different assumptions or conditions. As a result of the acquisition of Phelps
Dodge, the following provides additional and/or revised critical accounting
policies and estimates to those presented in our 2006 Annual Report on Form
10-K
for the year ended December 31, 2006.
Recoverable
Copper.
We
record as inventory applicable costs for copper contained in mill and leach
stockpiles that are expected to be processed in the future based on proven
processing technologies. The mill and leach stockpiles are evaluated
periodically to ensure that they are stated at the lower of cost or market.
Because the determination of copper contained in mill and leach stockpiles
by
physical count is impractical, we employ reasonable estimation methods.
The
quantity of material delivered to mill stockpiles and in leach stockpiles is
based on surveyed volumes of mined material and daily production records.
Sampling and assaying of blasthole cuttings determine the estimated copper
grade
contained in the material delivered to the mill and leach stockpiles. Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately upon processing.
Estimates
of copper contained in mill stockpiles are adjusted as material is added or
removed and fed to the mill.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Estimated amounts of copper contained
in
the leach stockpiles are reduced as stockpiles are leached, the leach solution
is fed to the electrowinning process, and copper cathodes are produced. Ultimate
recovery of copper contained in leach stockpiles can vary significantly
depending on several variables, including type of processing, mineralogy and
particle size of the rock. Although as much as 70 percent of the copper
ultimately recoverable may be extracted during the first year of processing,
recovery of the remaining copper may take many years.
Asset
Impairments.
We
evaluate long-term assets to be held and used for impairment when events or
changes in economic circumstances indicate the carrying amount of such assets
may not be recoverable. Goodwill, investments and our identifiable intangible
assets are evaluated at least annually for impairment. Evaluations are based
on
business plans developed using a time horizon reflective of the historical,
moving average for the full price cycle. We use an estimate of future pre-tax,
undiscounted net cash flows of the related asset or asset grouping over the
remaining life to measure whether the assets are recoverable and measure any
impairment by reference to fair value. Fair value is based on observable market
prices; in the absence of observable market prices, fair value is generally
estimated using estimated after-tax, discounted net cash flows. Should estimates
of future copper, gold and molybdenum prices decrease, impairments may
result.
Deferred
Taxes.
In
preparing our consolidated financial statements, we recognize income taxes
in
each of the jurisdictions in which we operate. For each jurisdiction, we
estimate the actual amount of taxes currently payable or receivable as well
as
deferred tax assets and liabilities attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates and laws is recognized in income in the period in which
such
changes are enacted.
A
valuation allowance is provided for those deferred tax assets for which it
is
more likely than not that the related benefits will not be realized. In
determining the amount of the valuation allowance, we consider estimated future
taxable income as well as feasible tax planning strategies in each jurisdiction.
If we determine that we will not realize all or a portion of our deferred tax
assets, we will increase our valuation allowance with a charge to income tax
expense. Conversely, if we determine that we will ultimately be able to realize
all or a portion of the related benefits for which a valuation allowance has
been provided, all or a portion of the related valuation allowance will be
reduced with a credit to income tax expense.
Environmental
Obligations.
Our
mining, exploration, production and historical operating activities are subject
to stringent laws and regulations governing the protection of the environment
and compliance with those laws requires significant expenditures. Environmental
expenditures for closed facilities and closed portions of operating facilities
are expensed or capitalized depending upon their future economic benefits.
The
general guidance provided by U.S. generally accepted accounting principles
requires that liabilities for contingencies be recorded when it is probable
that
a liability has been incurred and that the amount can be reasonably estimated.
Refer to Note 3 for further discussion of our accounting policy for
environmental expenditures.
Significant
management judgment and estimates are required to comply with this guidance.
Accordingly, management reviews changes in facts and circumstances associated
with the environmental obligations. Judgments and estimates are based upon
available facts, existing technology, and current laws and regulations, and
take
into consideration reasonably possible outcomes. The estimates can change
substantially as additional information becomes available regarding the nature
or extent of site contamination, required remediation methods, and actions
by or
against governmental agencies or private parties.
At
March
31, 2007, the fair value of environmental reserves from Phelps Dodge totaled
approximately $356 million for environmental liabilities attributed to
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
or analogous state programs and for estimated future costs associated with
environmental matters at closed facilities and closed portions of certain
facilities. The cost range for reasonably possible outcomes for all remediation
sites where a liability was recognized, on an undiscounted and unescalated
basis, was approximately $336 million to $624 million.
We
have a
number of sites for which an environmental reserve has not been recorded because
it is not probable that a successful claim will be made against us for those
sites, but for which there is a reasonably possible likelihood of an
environmental remediation liability. The liabilities arising from these
potential environmental obligations for which an environmental reserve has
not
been recorded at this time may be material to the operating results of any
quarter or year in the future. However, we believe any liability arising from
potential environmental obligations is not likely to have a material adverse
effect on our liquidity or financial position as such obligations could be
satisfied over a number of years.
Purchase
Accounting.
We
accounted for the acquisition of Phelps Dodge under the purchase method as
required by SFAS No. 141, with FCX as the accounting acquirer. In accordance
with the purchase method of accounting, the price paid by us for Phelps Dodge
was allocated to the assets acquired and liabilities assumed based upon their
estimated fair values at the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired represents goodwill that
will be allocated to reporting units and subject to annual impairment
testing.
At
March
31, 2007, we completed a preliminary purchase price allocation. The estimated
fair values of assets acquired and liabilities assumed were based on internal
estimates and are subject to change as we complete more detailed analyses.
Refer
to Note 2 for a summary of the March 31, 2007, preliminary purchase price
allocation. At March 31, 2007, the difference between the purchase price and
the
preliminary fair value of net identifiable assets and liabilities acquired
was
recorded as goodwill. Upon finalization of the purchase price allocation, any
resulting goodwill will be allocated to the reporting units, which could range
from individual mines to groups of mines in each regional business unit.
CONSOLIDATED
RESULTS
Below
is
a summary of comparative results for the first quarter of 2007 (which includes
the results of Phelps Dodge beginning March 20, 2007), and the first quarter
of
2006:
|
First
Quarter
|
|
|
2007
|
|
2006
|
|
Revenues
(in millions)
|
$
|
2,302.9
|
a,b
|
$
|
1,086.1
|
c
|
Operating
income (in millions)
|
$
|
1,179.1
|
b,d
|
$
|
531.7
|
c
|
Net
income applicable to common stock (in millions)
e
|
$
|
476.2
|
b,d,f
|
$
|
251.7
|
c
|
Diluted
net income per share of common stock
g
|
$
|
2.02
|
b,d,f
|
$
|
1.23
|
c
|
|
|
|
|
|
|
|
Sales
from Mines
|
|
|
|
|
|
|
Copper
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
520.3
|
a
|
|
225.2
|
|
Average
realized price per pound
|
$
|
3.00
|
b
|
$
|
2.43
|
|
Gold
|
|
|
|
|
|
|
Consolidated
share (thousands of recoverable pounds)
|
|
955.9
|
a
|
|
472.5
|
|
Average
realized price per ounce
|
$
|
654.63
|
|
$
|
405.54
|
c
|
Molybdenum
|
|
|
|
|
|
|
Consolidated
share (millions of recoverable pounds)
|
|
1.7
|
a
|
|
N/A
|
|
Average
realized price per pound
|
$
|
23.26
|
|
|
N/A
|
|
|
|
|
|
|
|
|
a.
|
Phelps
Dodge consolidated revenues for the 12-day period ending March 31,
2007,
totaled $515.7 million from consolidated sales totaling 103.2 million
pounds of copper, 9.4 thousand ounces of gold and 1.7 million pounds
of
molybdenum.
|
b.
|
Includes
charges to revenues for noncash mark-to-market accounting adjustments
on
Phelps Dodge’s 2007 copper price protection programs totaling $38.1
million ($23.2 million to net income or $0.10 per share) or $0.07
per
pound, representing the increase in the mark-to-market liability
from
March 20, 2007, to March 31, 2007.
|
c.
|
Includes
a loss on redemption of our Gold-Denominated Preferred Stock, Series
II
totaling $69.0 million ($36.6 million to net income or $0.17 per
share)
and a reduction in average realized prices of $150.46 per ounce for
the
revenue adjustment relating to the
redemption.
|
d.
|
Includes
the purchase accounting impact of the increase in the carrying amount
of
Phelps Dodge’s property, plant and equipment costs and metals inventories
totaling $124.2 million ($79.0 million to net income or $0.32 per
share).
|
e.
|
After
preferred dividends.
|
f.
|
Includes
net losses on early extinguishment of debt totaling $87.8 million
($74.6
million to net income or $0.31 per share) for financing transactions
related to the acquisition of Phelps
Dodge.
|
g.
|
On
March 19, 2007, we issued 136.9 million common shares to acquire
Phelps
Dodge. On March 28, 2007, we sold 47.15 million common shares. Common
shares outstanding on March 31, 2007, totaled 380.9 million. Assuming
conversion of all our convertible instruments, total potential common
shares outstanding would be 451.3 million at March 31,
2007.
|
Below
is
a summary of the key components contributing to first-quarter 2007 results
(in
millions):
|
|
|
Operating
|
|
|
|
|
Revenues
|
|
Income
|
|
Net
Income
|
|
FCX,
excluding Phelps Dodge
|
$
|
1,787.2
|
|
$
|
1,085.7
|
|
$
|
451.8
|
|
Phelps
Dodge 12-day results
|
|
515.7
|
|
|
217.6
|
|
|
103.4
|
|
Purchase
accounting
|
|
-
|
|
|
(124.2
|
)
a
|
|
(79.0
|
)
|
Consolidated
|
$
|
2,302.9
|
|
$
|
1,179.1
|
|
$
|
476.2
|
a.
Includes charges of $96.4 million to production and delivery costs related
to
the purchase accounting impacts of the increase in metals inventories carrying
value and $27.8 million to depreciation, depletion and amortization related
to
the purchase accounting impacts of the increases in carrying value of property,
plant and equipment costs.
Outlook
Our
consolidated sales volumes for 2007, including Phelps Dodge sales volumes
beginning March 20, 2007, are currently projected to approximate 3.4 billion
pounds of copper, 1.9 million ounces of gold and 53 million pounds of
molybdenum. Pro forma sales volumes for 2007, including sales prior to the
acquisition of Phelps Dodge, are estimated to approximate 3.9 billion pounds
of
copper, 1.9 million ounces of gold and 70 million pounds of molybdenum.
Projected sales volumes for the second quarter of 2007 total 970 million pounds
of copper, 600 thousand ounces of gold and 17 million pounds of molybdenum.
The
achievement of these sales estimates will be dependent, among other factors,
on
the achievement of targeted mining rates and expansion plans, the successful
operation of production facilities, the impact of weather conditions and other
factors.
Refer
to
Note 2 for pro forma financial information, which assumes that FCX acquired
Phelps Dodge effective January 1, 2007, for the three-month period ended March
31, 2007, and January 1, 2006, for the three-month period ended March 31,
2006.
Revenues
Consolidated
revenues include PT Freeport Indonesia’s sale of copper concentrates, which also
contain significant quantities of gold and silver, the sale by Atlantic Copper
of copper anodes, copper cathodes, and gold in anodes and slimes, and, beginning
March 20, 2007, the sales of copper, gold, molybdenum and other metals and
metal-related products by Phelps Dodge. Excluding the addition of revenues
in
the
first
quarter of 2007 associated with Phelps Dodge’s operations ($515.7 million),
revenues for the first quarter of 2007 were 65 percent higher than for the
first
quarter of 2006, reflecting substantially higher copper and gold prices than
the
2006 quarter and higher sales volumes. As anticipated, PT Freeport Indonesia
mined higher grade ore and reported higher production and sales in the first
quarter of 2007, compared with the first quarter of 2006.
At
March
31, 2007, our consolidated copper sales included 556.5 million pounds of copper
priced at an average of $3.12 per pound and subject to final pricing over the
next several months. We estimate that each $0.05 change in the price realized
from the March 31, 2007, pricing would impact our 2007 net income by
approximately $16 million.
Adjustments
to concentrate sales recognized in prior quarters decreased first-quarter 2007
revenues by $8.5 million ($4.5 million to net income or $0.02 per share),
compared with an increase of $110.2 million ($58.4 million to net income or
$0.26 per share) in the first quarter of 2006.
Consolidated
revenues and net income vary significantly with fluctuations in the market
prices of copper, gold and molybdenum, sales volumes and other factors. Based
on
projected consolidated copper sales, excluding purchased copper, for the
remainder of 2007 (approximately 2.9 billion pounds) and provisionally priced
sales at March 31, 2007, and assuming an average price of $3 per pound of
copper, each $0.20 per pound change in the average price realized in the balance
of the year would have an approximate $650 million impact on our revenues and
an
approximate $300 million impact on our 2007 net income. Based on projected
consolidated gold sales for the remainder of 2007 (0.9 million ounces), a $50
per ounce change in the average price realized would have an approximate $50
million impact on our revenues and an approximate $25 million impact on our
2007
net income. Based on projected consolidated molybdenum sales for the remainder
of 2007 (51 million pounds), a $2 per pound change in the average price realized
would have an approximate $80 million impact on our revenues and an approximate
$50 million impact on our 2007 net income.
On
limited past occasions, in response to market conditions, we have entered into
copper and gold price protection contracts for a portion of our expected future
mine production to mitigate the risk of adverse price fluctuations. We currently
have a very small quantity of gold production subject to price protection
contracts acquired in the Phelps Dodge transaction. In connection with the
acquisition of Phelps Dodge, FCX also now has Phelps Dodge’s 2007 copper price
protection programs, which resulted in first-quarter 2007 mark-to-market
accounting adjustments to revenues totaling $38.1 million ($23.2 million to
net
income or $0.10 per share). Refer to Note 14 and “Contractual Obligations -
Hedging Activities” for further discussion of the 2007 copper price protection
programs. FCX does not currently intend to enter into similar hedging programs
in the future. In February 2006, we redeemed our Gold-Denominated Preferred
Stock, Series II, which resulted in a $69.0 million ($36.6 million to net income
or $0.17 per share) charge to revenues.
Production
and Delivery Costs
Consolidated
production and delivery costs were higher in the first quarter of 2007 at $952.1
million compared with $477.9 million for the first quarter of 2006. Excluding
the addition of production and delivery costs in the first quarter of 2007
associated with the Phelps Dodge operations ($369.3 million, including $96.4
million related to purchase accounting impacts), the increase of $104.9 million
was primarily because of a $56.5 million increase related to the change in
the
amount of intercompany profits eliminated on sales from PT Freeport Indonesia
to
its 25-percent owned affiliate, PT Smelting. Production and delivery costs
for
Phelps Dodge operations included $96.4 million of production costs related
to
the purchase accounting impact of the increase in inventory carrying
values.
Energy
Costs.
Energy,
including electricity, diesel fuel, coal and natural gas, represents a
significant portion of our production and delivery costs. To moderate the impact
of increasing energy costs, we have in place (primarily involving North America
operations) a combination of multi-year energy contracts, as well as
self-generation and diesel fuel and natural gas hedging contracts. We will
continue to review our energy costs and consider appropriate hedging strategies.
We may continue to experience high energy costs if prices remain at the levels
experienced in 2006.
As
a
result of the acquisition of Phelps Dodge, we own a one-third interest in the
Luna Energy Facility (Luna) located near Deming, New Mexico, which became
operational in April 2006. Public Service Company of New Mexico (PNM), a
subsidiary of PNM Resources, and Tucson Electric Power, a subsidiary of
Unisource Energy Corporation, partnered in the purchase of Luna, each owning
a
one-third interest and each responsible for one-third of the costs and expenses.
PNM is the operating partner of the plant. Approximately 190 megawatts, or
one-third of the plant’s electricity, is available to satisfy a significant
portion of the electricity demands of our New Mexico and Arizona operations.
Electricity in excess of our demand is sold on the wholesale market. Our
interest in this efficient, low-cost plant is expected to continue to stabilize
our southwest North American mining operations’ energy costs and increase the
reliability of our energy supply.
Cost
Structure.
We
continue to experience increases in our worldwide copper production costs.
One
factor affecting the increase in average copper production costs is Phelps
Dodge’s previous restart of certain higher-cost properties in response to strong
demand for copper. Costs are also affected by the prices of commodities and
equipment consumed or used in our operations. In addition, our cost structure
in
certain of our North American operations is higher than that of some mines
located outside the U.S. This is because of lower ore grades, higher labor
costs
(including pension and health-care costs) and, in some cases, stricter
regulatory requirements.
Depreciation,
Depletion and Amortization
Consolidated
depreciation, depletion and amortization expense increased to $116.3 million
in
the first quarter of 2007 compared with $43.3 million in the first quarter
of
2006. Excluding the addition of depreciation, depletion and amortization in
the
first quarter of 2007 associated with the Phelps Dodge operations ($43.3
million, including $27.8 million related to purchase accounting impacts), the
remaining $29.7 million increase was primarily because of higher copper sales
volumes at PT Freeport Indonesia during the first quarter of 2007 which resulted
in higher depreciation, depletion and amortization expense determined using
the
unit-of-production method.
Selling,
General and Administrative Expense
Consolidated
selling, general and administrative expense increased to $48.9 million in the
first quarter of 2007, compared with $30.6 million in the first quarter of
2006.
Excluding the addition of selling, general and administrative expense in the
first quarter of 2007 associated with the Phelps Dodge operations ($6.3
million), the remaining increase of $12.0 million was primarily because of
sharing arrangements pursuant to our joint venture agreement in Indonesia.
Our
parent company charges PT Freeport Indonesia for the in-the-money value of
exercised employee stock options. These charges are eliminated in consolidation;
however, PT Freeport Indonesia shares a portion of these charges with Rio Tinto
plc (our joint venture partner in Indonesia) and Rio Tinto’s reimbursements
reduce our consolidated selling, general and administrative expenses. Selling,
general and administrative expenses are net of Rio Tinto’s share of joint
venture reimbursements for employee stock option exercises, which decreased
selling, general and administrative expenses by $0.6 million in the first
quarter of 2007 and $4.5 million in the first quarter of 2006. In accordance
with our joint venture agreement, Rio Tinto’s percentage share of PT Freeport
Indonesia’s general and administrative expenses varies with metal sales volumes
and prices and totaled approximately 4 percent in the first quarter of 2007,
compared with 8 percent in the first quarter of 2006.
Interest
Expense, Net
Total
consolidated interest cost (before capitalization) increased to $58.7 million
in
the first quarter of 2007 from $24.4 million in the first quarter of 2006.
Interest costs increased primarily because of the debt we incurred to acquire
Phelps Dodge (refer to Note 8 and “Capital Resources and Liquidity - Financing
Activities” for further discussion). We expect our interest cost for 2007 to be
significantly higher compared with 2006 because of this new debt.
Capitalized
interest totaled $6.8 million in the first quarter of 2007, compared to $1.8
million in the first quarter of 2006.
Losses
on Early Extinguishment and Conversion of Debt, Net
We
recorded net charges totaling $87.8 million ($74.6 million to net income or
$0.31 per share) in the first quarter of 2007 related to acceleration of
amortization of deferred financing costs for the credit facility, net of a
$34.6
million refund of fees for early repayment (refer to Note 8 and “Capital
Resources and Liquidity - Financing Activities” for further
discussion).
Other
Income, Net
Other
income, net increased to $23.6 million in the first quarter of 2007, compared
with $5.0 million in the first quarter of 2006. The increase primarily relates
to higher interest income which totaled $18.0 million in the first quarter
of
2007, including interest income on cash acquired from Phelps Dodge of $10.8
million for the 12-day period ended March 31, 2007, compared to $7.0 million
in
the first quarter of 2006. Higher cash balances caused the increase in interest
income.
Provision
for Income Taxes
Our
first-quarter 2007 income tax provision resulted from taxes on earnings at
international operations ($505.7 million), partly offset by a tax benefit from
losses in the U.S. ($45.5 million). The first-quarter 2007 income tax provision
primarily related to the operations of PT Freeport Indonesia. Also included
was
$33.5 million associated with Phelps Dodge’s earnings for the 12-day period
ending March 31, 2007. Our income tax provision ($221.7 million) for
first-quarter 2006 resulted from taxes on PT Freeport Indonesia’s earnings.
Our
effective income tax rate was approximately 43 percent for first-quarter 2007
and 2006. The difference between the effective income tax rates for the first
quarters of 2007 and 2006 and the U.S. federal statutory rate of 35 percent
primarily was attributable to withholding taxes incurred in connection with
earnings from Indonesian mining operations and income taxes incurred by PT
Indocopper Investama. Refer to Note 9 for further discussion of first-quarter
2007 income taxes.
Summaries
of the approximate significant components of the calculation of our consolidated
provision for income taxes are shown below (in millions, except
percentages):
|
|
|
Effective
|
|
|
|
|
Income
|
|
Tax
Rate
|
|
Tax
|
|
North
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
$
|
(76.2
|
)
|
|
32%
|
|
$
|
(24.4
|
)
|
Purchase
accounting adjustments
|
|
(54.1
|
)
|
|
39%
|
|
|
(21.1
|
)
|
Subtotal
|
|
(130.3
|
)
|
|
|
|
|
(45.5
|
)
|
South
America
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interest
|
|
187.1
|
|
|
34%
|
|
|
64.5
|
|
Purchase
accounting adjustments
|
|
(70.0
|
)
|
|
34%
|
|
|
(24.0
|
)
|
Subtotal
|
|
117.1
|
|
|
|
|
|
40.5
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
1,086.1
|
|
|
43%
|
|
|
462.3
|
|
Other
|
|
|
|
|
|
|
|
|
|
Income
before taxes and minority interests
|
|
(5.4
|
)
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
totals
|
$
|
1,067.5
|
|
|
43%
|
|
$
|
460.2
|
|
Minority
Interests in Net Income of Consolidated Subsidiaries
Minority
interests in net income of consolidated subsidiaries increased to $114.4 million
in the first quarter of 2007, compared with $27.1 million in the first quarter
of 2006. Excluding the amounts in the first quarter of 2007 associated with
the
Phelps Dodge operations ($48.1 million), the increase of $39.2 million was
primarily because of higher earnings at PT Freeport Indonesia. First-quarter
2007 minority interest associated with Phelps Dodge’s operations primarily
relates to South American mining operations.
RESULTS
OF OPERATIONS
Following
with the acquisition of Phelps Dodge, our business consists of three primary
operating divisions - Indonesian mining, North American mining and South
American mining. Refer to “Mining Operations” for further discussion of the
operations associated with these divisions.
A
summary
of revenues from unaffiliated customers and intersegment revenues for the first
quarter of 2007 (which includes the results of Phelps Dodge beginning March
20,
2007) and for the first quarter of 2006 follows (in millions):
|
2007
|
|
2006
|
|
|
Unaffiliated
|
|
|
|
|
|
|
|
Unaffiliated
|
|
|
|
|
|
|
|
|
Customers
|
|
Intersegment
|
|
Total
|
|
Customers
|
|
Intersegment
|
|
Total
|
|
Indonesian
mining
|
$
|
1,331.9
|
|
$
|
376.6
|
|
$
|
1,708.5
|
|
$
|
568.4
|
|
$
|
228.4
|
|
$
|
796.8
|
|
North
American mining
a
|
|
319.2
|
|
|
24.3
|
|
|
343.5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
South
American mining
b
|
|
139.5
|
|
|
122.2
|
|
|
261.7
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Atlantic
Copper smelting &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
refining
|
|
454.0
|
|
|
-
|
|
|
454.0
|
|
|
516.1
|
|
|
-
|
|
|
516.1
|
|
PDIC
|
|
57.0
|
|
|
0.1
|
|
|
57.1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate,
other & eliminations
|
|
1.3
|
|
|
(523.2
|
)
|
|
(521.9
|
)
|
|
1.6
|
|
|
(228.4
|
)
|
|
(226.8
|
)
|
Consolidated
revenues
|
$
|
2,302.9
|
|
$
|
-
|
|
$
|
2,302.9
|
|
$
|
1,086.1
|
|
$
|
-
|
|
$
|
1,086.1
|
|
a.
|
Includes
our operating mines at Morenci, Bagdad, Sierrita, Chino and Tyrone.
Also
includes our Manufacturing and Primary Molybdenum operations (see
Note
15).
|
b.
|
Includes
our mines at Candelaria, Ojos del Salado, El Abra and Cerro Verde
(see
Note 15).
|
Intersegment
revenues of individual North American mines represent an internal allocation
based on sales to unaffiliated customers and realized copper prices.
Intersegment sales by the South American mines are based upon arms-length prices
at the time of the sale. Intersegment sales of any individual mine may not
be
reflective of the actual prices ultimately realized due to a variety of factors,
including additional processing, timing of sales to unaffiliated customers
and
transportation premiums. In addition to the allocation of revenues, we allocate
certain operating costs, expenses and capital to the individual divisions and
segments that may not be reflective of market conditions. We do not allocate
all
costs and expenses applicable to a mine or operation from the division or
corporate offices. Accordingly, the division segment information reflects
management determinations that may not be indicative of actual financial
performance of each division or segment as if it was an independent entity.
A
summary
of operating income (loss) data for the first quarter of 2007 (which includes
the results of Phelps Dodge beginning March 20, 2007) and for the first quarter
of 2006 follows (in millions):
|
First
Quarter
|
|
|
2007
|
|
2006
|
|
Indonesian
mining
|
$
|
1,283.0
|
|
$
|
394.0
|
|
North
American mining
|
|
(23.6
|
)
a
|
|
-
|
|
South
American mining
|
|
117.3
|
a
|
|
-
|
|
Atlantic
Copper smelting & refining
|
|
12.4
|
|
|
13.5
|
|
PDIC
|
|
7.1
|
|
|
-
|
|
Corporate,
other & eliminations
|
|
(217.1
|
)
|
|
124.2
|
|
Consolidated
operating income
|
$
|
1,179.1
|
|
$
|
531.7
|
|
a.
Includes
the purchase accounting impact of the increase in the carrying amount of Phelps
Dodge’s property, plant and equipment costs and metals inventories totaling
$54.2 million for North American mining and $69.2 million for South America
mining.
MINING
OPERATIONS
Indonesian
Mining Operations
PT
Freeport Indonesia operates under an agreement, called a Contract of Work,
with
the Government of Indonesia. The Contract of Work allows us to conduct
exploration, mining and production activities in a 24,700-acre area called
Block
A located in Papua, Indonesia. Under the Contract of Work, PT Freeport Indonesia
also conducts exploration activities (which had been suspended, but have resumed
in 2007) in an approximate 500,000-acre area called Block B in Papua. All of
PT
Freeport Indonesia’s proven and probable mineral reserves and current mining
operations are located in Block A.
We
own
90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through
our
wholly owned subsidiary, PT Indocopper Investama. The Government of Indonesia
owns the remaining 9.36 percent of PT Freeport Indonesia.
In
July
2004, we received a request from the Indonesian Department of Energy and Mineral
Resources that we offer to sell shares in PT Indocopper Investama to Indonesian
nationals at fair market value. In response to this request and in view of
the
potential benefits of having additional Indonesian ownership in our operations,
we have agreed to consider a potential sale of an interest in PT Indocopper
Investama at fair market value. Neither our Contract of Work nor Indonesian
law
requires us to divest any portion of our ownership interest in PT Freeport
Indonesia or PT Indocopper Investama.
In
1996,
we established joint ventures with Rio Tinto plc (Rio Tinto), an international
mining company with headquarters in London, England. One joint venture covers
PT
Freeport Indonesia’s mining operations in Block A and gives Rio Tinto, through
2021, a 40 percent interest in certain assets and future production exceeding
specified annual amounts of copper, gold and silver in Block A, and, after
2021,
a 40 percent interest in all production from Block A. Operating, nonexpansion
capital and administrative costs are shared proportionately between PT Freeport
Indonesia and Rio Tinto based on the ratio of (a) the incremental revenues
from
production from our expansion completed in 1998 to (b) total revenues from
Block
A, including production from PT Freeport Indonesia’s previously existing
reserves. PT Freeport Indonesia receives 100 percent of the cash flow from
specified annual amounts of copper, gold and silver through 2021, calculated
by
reference to its proven and probable reserves as of December 31, 1994, and
60
percent of all remaining cash flow. PT Freeport Indonesia records its joint
venture interest using the proportionate consolidation method.
|
|
First
Quarter
|
|
|
|
2007
|
|
2006
|
|
Consolidated,
net of Rio Tinto’s interest
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
467.6
|
|
|
221.3
|
|
Sales
|
|
|
417.1
|
|
|
225.2
|
|
Average
realized price per pound
|
|
$
|
3.09
|
|
$
|
2.43
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
Production
|
|
|
1,074.7
|
|
|
461.8
|
|
Sales
|
|
|
946.5
|
|
|
472.5
|
|
Average
realized price per ounce
|
|
$
|
654.79
|
|
$
|
405.54
|
a
|
a.
|
Amount
was $556.00 per ounce before a loss resulting from redemption of
FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
|
|
|
First
Quarter
|
|
100%
Operating Data, including Rio Tinto’s interest
|
|
|
2007
|
|
|
2006
|
|
Ore
milled (metric tons per day)
|
|
|
228,500
|
|
|
216,800
|
|
Average
ore grade
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
1.21
|
|
|
0.72
|
|
Gold
(grams per metric ton)
|
|
|
2.01
|
|
|
0.92
|
|
Recovery
rates (percent)
|
|
|
|
|
|
|
|
Copper
|
|
|
91.0
|
|
|
82.5
|
|
Gold
|
|
|
87.8
|
|
|
80.6
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
479.9
|
|
|
246.6
|
|
Sales
|
|
|
428.2
|
|
|
251.3
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
Production
|
|
|
1,146.9
|
|
|
470.7
|
|
Sales
|
|
|
1,010.1
|
|
|
486.3
|
|
|
|
|
|
|
|
|
|
PT
Freeport Indonesia reported higher first-quarter 2007 sales volumes compared
with the first quarter of 2006, primarily because of higher ore grades. PT
Freeport Indonesia's share of first-quarter 2007 sales totaled 417.1 million
pounds of copper and 946.5 thousand ounces of gold, exceeding previous estimates
reported in January 2007 of 400 million pounds of copper and 850 thousand ounces
of gold, primarily because it mined certain sections of high-grade ore
previously expected to be mined in future periods.
Mill
throughput, which varies depending on ore types being processed, averaged
228,500 metric tons of ore per day in the first quarter of 2007, compared with
216,800 metric tons of ore per day in the first quarter of 2006. Mill rates
will
vary during 2007 depending on ore types mined and are expected to average in
excess of 200,000 metric tons of ore per day during the remainder of the year.
Grasberg operated at reduced mining and milling rates during a four-day period
from April 18 to April 21, 2007, as a result of peaceful protests by certain
workers regarding benefits. The protests ended on April 21 with an agreement
on
a framework for minimum wages for workers and Grasberg has returned to normal
operations. The impacts to production were not significant. Approximate average
daily throughput processed at our mill facilities from each of our producing
mines follows (metric tons of ore per day):
|
First
Quarter
|
|
|
2007
|
|
2006
|
|
Grasberg
open pit
|
179,300
|
|
173,000
|
|
Deep
Ore Zone underground mine
|
49,200
|
|
43,800
|
|
Total
mill throughput
|
228,500
|
|
216,800
|
|
|
|
|
|
|
In
the
first quarter of 2007, copper ore grades averaged 1.21 percent and recovery
rates averaged 91.0 percent, compared with 0.72 percent and 82.5 percent for
the
first quarter of 2006. Gold ore grades averaged 2.01 grams per metric ton (g/t)
and recovery rates averaged 87.8 percent in the first quarter of 2007, compared
with 0.92 g/t and 80.6 percent for the first quarter of 2006. At the Grasberg
mine, the sequencing in mining areas with varying ore grades causes fluctuations
in the timing of ore production, resulting in varying quarterly and annual
sales
of copper and gold. Approximately 65 percent of PT Freeport Indonesia’s copper
sales and 85 percent of PT-FI’s gold sales in 2007 are expected in the first
half of the year.
Production
from the Deep Ore Zone (DOZ) underground mine averaged 49,200 metric tons of
ore
per day in the first quarter of 2007, representing approximately 22 percent
of
mill throughput. DOZ continues to perform above design capacity of 35,000 metric
tons of ore per day. PT Freeport Indonesia is expanding
the
capacity of the DOZ underground operation to a sustained rate of 50,000 metric
tons per day with the installation of a second crusher and additional
ventilation, expected to be completed in mid-2007. PT Freeport Indonesia’s 60
percent share of capital expenditures for the DOZ expansion totaled
approximately $2 million in the first quarter of 2007 (approximately $36 million
through March 31, 2007). PT Freeport Indonesia anticipates a further expansion
of the DOZ mine to 80,000 metric tons of ore per day, with budgeted capital
of
approximately $21 million in 2007 for its 60 percent share. The success of
the
development of the DOZ mine, one of the world’s largest underground mines,
provides confidence in the future development of PT Freeport Indonesia’s
large-scale undeveloped ore bodies.
In
2004,
PT Freeport Indonesia commenced its “Common Infrastructure” project, which will
provide access to its large undeveloped underground ore bodies located in the
Grasberg minerals district through a tunnel system located approximately 400
meters deeper than its existing underground tunnel system. In addition to
providing access to our underground ore bodies, the tunnel system will enable
PT
Freeport Indonesia to conduct future exploration in prospective areas associated
with currently identified ore bodies. The Common Infrastructure project is
progressing according to plan. PT Freeport Indonesia has also advanced
development of the Grasberg spur and as of March 31, 2007, has completed 73
percent of the tunneling required to reach the Grasberg underground ore body.
PT
Freeport Indonesia expects the Grasberg spur to reach the Grasberg underground
ore body and to initiate multi-year mine development activities in the second
half of 2007. Work on the Grasberg underground ore body continues with PT
Freeport Indonesia’s share of capital expenditures totaling approximately $15
million in the first quarter of 2007 and projected to total approximately $70
million for 2007.
The
Big
Gossan underground mine is a high-grade deposit located near the existing
milling complex. Remaining capital expenditures for the $260 million Big Gossan
project to be incurred over the next few years total approximately $185 million
($175 million net to PT Freeport Indonesia, with approximately $90 million
in
2007). PT Freeport Indonesia’s share of capital expenditures for Big Gossan
totaled approximately $20 million in the first quarter of 2007. Production
is
expected to ramp up to full production of 7,000 metric tons per day in late
2010
(average annual aggregate incremental production of 135 million pounds of copper
and 65,000 ounces of gold, with PT Freeport Indonesia receiving 60 percent
of
these amounts). The Big Gossan mine is being developed as an open-stope mine
with backfill consisting of mill tailings and cement, an established mining
methodology expected to be higher-cost than the block-cave method used at the
DOZ mine.
Indonesian
Mining Revenues.
A
summary of changes in PT Freeport Indonesia revenues between the periods follows
(in millions):
|
2007
|
|
PT
Freeport Indonesia revenues - prior year period
|
$
|
796.8
|
|
Sales
volumes:
|
|
|
|
Copper
|
|
466.2
|
|
Gold
|
|
192.2
|
|
Price
realizations:
|
|
|
|
Copper
|
|
274.3
|
|
Gold
|
|
236.5
|
|
Adjustments,
primarily for copper pricing on prior year
|
|
|
|
open
sales
|
|
(157.5
|
)
|
Treatment
charges, royalties and other
|
|
(100.0
|
)
|
PT
Freeport Indonesia revenues - current year period
|
$
|
1,708.5
|
|
|
|
|
|
PT
Freeport Indonesia’s share of first-quarter 2007 sales increased to 417.1
million pounds of copper and 946.5 thousand ounces of gold, compared with 225.2
million pounds and 472.5 thousand ounces in the 2006 quarter primarily because
of higher ore grades. Realized copper prices improved by 27 percent to an
average of $3.09 per pound in the first quarter of 2007 from $2.43 in the first
quarter of 2006. Realized gold prices in the first quarter of 2007 averaged
$654.79 compared to $405.54 per ounce in the first
quarter
of 2006, which included a reduction of $150.46 per ounce for revenue adjustments
associated with the redemption of our Gold-Denominated Preferred Stock, Series
II.
Treatment
charges vary with the volume of metals sold and the price of copper, and
royalties vary with the volume of metals sold and the prices of copper and
gold.
Market rates for treatment and refining charge rates began to increase
significantly in late 2004. A large part of the increase relates to the price
participation and price sharing components of our concentrate sales agreements.
Royalties totaled $49.8 million in the first quarter of 2007, compared with
$19.9 million in the first quarter of 2006, reflecting higher sales volumes
and
metal prices.
Substantially
all of PT Freeport Indonesia’s concentrate sales contracts provide final copper
pricing in a specified future period based on prices quoted on the LME. PT
Freeport Indonesia records revenues and invoices its customers based on LME
prices at the time of shipment. Under accounting rules, these terms create
an
“embedded derivative” in our concentrate sales contracts which must be adjusted
to fair value through earnings each period until the date of final pricing.
PT
Freeport Indonesia’s first-quarter 2007 revenues include net additions of $139.0
million for adjustments to the fair value of embedded copper derivatives in
concentrate sales contracts, compared with $184.6 million in the first quarter
of 2006.
PT
Freeport Indonesia has long-term contracts to provide approximately 60 percent
of Atlantic Copper’s copper concentrate requirements at market prices and nearly
all of PT Smelting’s copper concentrate requirements. PT Freeport Indonesia owns
25 percent of PT Smelting. Under the PT Smelting contract, for the first 15
years of PT Smelting’s operations beginning December 1998, the treatment and
refining charges on the majority of the concentrate PT Freeport Indonesia
provides will not fall below specified minimum rates, subject to renegotiation
in 2008. The rate was $0.23 per pound during the period from the commencement
of
PT Smelting’s operations in 1998 until April 2004, when it declined to a minimum
of $0.21 per pound. PT Smelting’s rates for 2007 are expected to exceed the
minimum $0.21 per pound. Current rates are substantially higher than the minimum
rate.
Indonesian
Mining Costs.
Gross
Profit per Pound of Copper/per Ounce of Gold and
Silver
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
|
Co-Product
Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
|
$3.09
|
|
|
$3.09
|
|
|
$654.79
|
|
|
$13.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net
|
|
|
|
|
|
|
|
|
|
|
|
|
noncash
and nonrecurring costs shown below
|
|
0.75
|
|
|
0.50
|
|
|
106.26
|
|
|
2.15
|
|
Gold
and silver credits
|
|
(1.54
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.37
|
|
|
0.25
|
|
|
51.94
|
|
|
1.05
|
|
Royalty
on metals
|
|
0.12
|
|
|
0.08
|
|
|
16.86
|
|
|
0.34
|
|
Unit
net cash (credits) costs
a
|
|
(0.30
|
)
|
|
0.83
|
|
|
175.06
|
|
|
3.54
|
|
Depreciation
and amortization
|
|
0.14
|
|
|
0.10
|
|
|
20.05
|
|
|
0.40
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.01
|
|
|
2.99
|
|
|
0.06
|
|
Total
unit (credits) costs
|
|
(0.14
|
)
|
|
0.94
|
|
|
198.10
|
|
|
4.00
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
2.72
|
|
|
(0.01
|
)
|
PT
Smelting intercompany profit elimination
|
|
(0.09
|
)
|
|
(0.06
|
)
|
|
(12.09
|
)
|
|
(0.24
|
)
|
Gross
profit
|
|
$3.10
|
|
|
$2.05
|
|
|
$447.32
|
|
|
$9.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
of copper sold (in millions)
|
|
417.1
|
|
|
417.1
|
|
|
|
|
|
|
|
Ounces
of gold sold (000s)
|
|
|
|
|
|
|
|
946.5
|
|
|
|
|
Ounces
of silver sold (000s)
|
|
|
|
|
|
|
|
|
|
|
1,576.9
|
|
|
|
|
|
|
|
|
a.
|
For
a reconciliation of unit net cash (credits) costs to production and
delivery costs applicable to sales reported in FCX’s consolidated
financial statements refer to “Product Revenues and Production
Costs.”
|
Three
Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
|
Co-Product
Method
|
|
|
|
Method
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
Revenues,
after adjustments shown below
|
|
$2.43
|
|
|
$2.43
|
|
|
$405.54
|
a
|
|
$9.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.22
|
|
|
0.80
|
|
|
197.43
|
|
|
3.62
|
|
Gold
and silver credits
|
|
(1.29
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.37
|
|
|
0.24
|
|
|
60.05
|
|
|
1.10
|
|
Royalty
on metals
|
|
0.09
|
|
|
0.06
|
|
|
14.31
|
|
|
0.26
|
|
Unit
net cash costs
b
|
|
0.39
|
|
|
1.10
|
|
|
271.79
|
|
|
4.98
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.10
|
|
|
24.25
|
|
|
0.44
|
|
Noncash
and nonrecurring costs, net
|
|
0.05
|
|
|
0.03
|
|
|
8.38
|
|
|
0.15
|
|
Total
unit costs
|
|
0.59
|
|
|
1.23
|
|
|
304.42
|
|
|
5.57
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
period open sales
|
|
0.28
|
c
|
|
0.59
|
|
|
47.03
|
|
|
1.20
|
|
PT
Smelting intercompany profit recognized
|
|
0.09
|
|
|
0.06
|
|
|
14.95
|
|
|
0.27
|
|
Gross
profit
|
|
$2.21
|
|
|
$1.85
|
|
|
$163.10
|
|
|
$5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
of copper sold (in millions)
|
|
225.2
|
|
|
225.2
|
|
|
|
|
|
|
|
Ounces
of gold sold (000s)
|
|
|
|
|
|
|
|
472.5
|
|
|
|
|
Ounces
of silver sold (000s)
|
|
|
|
|
|
|
|
|
|
|
707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amount
was $556.00 before a loss resulting from redemption of FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
b.
|
See
Footnote a to previous table.
|
c.
|
Includes
a $69.0 million or $0.31 cents per pound loss on the redemption of
FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
Because
of the fixed nature of a large portion of our costs, unit costs vary
significantly from period to period depending on volumes of copper and gold
sold
during the period. Lower unit site production and delivery costs in the first
quarter of 2007, compared with the 2006 quarter, primarily reflected higher
sales volumes resulting from mine sequencing in the Grasberg open pit, partly
offset by higher input costs (including energy). Although higher sales volumes
more than offset increases in input costs this quarter, we have experienced
significant increases in our production costs in recent years primarily as
a
result of higher energy costs and costs of other consumables, higher mining
costs and milling rates, labor costs and other factors. Aggregate energy costs,
which approximate 20 percent of PT Freeport Indonesia’s production costs,
primarily include purchases of approximately 100 million gallons of diesel
fuel
per year and approximately 650,000 metric tons of coal per year. Diesel prices
have more than doubled and our coal costs are approximately 35 percent higher
since the beginning of 2003. The costs of other consumables, including steel
and
reagents, also have increased. Our Indonesian mining costs also have been
affected by the stronger Australian dollar against the U.S. dollar (approximate
45 percent increase since the beginning of 2003), as approximately 15 percent
of
PT Freeport Indonesia’s production costs are denominated in Australian dollars.
We are pursuing cost reduction initiatives to mitigate the impacts of these
increases.
Unit
treatment charges vary with the price of copper, and unit royalty costs vary
with prices of copper and gold. In addition, market rates for treatment charges
have increased significantly since 2004 and will vary based on PT Freeport
Indonesia’s customer mix. The copper royalty rate payable by PT Freeport
Indonesia under its Contract of Work varies from 1.5 percent of copper net
revenue at a copper price of $0.90 or less per pound to 3.5 percent at a copper
price of $1.10 or more per pound. The Contract of Work royalty rate for gold
and
silver sales is 1.0 percent.
In
connection with our fourth concentrator mill expansion completed in 1998, PT
Freeport Indonesia agreed to pay the Government of Indonesia additional
royalties (royalties not required by the Contract of Work) to provide further
support to the local governments and the people of the Indonesian province
of
Papua (see Note 1 in our 2006 Annual Report on Form 10-K). The additional
royalties are paid on production exceeding specified annual amounts of copper,
gold and silver expected to be generated when PT Freeport Indonesia’s milling
facilities operate above 200,000 metric tons of ore per day. PT Freeport
Indonesia’s royalty rate on copper net revenues from production above the agreed
levels is double the Contract of Work royalty rate, and the royalty rates on
gold and silver sales from production above the agreed levels are triple the
Contract of Work royalty rates.
First-quarter
2007 royalty costs totaled $49.8 million, including a $0.2 million final
adjustment related to 2006 sales, compared with royalty costs of $19.9 million,
including a $1.4 million final adjustment related to 2005 sales, in the first
quarter of 2006. If copper prices average $3 per pound and gold prices average
$650 per ounce for the remainder of 2007, we would expect royalty costs to
total
approximately $110 million ($0.10 per pound of copper) in 2007. These estimates
assume 2007 PT Freeport Indonesia sales volumes of 1.1 billion pounds of copper
and 1.8 million ounces of gold.
As
a
result of the higher copper production and sales volumes in the first quarter
of
2007, PT Freeport Indonesia’s unit depreciation rate decreased compared with the
2006 quarter. Because certain assets are depreciated on a straight-line basis,
the unit rate will vary with the level of copper production and sales. As a
result, PT Freeport Indonesia expects its depreciation rate for 2007 to average
$0.18 per pound compared with $0.15 per pound for 2006.
PT
Freeport Indonesia has a labor agreement covering its hourly paid Indonesian
employees, the key provisions of which are renegotiated biannually. In June
2005, PT Freeport Indonesia and its workers agreed to terms for a new labor
agreement that expires in September 2007. On April 21, 2007, PT Freeport
Indonesia reached an agreement on a framework for minimum wages for its workers.
This agreement successfully resolved peaceful protests by certain workers and
returned Grasberg to normal operations after a four-day period from April 18
to
April 21, 2007 of reduced mining and milling rates. PT Freeport Indonesia’s
relations with the workers’ union have generally been satisfactory.
Unit
Net
Cash Costs: By-Product Method - Unit net cash costs per pound of copper
calculated using a by-product method is a measure intended to provide investors
with information about the cash generating capacity of our mining operations
expressed on a basis relating to our primary metal product, copper. PT Freeport
Indonesia uses this measure for the same purpose and for monitoring operating
performance by its mining operations. This information differs from measures
of
performance determined in accordance with generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with generally accepted
accounting principles. This measure is presented by other copper and gold mining
companies, although our measures may not be comparable to similarly titled
measures reported by other companies.
Unit
site
production and delivery costs averaged $0.75 per pound of copper in the first
quarter of 2007, $0.47 per pound lower than the $1.22 reported in the first
quarter of 2006. Unit site production and delivery costs in the first quarter
of
2007 benefited from higher copper sales volumes resulting from higher ore
grades, but were adversely affected by higher input costs (primarily
energy).
Gold
and
silver credits increased to $1.54 per pound in the first quarter of 2007,
compared with $1.29 per pound in the first quarter of 2006, reflecting higher
gold sales volumes and average realized gold prices. Royalties of $0.12 per
pound in the first quarter of 2007 were $0.03 per pound above the 2006 period
primarily because of higher copper and gold prices and sales
volumes.
Assuming
average copper prices of $3 per pound and average gold prices of $650 per ounce
for the remainder of 2007 and achievement of current 2007 sales estimates,
PT
Freeport Indonesia estimates that its annual 2007 unit net cash costs, including
gold and silver credits, would approximate $0.55 per pound. Because the majority
of PT Freeport Indonesia’s costs are fixed, unit costs vary with the volumes
sold
and
the price of gold, and are therefore currently projected to be lower during
the
first half of 2007 and higher during the second half. Unit net cash costs for
2007 would change by approximately $0.02 per pound for each $25 per ounce change
in the average price of gold for the remainder of 2007.
Unit
Net
Cash Costs: Co-Product Method - Using the co-product method, unit site
production and delivery costs in the first quarter of 2007 averaged $0.50 per
pound of copper, compared with $0.80 in the 2006 period. For gold, unit site
production and delivery costs in the first quarter of 2007 averaged $106 per
ounce, compared with $197 in the 2006 period. As discussed above, unit site
production and delivery costs in the first quarter of 2007 benefited from higher
sales volumes resulting from higher ore grades, but were adversely affected
by
higher input costs (including energy). Royalties per pound and per ounce were
also higher in the first quarter of 2007 because of higher sales volumes and
realized prices compared with the 2006 period.
North
American Mining
Our
North
American mining operations comprise copper operations from mining through rod
production, molybdenum operations from mining through conversion to chemical
and
metallurgical products, marketing and sales. Through Phelps Dodge, we have
five
operating copper mines in North America - Morenci, Bagdad, Sierrita, Chino
and
Tyrone. In addition to copper, the Bagdad, Sierrita and Chino mines produce
molybdenum, gold, silver and rhenium and the Morenci mine produces molybdenum.
The North American mining division also includes Primary Molybdenum,
Manufacturing, Sales and other mining activities. In addition, a new copper
mine
is under construction at Safford, Arizona. All of these mining operations are
wholly owned, except for Morenci. We record our 85 percent joint venture
interest in Morenci using the proportionate consolidation method.
For
the
12-day period ended March 31, 2007, North American mining added $343.5 million
in revenues and $23.6 million of operating losses to our first-quarter 2007
results, which included charges to revenues for mark-to-market accounting
adjustments on Phelps Dodge’s 2007 copper price protection program totaling
$38.1 million (refer to Note 14 and “Contractual Obligations - Hedging
Activities”).
The
following discussion about our North American mining operations covers the
full
first quarters of 2007 and 2006, including periods prior to our acquisition
of
these operations.
Pro
Forma Consolidated
|
|
First
Quarter
|
|
North
American Mining Operations
a
|
|
2007
|
|
2006
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
301.2
|
|
|
320.2
|
|
Sales
|
|
|
306.7
|
|
|
333.5
|
|
Average
realized price per pound, excluding hedging
|
|
$
|
2.82
|
|
$
|
2.16
|
|
Average
realized price per pound, including hedging
b
|
|
$
|
2.63
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
16.5
|
|
|
17.2
|
|
Sales
|
|
|
18.6
|
|
|
16.9
|
|
Average
realized price per pound
|
|
$
|
23.00
|
|
$
|
21.18
|
|
|
|
|
|
|
|
|
|
a.
|
Pro
forma results include the results of Phelps Dodge prior to March
20, 2007,
and exclude purchased metal.
|
b.
|
Includes
impact of hedging losses related to Phelps Dodge’s copper price protection
programs.
|
First-quarter
2007 North America sales volumes were lower than first-quarter 2006 volumes
primarily because of lower ore grades. Consolidated copper sales from North
American operations totaled 1.3 billion pounds in 2006 and are expected to
approximate 1.3 billion pounds for the full year 2007. In the first quarter
of
2007, sales from these operations totaled 306.7 million pounds of
copper.
With
the
acquisition of Phelps Dodge, we are now the world’s largest producer of
molybdenum through the Henderson molybdenum mine in Colorado and as a by-product
at several of our copper mines. The
Henderson
block-cave underground mining complex produces high-purity, chemical-grade
molybdenum concentrates, which are further processed into value-added molybdenum
chemical products. A feasibility study is ongoing for reopening the Climax
open-pit mine, which has been on care-and-maintenance status since 1995.
Assuming a favorable feasibility study and market conditions and timely receipt
of permits, the Climax mine could resume operation by the end of
2009.
Consolidated
molybdenum sales volumes totaled 68.8 million pounds in 2006 and are expected
to
approximate 70 million pounds for the full year 2007, including sales volumes
prior to our acquisition of Phelps Dodge. Consolidated molybdenum sales volumes
totaled 18.6 million pounds in the first quarter of 2007 and are expected to
approximate 17 million pounds in the second quarter of 2007.
Approximately
60 percent of our expected 2007 molybdenum production is committed for sale
throughout the world pursuant to annual or quarterly agreements based primarily
on prevailing market prices one month prior to the time of sale. The
Metals
Week
Dealer
Oxide closing price for molybdenum on April 30, 2007, was $28.33 per
pound.
Unit
Net Cash Costs.
The
following table summarizes the pro forma unit net cash costs at the North
American copper mines for the full first quarters of 2007 and 2006. Henderson
is
a molybdenum mine and, therefore, is not a part of these gross profit per pound
calculations (refer to the “Primary Molybdenum” discussion).
Gross
Profit per Pound of Copper and Molybdenum/per Ounce of Gold and
Silver
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
$2.70
|
|
|
$2.70
|
|
|
$597.80
|
|
|
$15.17
|
|
|
$25.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
1.31
|
|
|
1.15
|
|
|
298.89
|
|
|
5.50
|
|
|
9.59
|
|
By-product
credits
|
|
(0.54
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.07
|
|
|
0.07
|
|
|
55.83
|
|
|
1.06
|
|
|
-
|
|
Unit
net cash costs
a
|
|
0.84
|
|
|
1.22
|
|
|
354.72
|
|
|
6.56
|
|
|
9.59
|
|
Depreciation
and amortization
|
|
0.13
|
|
|
0.11
|
|
|
25.16
|
|
|
0.51
|
|
|
0.79
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
3.48
|
|
|
0.02
|
|
|
0.03
|
|
Total
unit costs
|
|
0.99
|
|
|
1.35
|
|
|
383.36
|
|
|
7.09
|
|
|
10.41
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
0.02
|
|
|
0.02
|
|
|
(0.79
|
)
|
|
(0.01
|
)
|
|
-
|
|
Gross
profit
|
|
$1.70
|
|
|
$1.34
|
|
|
$213.65
|
|
|
$8.07
|
|
|
$14.72
|
|
TABLE OF CONTENTS
Gross
Profit per Pound of Copper and Molybdenum/per Ounce of Gold and
Silver
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
|
Three
Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
$2.24
|
|
|
$2.24
|
|
|
$515.44
|
|
|
$9.52
|
|
|
$24.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
0.99
|
|
|
0.77
|
|
|
320.03
|
|
|
4.32
|
|
|
9.63
|
|
By-product
credits
|
|
(0.58
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.07
|
|
|
0.06
|
|
|
91.65
|
|
|
1.64
|
|
|
-
|
|
Unit
net cash costs
a
|
|
0.48
|
|
|
0.83
|
|
|
411.68
|
|
|
5.96
|
|
|
9.63
|
|
Depreciation
and amortization
|
|
0.11
|
|
|
0.09
|
|
|
38.60
|
|
|
0.43
|
|
|
0.84
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
6.06
|
|
|
0.03
|
|
|
0.03
|
|
Total
unit costs
|
|
0.61
|
|
|
0.94
|
|
|
456.34
|
|
|
6.42
|
|
|
10.50
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(1.13
|
)
|
|
(1.13
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
-
|
|
|
(0.05
|
)
|
|
-
|
|
Gross
profit
|
|
$0.48
|
|
|
$0.15
|
|
|
$59.10
|
|
|
$3.05
|
|
|
$13.88
|
|
a.
|
For
a reconciliation of pro forma unit net cash costs per pound to production
and delivery costs applicable to pro forma sales refer to “Product
Revenues and Production Costs.”
|
North
American unit cash costs were higher in the first quarter of 2007 compared
with
the first quarter of 2006 primarily because of lower volumes and higher costs
at
the Morenci operation associated with equipment maintenance, an increase in
consumables and mill restart costs.
Assuming
an average price of $20 per pound of molybdenum for the remainder of 2007 and
achievement of current 2007 sales estimates, we estimate that our pro forma
2007
average unit net cash costs for our North American mines, including molybdenum
credits, would approximate $0.87 per pound of copper. Average unit net cash
costs for 2007 would change by approximately $0.03 per pound for each $2 per
pound change in the average price of molybdenum for the remainder of
2007.
A
further
discussion of North American mining operations follows.
Morenci.
The
Morenci open-pit mine, located in southeastern Arizona, primarily produces
electrowon copper cathodes and copper concentrates. We own an 85 percent
undivided interest in Morenci and the remaining 15 percent is owned by Sumitomo
Metal Mining Arizona, Inc., a jointly owned subsidiary of Sumitomo Metal Mining
Co., Ltd. and Sumitomo Corporation. Each partner takes in kind its share of
Morenci’s production.
Construction
of a concentrate-leach, direct-electrowinning facility at Morenci is on schedule
for completion in the third quarter of 2007. The facility uses Phelps Dodge’s
proprietary medium-temperature, pressure-leaching and direct-electrowinning
technology, which will enhance cost savings by processing concentrates on-site
instead of shipping concentrates to smelters for treatment. FCX’s share of the
concentrate produced by Morenci will continue to be treated at the smelter
located in Miami, Arizona, until the facility is completed.
Manufacturing.
The
Manufacturing segment consists of copper conversion facilities, including our
smelter, refinery, rod mills and specialty copper products facility. This
segment processes copper produced at our North American mines and copper
purchased from others into copper anode, cathode, rod and custom copper shapes.
The Miami smelter is the most significant source of sulfuric acid for the
various North American leaching operations. In addition, at times it smelts
and
refines copper and produces copper rod
and
shapes for customers on a toll basis. Toll arrangements require the tolling
customer to deliver appropriate copper-bearing material to our facilities for
processing into a product that is returned to the customer. The customer pays
us
for processing their material into the specified products.
Primary
Molybdenum.
The
Primary Molybdenum segment includes our wholly owned Henderson and Climax
molybdenum mines in Colorado, related conversion facilities and a technology
center. This segment is an integrated producer of molybdenum, with mining,
roasting and processing facilities that produce high-purity, molybdenum-based
chemicals, molybdenum metal powder and metallurgical products, which are sold
to
customers around the world. In addition, at times this segment roasts and/or
processes material on a toll basis. Toll arrangements require the tolling
customer to deliver appropriate molybdenum-bearing material to our facilities
for processing into a product that is returned to the customer. The customer
pays us for processing their material into the specified products. This segment
also includes a technology center whose primary activity is developing new
engineered products and applications.
The
Henderson underground mine produces high-purity, chemical-grade molybdenum
concentrates, which are further processed into value-added molybdenum chemical
products.
The
Climax mine has been on care-and-maintenance status since 1995. Prior to its
acquisition by FCX, Phelps Dodge had conditionally approved the restart of
the
Climax mine. Final approval is contingent upon completion of a favorable
feasibility study for a new mill and obtaining all required operating permits
and regulatory approvals. A pre-feasibility study indicates that the open-pit
mine could annually produce approximately 20 million to 30 million pounds of
molybdenum contained in high-quality concentrates at highly competitive unit
production costs with a capital investment of approximately $250 million for
a
new, state-of-the-art concentrator and associated facilities. Assuming a
favorable feasibility study and market conditions and timely receipt of permits,
we could have the Climax mine in production by the end of 2009.
The
following discussion about our Primary Molybdenum mining operations covers
the
full first quarters of 2007 and 2006, including periods prior to our acquisition
of these operations.
Pro
Forma Consolidated
|
|
First
Quarter
|
|
Primary
Molybdenum Mining Operations
a
|
|
2007
|
|
2006
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
16.5
|
|
|
17.2
|
|
Sales
|
|
|
18.6
|
|
|
16.9
|
|
Average
realized price per pound
|
|
$
|
23.00
|
|
$
|
21.18
|
|
|
|
|
|
|
|
|
|
a.
|
Pro
forma results include the results of Phelps Dodge prior to March
20, 2007,
and exclude purchased metal.
|
b.
|
Includes
by-product molybdenum production of 7.1 million pounds for first-quarter
2007 and 7.8 million pounds for first-quarter
2006.
|
Unit
Net Cash Costs.
The
following table summarizes the pro forma unit net cash costs at the Henderson
molybdenum mine for the full first quarters of 2007 and 2006.
Gross
Profit per Pound of Molybdenum
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
2007
|
|
2006
|
|
Revenues,
after adjustments shown below
|
$
|
22.17
|
|
$
|
21.53
|
|
Site
production and delivery, before net noncash and
|
|
|
|
|
|
|
nonrecurring
costs shown below
|
|
4.15
|
|
|
3.62
|
|
Unit
net cash costs
a
|
|
4.15
|
|
|
3.62
|
|
Depreciation
and amortization
|
|
0.92
|
|
|
0.89
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
Total
unit costs
|
|
5.09
|
|
|
4.53
|
|
Gross
profit
|
$
|
17.08
|
|
$
|
17.00
|
|
a.
|
For
a reconciliation of unit net cash costs to production and delivery
costs
applicable to sales reported in FCX’s consolidated financial statements
refer to “Product Revenues and Production
Costs.”
|
Other
North America Mining Operations.
Other
North America mining operations include our other southwestern U.S. copper
mines
- Bagdad, Sierrita, Chino, Cobre, Miami, Bisbee and Tohono. In addition to
copper, the Bagdad, Sierrita and Chino mines produce molybdenum, gold, silver
and rhenium.
Our
North
America mining operations also include the Safford copper mine, which is
currently under construction and is expected to produce ore from two open-pit
copper mines located in southeastern Arizona. All requisite permits have been
received and construction commenced in early August 2006. We anticipate that
Safford will be in production by early 2008, with full copper production
initially expected to approximate 240 million pounds per year. Life of the
operation is expected to be at least 18 years. The Safford mining complex will
require a total capital investment of approximately $580 million, of which
approximately $300 million was spent on the project prior to our acquisition
of
Phelps Dodge, and approximately $25 million was spent during the 12-day period
ending March 31, 2007. For the remainder of 2007, approximately $190 million
is
expected to be spent on development of the Safford mining complex.
South
American Mining
Through
Phelps Dodge, we have four copper mines in South America - Candelaria, Ojos
del
Salado and El Abra in Chile and Cerro Verde in Peru. These operations include
open-pit and underground mining, sulfide ore concentrating, leaching, solution
extraction and electrowinning. In addition to copper, the Candelaria and Ojos
del Salado mines produce gold and silver, and the Cerro Verde mine produces
molybdenum and silver. These operations are consolidated in our financial
statements, with outside ownership reported as minority interests.
For
the
12-day period ending March 31, 2007, South American mining added $261.7 million
in revenues and $117.3 million in operating income to our first-quarter 2007
results.
The
following discussion about our South American mining operations covers the
full
first quarters of 2007 and 2006, including periods prior to our acquisition
of
these operations.
Pro
Forma Consolidated
|
|
First
Quarter
|
|
South
American Mining Operations
a
|
|
2007
|
|
2006
|
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
Production
|
|
|
307.2
|
|
|
288.3
|
|
Sales
|
|
|
301.8
|
|
|
275.5
|
|
Average
realized price per pound
|
|
$
|
2.73
|
|
$
|
2.40
|
|
|
|
|
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
Production
|
|
|
24.5
|
|
|
30.2
|
|
Sales
|
|
|
25.5
|
|
|
29.3
|
|
a.
|
Pro
forma results include the results of Phelps Dodge prior to March
20,
2007.
|
Copper
sales in the first quarter of 2007 were higher than in the first quarter of
2006
primarily reflecting the start up of expanded production at Cerro Verde partly
offset by lower El Abra sales. Consolidated copper sales totaled 1.1 billion
pounds from South American operations in 2006 and are expected to approximate
1.5 billion pounds for the full year 2007. In the first quarter of 2007, these
operations sold 301.8 million pounds of copper. The projected increases for
full-year 2007 reflect incremental production from the new Cerro Verde
concentrator, partly offset by lower grades at El Abra.
Unit
Net Cash Costs.
The
following table summarizes the pro forma unit net cash costs at the South
American mines for the full first quarters of 2007 and 2006.
Gross
Profit per Pound of Copper/per Ounce of Gold and
Silver
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
$2.74
|
|
|
$2.74
|
|
|
$657.27
|
|
|
$13.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
0.84
|
|
|
0.80
|
|
|
286.47
|
|
|
5.25
|
|
By-product
credits
|
|
(0.08
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.18
|
|
|
0.18
|
|
|
44.63
|
|
|
1.39
|
|
Unit
net cash costs
|
|
0.94
|
|
|
0.98
|
|
|
331.10
|
|
|
6.64
|
|
Depreciation
and amortization
|
|
0.15
|
|
|
0.14
|
|
|
27.39
|
|
|
0.55
|
|
Noncash
and nonrecurring costs, net
|
|
-
|
|
|
-
|
|
|
0.40
|
|
|
0.01
|
|
Total
unit costs
|
|
1.09
|
|
|
1.12
|
|
|
358.89
|
|
|
7.20
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
0.19
|
|
|
0.19
|
|
|
(15.57
|
)
|
|
(0.24
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(9.63
|
)
|
|
(0.14
|
)
|
Gross
profit
|
|
$1.82
|
|
|
$1.79
|
|
|
$273.18
|
|
|
$5.63
|
|
Three
Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
$2.58
|
|
|
$2.58
|
|
|
$579.11
|
|
|
$9.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
0.74
|
|
|
0.72
|
|
|
177.85
|
|
|
3.06
|
|
By-product
credits
|
|
(0.08
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
0.15
|
|
|
0.15
|
|
|
42.39
|
|
|
0.63
|
|
Unit
net cash costs
|
|
0.81
|
|
|
0.87
|
|
|
220.24
|
|
|
3.69
|
|
Depreciation
and amortization
|
|
0.17
|
|
|
0.16
|
|
|
21.39
|
|
|
0.36
|
|
Noncash
and nonrecurring costs, net
|
|
-
|
|
|
-
|
|
|
0.24
|
|
|
0.01
|
|
Total
unit costs
|
|
0.98
|
|
|
1.03
|
|
|
241.87
|
|
|
4.06
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(0.17
|
)
|
|
(0.14
|
)
|
|
(163.38
|
)
|
|
(2.95
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(8.50
|
)
|
|
(0.12
|
)
|
Gross
profit
|
|
$1.41
|
|
|
$1.39
|
|
|
$165.36
|
|
|
$2.44
|
|
a.
|
For
a reconciliation of pro forma unit net cash costs per pound to production
and delivery costs applicable to pro forma sales refer to “Product
Revenues and Production Costs.”
|
South
American unit net cash costs were higher in the first quarter of 2007 compared
with the first quarter of 2006 primarily resulting from mill start-up activities
and higher employee costs at Cerro Verde, and the impact of lower volumes at
El
Abra. We estimate that pro forma annual 2007 average unit net cash costs for
our
South American mines, including gold credits, would approximate $0.85 per pound
of copper.
A
further
discussion of South American mining operations follows.
Cerro
Verde.
The
Cerro Verde open-pit mine, located near Arequipa, Peru, produces electrowon
copper cathodes and copper concentrates. We own a 53.56 percent equity interest
in Cerro Verde, which we fully consolidate and report the minority interest.
The
remaining 46.44 percent is held by SMM Cerro Verde
Netherlands B.V.,
Compañía de Minas Buenaventura S.A.A. and other minority shareholders through
shares publicly traded on the Lima Stock Exchange.
Cerro
Verde has recently completed an approximate $900 million mill expansion project,
which permits the mining and processing of a primary sulfide ore body beneath
the leachable ore body currently in production. Through the expansion,
approximately 1.5 billion tons of sulfide mill ore reserves averaging 0.47
percent copper and 0.02 percent molybdenum will be processed through the new
concentrator. Processing of the sulfide ore began in the fourth quarter of
2006
and the mill is on schedule to reach design capacity during the second quarter
of 2007. With the completion of the expansion, copper production at Cerro Verde
initially is expected to approximate 650 million pounds per year (approximately
348 million pounds per year for our share). The expansion is expected to add
approximately 430 million pounds of copper per year. In addition, the expansion
is expected to produce an average of approximately 8 million pounds of
molybdenum per year (approximately 4 million pounds per year for our share)
for
the next 10 years. Cerro Verde has long-term contracts that provide for fixed
treatment and refining charges through 2011 on approximately 50 percent of
its
projected copper concentrate production.
Other
South America Mining Operations.
Other
South American mining operations include our other South American copper mines
-
Candelaria, Ojos del Salado and El Abra - which include open-pit and underground
mining, sulfide ore concentrating, leaching, solution extraction and
electrowinning. In addition to copper, the Candelaria and Ojos del Salado mines
produce gold and silver. We own an 80 percent partnership interest in both
the
Candelaria and Ojos del Salado mines, and own a 51 percent partnership interest
in the El Abra mine.
At
the
end of 2006, a feasibility study was completed that evaluated the development
of
the large sulfide deposit at El Abra. This project would extend the mine
life
by nine years. Copper production from the sulfides is expected to begin in
2010. The existing facilities at El Abra will be used to process the additional
reserves, minimizing capital spending requirements. Total initial capital
for
the project is approximately $350 million, which will be spent between 2008
and 2011. In March 2007, an environmental impact study associated with the
sulfide project was submitted to Chilean authorities.
Other
Mining Matters
Africa.
We
hold
an effective 57.75 percent interest in the
Tenke
Fungurume
copper/cobalt mining concessions in the Katanga province of the Democratic
Republic of Congo. We are the operator of the project. The Tenke Fungurume
feasibility study completed in the fourth quarter of 2006 is based on ore
reserves of 103 million metric tons with ore grades of 2.1 percent copper and
0.3 percent cobalt. Based on the current mine plan, ore grades for the first
10
years are expected to average 4.6 percent copper and 0.4 percent cobalt.
Operations are expected to commence by early 2009, with initial production
of
approximately 250 million pounds of copper and approximately 18 million pounds
of cobalt per year for the first 10 years. Based on the recent feasibility
study, which assumes a long-term cobalt price of $12 per pound, life-of-mine
unit net cash costs after by-product credits are estimated to be a net credit
of
$0.19 per pound of copper.
We
are
responsible for funding 70 percent of project development costs. The Tenke
Fungurume project will require a capital investment of approximately $650
million.
Cerro
Verde.
In
June
2004, the executive branch of the Peruvian government approved legislation
incorporating a royalty on mining activities, which would be assessed at a
graduated rate of up to three percent on the value of Cerro Verde’s sales, net
of certain related expenses. In June 2006, an amendment to the royalty law
was
approved by the Peruvian congress, which granted the Peruvian tax authorities
the right to levy mining royalties on all mining companies operating in Peru,
including those with stability agreements. This amendment was subsequently
rejected by the executive branch on the grounds that the government cannot
modify stability agreements entered into with mining companies without their
consent. However, the government has requested that all mining companies make
additional payments to
local
communities where they operate during times of high metal prices to partially
offset proceeds that would have otherwise come from the royalty.
Cerro
Verde’s Mining Stability Agreement contains a provision that allows it to
exclude from taxable income qualifying profits that are reinvested in an
investment program filed with and approved by the Ministry of Energy and
Mines.
Cerro Verde’s reinvestment program associated with its sulfide expansion project
has resulted in lower revenues being returned to the Arequipa region from
the
federal government under the mining law of Peru. During 2006, the Peruvian
government announced that all mining companies operating in Peru will make
annual contributions equal to 3.75 percent of after-tax profits to local
development funds for a five-year period, with each company negotiating
an
individual agreement with the government. Cerro Verde has negotiated an
agreement to pay the 3.75 percent contribution, of which 2.75 percent will
be
contributed to a local mining fund and 1.00 percent to a regional mining
fund.
Cerro Verde would also receive a credit against the local contribution
for any
contributions made to the Arequipa region for the partial financing of
the
construction of local water and sewage treatment facilities. Based on the
agreement and prior to our acquisition of Phelps Dodge, Cerro Verde paid
approximately $5 million to the Arequipa region. Cerro Verde also agreed
to
conduct and fund technical studies for the construction of water and sewage
treatment facilities in Arequipa. Based on the results of the studies,
Cerro
Verde will finance 50 percent of the construction of both facilities. The
cost
associated with the construction of these facilities is currently under
review,
but Cerro Verde’s share is expected to approximate $40 million, which is
recorded as a liability.
Curtailed
Properties.
We
base
our decision to temporarily curtail production on a variety of factors. We
may
temporarily curtail production in response to external, macro-level factors
such
as prevailing and projected global copper production and demand, and the
magnitude and trend of changes in world copper inventories. The lead times
involved in temporarily curtailing and restarting open-pit copper mines are
such
that careful consideration must be given to long-term planning rather than
immediate reaction to price fluctuations.
Our
decisions concerning temporary curtailment of certain mining operations also
take into account molybdenum market conditions. This includes overall molybdenum
market supply/demand fundamentals, inventory levels and published
prices.
We
also
may adjust production at various properties in response to internal, micro-level
factors such as the need to balance smelter feed or an internal shortage or
surplus of sulfuric acid for our leaching operations. In other cases, facilities
may be temporarily curtailed as a result of changes in technology that may
make
one technology, at a given copper price, more attractive than another
technology. Unique regional issues, such as the energy crisis in the
southwestern United States in 2000 and 2001, also may result in temporary
curtailments.
We
have
additional sources of copper that could be developed; however, such
add
itional
sources would require the development of greenfield projects that would involve
significant capital expenditures and could require long lead-times.
EXPLORATION
ACTIVITIES
We
are
conducting exploration activities near our existing mines and in other areas
around the world. Exploration expenditures in 2007 are expected to approximate
$125 million.
Our
exploration efforts in
North
America
include
drilling
within the Safford district of the Lone Star deposit, located approximately
four
miles from the ore body currently under development, and targets in the Morenci
district. In Africa, we plan to explore targets outside of the area of initial
development at Tenke Fungurume and to advance a pre-feasibility study on the
separate Kisanfu project.
We
are
reviewing the development potential of each mining district acquired from Phelps
Dodge and all of its ongoing exploration activities. These reviews could result
in changes in our exploration and development plans.
PT
Freeport Indonesia’s 2007 exploration efforts in
Indonesia
will
continue to test extensions of the Deep Grasberg and Kucing Liar mine complex.
PT Freeport Indonesia also expects to test the open-pit potential of the
Wanagon
gold prospect, the Ertsberg open-pit resource through surface drilling programs,
possible extensions of the Deep Mill Level Zone deposit and other targets
in the
area between the Ertsberg and Grasberg mineral systems from the new Common
Infrastructure tunnels. During 2007, we have resumed exploration activities
that
were suspended in recent years in certain prospective areas outside Block
A
including the Kamopa prospect. Field programs were initiated at the Ular
Merah
copper/gold prospect in our Eastern Minerals contract of work area during
the
first quarter of 2007.
ATLANTIC
COPPER SMELTING & REFINING
Our
investment in smelters serves an important role in our concentrate marketing
strategy. PT Freeport Indonesia generally sells under long-term contracts
approximately one-half of its concentrate production to its affiliated smelters,
Atlantic Copper and PT Smelting, and the remainder to other customers. Treatment
charges for smelting and refining copper concentrates represent a cost to PT
Freeport Indonesia and income to Atlantic Copper and PT Smelting. Through
downstream integration, we are assured placement of a significant portion of
PT
Freeport Indonesia’s concentrate production. Low smelter treatment and refining
charges will adversely affect the operating results of Atlantic Copper and
benefit the operating results of Indonesian and South America mining operations.
Smelting and refining charges consist of a base rate and, in certain contracts,
price participation based on copper prices. Higher treatment and refining
charges benefit our smelter operations at Atlantic Copper and adversely affect
our mining operations in Indonesia and South America. North American mining
operations are not affected by changes in treatment and refining charges because
of our integrated operations.
Atlantic
Copper Operating Results
|
First
Quarter
|
|
(In
Millions)
|
2007
|
|
2006
|
|
Gross
profit
|
$
|
16.5
|
|
$
|
17.3
|
|
Add
depreciation and amortization expense
|
|
10.5
|
|
|
7.4
|
|
Other
|
|
(0.4
|
)
|
|
(0.4
|
)
|
Cash
margin
|
$
|
26.6
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
Operating
income (in millions)
|
$
|
12.4
|
|
$
|
13.5
|
|
Concentrate
and scrap treated (thousand metric tons)
|
|
242.5
|
|
|
250.7
|
|
Anodes
production (million pounds)
|
|
149.0
|
|
|
157.1
|
|
Treatment
rates per pound
|
$
|
0.35
|
|
$
|
0.29
|
|
Cathodes
sales (million pounds)
|
|
134.6
|
|
|
136.6
|
|
Gold
sales in anodes and slimes (thousand ounces)
|
|
114.2
|
|
|
245.6
|
|
|
|
|
|
|
|
|
Atlantic
Copper’s operating cash margin was $26.6 million in the first quarter of 2007,
compared with $24.3 million in the 2006 period. Atlantic Copper reported
operating income of $12.4 million in the first quarter of 2007, compared with
$13.5 million in the 2006 period. Atlantic Copper has a 23-day maintenance
turnaround currently scheduled for the second quarter of 2007.
Atlantic
Copper treated 242,500 metric tons of concentrate and scrap in the first quarter
of 2007, compared with 250,700 metric tons in the 2006 period. Cathode
production totaled 132.2 million pounds and sales totaled 134.6 million pounds
during the first quarter of 2007, compared with cathode production of 129.4
million pounds and sales of 136.6 million pounds during the first quarter of
2006. Atlantic Copper’s treatment charges (including price participation), which
are what PT Freeport Indonesia and third parties pay Atlantic Copper to smelt
and refine concentrates, averaged $0.35 per pound during the first quarter
of
2007 and $0.29 per pound during the first quarter of 2006. The increase in
treatment charges in the 2007 period primarily reflects higher treatment rates
negotiated under the terms of Atlantic Copper’s concentrate purchase and sales
agreements.
TABLE
OF CONTENTS
We
defer
recognizing profits on PT Freeport Indonesia’s sales to Atlantic Copper and on
25 percent of PT Freeport Indonesia’s sales to PT Smelting until the final sales
to third parties occur. Changes in these net deferrals resulted in reductions
to
our operating income totaling $206.0 million ($109.3 million to net income
or
$0.45 per share) in the first quarter of 2007, compared with an increase
of
$74.2 million ($39.3 million to net income or $0.18 per share) in the first
quarter of 2006. At March 31, 2007, our net deferred profits on PT Freeport
Indonesia concentrate inventories at Atlantic Copper and PT Smelting to be
recognized in future periods’ net income after taxes and minority interest
sharing totaled $210.1 million. Based on copper prices of $3 per pound and
gold
prices of $650 per ounce for the second quarter of 2007 and current shipping
schedules, we estimate the net change in deferred profits on intercompany
sales
will result in an increase to net income of approximately $50 million in
the
second quarter of 2007. The actual change in deferred intercompany profits
may
differ substantially from this estimate because of changes in the timing
of
shipments to affiliated smelters and metal prices.
The
majority of Atlantic Copper’s revenues are denominated in U.S. dollars; however,
operating costs, other than concentrate purchases, and certain asset and
liability accounts are denominated in euros. Atlantic Copper’s estimated annual
euro payments total approximately 100 million euros. A $0.05 increase or
decrease in the exchange rate would result in an approximate $5 million change
in annual costs. The exchange rate on March 31, 2007, was $1.33 per
euro.
PHELPS
DODGE INTERNATIONAL CORPORATION (PDIC)
PDIC,
our
international manufacturing division, produces engineered products principally
for the global energy sector. Its operations are characterized by products
with
internationally competitive costs and quality, and specialized engineering
capabilities. Its factories, which are located in nine countries throughout
Latin America, Asia and Africa, manufacture energy cables for international
markets. Three of our international wire and cable companies have
continuous-cast copper rod facilities and three have continuous-cast aluminum
rod facilities.
For
the
12-day period ended March 31, 2007, PDIC added $57.1 million in revenues and
$7.1 million in operating income to FCX’s first-quarter 2007 results.
CAPITAL
RESOURCES AND LIQUIDITY
Our
operating cash flows vary with prices realized from copper, gold and molybdenum
sales, our production levels, production costs, cash payments for income taxes
and interest, other working capital changes and other factors. Based on current
mine plans and subject to future copper, gold and molybdenum prices, we expect
to generate cash flows significantly greater than our budgeted capital
expenditures, scheduled debt maturities and other cash requirements, thereby
providing us with opportunities to reduce debt.
Following
the significant increase in our debt associated with the acquisition of Phelps
Dodge, we have placed a high priority on debt reduction, and if market
conditions remain favorable, we expect to achieve our objective of meaningful
debt reduction in the near-term. We will continue to consider opportunities
to
reduce debt through possible asset sales.
Cash
and cash equivalents
At
March
31, 2007, we had consolidated cash and cash equivalents of $3.1 billion. The
following table reflects the U.S. and international components of consolidated
cash and cash equivalents at March 31, 2007, and December 31, 2006 (in
billions):
|
March
31,
|
|
December
31,
|
|
|
2007
|
|
2006
|
|
Cash
from U.S. operations
|
$
|
0.3
|
|
$
|
-
|
|
Cash
from international operations
|
|
2.8
|
|
|
0.9
|
|
Total
consolidated cash and cash equivalents
|
|
3.1
|
|
|
0.9
|
|
Less:
minority interests’ share
|
|
(0.5
|
)
|
|
-
|
|
Cash,
net of minority interests’ share
|
|
2.6
|
|
|
0.9
|
|
Withholding
taxes if distributed
a
|
|
(0.2
|
)
|
|
(0.1
|
)
|
Net
cash available to parent company
|
$
|
2.4
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
a.
|
Cash
at our international operations is subject to foreign withholding
taxes of
up to 22 percent upon repatriation into the U.S.
|
Using
estimated sales volumes for the remainder of 2007 and assuming average prices
of
$3 per pound of copper, $650 per ounce of gold and $20 per pound of molybdenum
for the remainder of 2007, our consolidated operating cash flows would exceed
$5.3 billion in 2007, including over $4.6 billion projected in the remaining
three quarters. Each $0.20 per pound change in copper prices would affect 2007
cash
flows
by
approximately $400 million, each $50 per ounce change in gold prices would
affect 2007 cash flows by approximately $30 million, and each $2 per pound
change in molybdenum prices would affect 2007 cash flows by approximately $50
million.
We
expect
to generate cash flows during 2007 significantly greater than our capital
expenditures, minority interests distributions, dividends and other cash
requirements. Using the same assumptions regarding average prices for the
remainder of 2007, and assuming excess cash is applied to reduce debt, total
debt at year-end 2007 would approximate $9 billion and consolidated cash would
approximate $2 billion.
Operating
Activities
Net
cash
provided by operating activities totaled $668.9 million during the first quarter
of 2007, net of $202.2 million used for working capital requirements. In the
first quarter of 2006, net cash used in operating activities totaled $123.8
million, including $501.1 million in working capital requirements. First-quarter
2007 operating cash flows benefited from higher net income because of higher
sales volumes and metals prices, and $108.3 million of cash flows from Phelps
Dodge’s operations for the 12-day period ended March 31, 2007.
First-quarter
2006 operating cash flows were reduced by $453.7 million of income tax payments,
including $328.4 million attributable to 2005 results, other working capital
requirements totaling $172.7 million and a $44.9 million net use of operating
cash resulting from the loss on the redemption of our Gold-Denominated Preferred
Stock, Series II.
Investing
Activities
On
March
19, 2007, we issued 136.9 million shares of common stock and paid $13.9 billion
(net of cash acquired) to acquire Phelps Dodge (refer to Note 2 for further
discussion).
Capital
expenditures, including capitalized interest, totaled $142.4 million in the
first quarter of 2007 and $52.1 million in the first quarter of 2006. PT
Freeport Indonesia capital expenditures for the first quarter of 2007 totaled
$74.0 million, which included approximately $20 million for Big Gossan and
approximately $15 million for the development of the underground Grasberg ore
body. Also included in first-quarter 2007 capital expenditures were Phelps
Dodge
capital expenditures of $60.9 million for the 12-day period ended March 31,
2007, which included approximately $25 million associated with the Safford
project and approximately $5 million associated with Tenke Fungurume.
Capital
expenditures, including approximately $800 million for long-term projects,
are
estimated to total $1.6 billion for 2007. The increase in capital expenditures
for 2007 primarily is associated with the addition of Phelps Dodge capital
spending, which is expected to approximate $1.2 billion for 2007, and includes
amounts for the development of the Tenke Fungurume copper/cobalt mining project
(approximately $300
million)
and the Safford copper mine (approximately $270 million). PT Freeport
Indonesia’s projected capital expenditures for 2007 include approximately $90
million for Big Gossan.
Financing
Activities
At
March
31, 2007, we had $12.0 billion in debt, including $10.4 billion in acquisition
debt, $0.9 billion of debt assumed in the Phelps Dodge acquisition and $0.7
billion of previously existing debt. In connection with financing our
acquisition of Phelps Dodge, we used $2.5 billion of cash and completed the
following debt transactions:
·
|
borrowed
$10.0 billion in term loans under a new $11.5 billion senior credit
facility
|
·
|
issued
$6.0 billion in senior notes
|
Additionally,
in accordance with our plan to reduce debt, we completed the following equity
transactions immediately following closing of the acquisition, using the net
proceeds to reduce borrowings under the credit facility:
·
|
sold
47.15 million shares of common stock at $61.25 per share for net
proceeds
of $2.8 billion
|
·
|
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
|
In
the
first quarter of 2007, we recorded net charges totaling $87.8 million ($74.6
million to net income or $0.31 per share) associated with the acceleration
of
amortization of deferred financing costs for the credit facility because of
prepayments on the term loans, net of a $34.6 million refund of fees for early
repayment.
In
May
2007, we redeemed our 10⅛% Senior Notes ($272.4 million balance) for $286.2
million. We also prepaid an additional $500 million of term debt in April 2007.
As a result, we will record charges totaling approximately $24 million
(approximately $21 million to net income) in the second quarter of 2007 related
to the premiums paid and the accelerated recognition of deferred financing
costs
associated with these debt reductions.
In
2003,
our Board of Directors approved an open market share purchase program for up
to
20 million shares, which replaced our previous program. Through April 30, 2007,
we had acquired 2.0 million shares in 2006 for $99.8 million ($49.94 per share
average), 2.4 million shares in 2005 for $80.2 million ($33.83 per share
average) and 3.4 million shares in 2004 for $99.5 million ($29.39 per share
average); 12.2 million shares remain available. The timing of future purchases
of our common stock is dependent on many factors including the price of our
common shares, our cash flows and financial position, copper and gold prices
and
general economic and market conditions.
Common
stock dividends totaled $62.9 million in the first quarter of 2007. Our current
regular annual common stock dividend is $1.25 per share, paid at a quarterly
rate of $0.3125 per share. Based on outstanding common shares on March 31,
2007,
our annual common stock dividend totals approximately $475 million. The
declaration and payment of dividends is at the discretion of our Board of
Directors. The amount of our current quarterly cash dividend on our common
stock
will be dependent upon our financial results, cash requirements, future
prospects and other factors deemed relevant by our Board of Directors. On March
29, 2007, FCX declared a regular quarterly dividend, which was paid on May
1,
2007, to common shareholders of record at the close of business on April 16,
2007.
Cash
dividends on preferred stock of $15.1 million in each of the first quarters
of
2007 and 2006, represent dividends on our 5½% Convertible Perpetual Preferred
Stock. Each share of preferred stock was initially convertible into 18.8019
shares of our common stock, equivalent to an initial conversion price of
approximately $53.19 per common share. The conversion rate is adjustable upon
the occurrence of certain events, including any quarter that our common stock
dividend exceeds $0.20 per share. As a result of the quarterly and supplemental
common stock dividends paid through May 1, 2007, each share of preferred stock
is now convertible into 21.1923 shares of FCX common stock, equivalent to a
conversion price of approximately $47.19 per common share. On March 29, 2007,
FCX declared a regular quarterly
dividend
of $13.75 per share of FCX’s 5½% Convertible Perpetual Preferred Stock, which
was paid on May 1, 2007, to shareholders of record at the close of business
on
April 16, 2007.
The
6¾%
mandatory convertible preferred stock sold in March 2007, will automatically
convert on May 1, 2010, into between approximately 39 million and 47 million
shares of FCX common stock. The conversion rate will be subject to anti-dilution
adjustments in certain circumstances. Holders may elect to convert at any time
at a conversion rate equal to 1.3605 shares of common stock for each share
of
6¾% mandatory convertible preferred stock. We will pay, when declared by our
Board of Directors, quarterly dividends at a rate of 6.75 percent per annum.
The
first dividend date is August 1, 2007.
Cash
dividends to minority interests of $47.0 million in the first quarter of 2007
and $18.7 million in the first quarter of 2006 represent dividends paid to
the
minority interest owners of PT Freeport Indonesia and Puncakjaya
Power.
Pursuant
to the restricted payment covenants in our $11.5 billion senior credit facility
and certain senior notes, the amount available for dividend payments, purchases
of our common stock and other restricted payments as of March 31, 2007, was
approximately $3.6 billion.
DISCLOSURES
ABOUT MARKET RISKS
In
connection with the acquisition of Phelps Dodge, the following supplements
the
disclosures about market risks contained in our 2006 Annual Report on Form
10-K
for the year ended December 31, 2006.
Commodity
Price Risk
Our
consolidated revenues include the sale of copper concentrates, which also may
contain significant quantities of gold and silver, the sale of copper anodes,
cathodes, wire rod, wire and gold in anodes and slimes, and the sale of
molybdenum. Consolidated revenues and net income vary significantly with
fluctuations in the market prices of copper, gold and molybdenum, sales volumes
and other factors. For further information on commodity price risk see the
discussion under “Consolidated Results - Revenues.”
Foreign
Currency Exchange Risk
The
functional currency for most of our operations is the U.S. dollar. All of our
revenues and a significant portion of our costs are denominated in U.S. dollars;
however, some costs and certain assets and liability accounts are denominated
in
local currencies, including the Indonesian rupiah, Australian dollars, Chilean
pesos, Peruvian nuevos soles and euros. Generally, our results are positively
affected when the U.S. dollar strengthens in relation to those foreign
currencies and adversely affected when the U.S. dollar weakens in relation
to
those foreign currencies.
One
U.S.
dollar was equivalent to 8,989 rupiah at December 31, 2006 and 9,113 rupiah
at
March 31, 2007. PT Freeport Indonesia’s labor costs are mostly rupiah
denominated. At estimated aggregate annual rupiah payments of 1.6 trillion
for
operating costs and an exchange rate of 9,113 rupiah to one U.S. dollar, the
exchange rate as of March 31, 2007, a one-thousand-rupiah increase in the
exchange rate would result in an approximate $17 million decrease in aggregate
annual operating costs. A one-thousand-rupiah decrease in the exchange rate
would result in an approximate $22 million increase in aggregate annual
operating costs.
Approximately
14 percent of PT Freeport Indonesia’s total projected 2007 purchases of
materials, supplies and services are denominated in Australian dollars. The
exchange rate was $0.79 to one Australian dollar at December 31, 2006, and
$0.81
to one Australian dollar at March 31, 2007. At estimated annual aggregate
Australian dollar payments of 250 million and an exchange rate of $0.81 to
one
Australian dollar, the exchange rate as of March 31, 2007, a $0.01 increase
or
decrease in the exchange rate would result in an approximate $2.5 million change
in aggregate annual operating costs.
The
majority of Atlantic Copper’s revenues are denominated in U.S. dollars; however,
operating costs, other than concentrate purchases, and certain asset and
liability accounts are denominated in euros. Atlantic Copper’s estimated annual
euro payments total approximately 100 million euros. A $0.05
increase
or
decrease in the exchange rate would result in an approximate $5 million change
in annual costs. The exchange rate on December 31, 2006, was $1.32 per euro
and
on March 31, 2007, was $1.33 per euro.
At
our
South American mining operations, labor costs and local supply costs are mostly
denominated in the local currencies. One U.S. dollar was equivalent to 532.4
Chilean pesos and 3.2 Peruvian nuevos soles at December 31, 2006, and 539.4
Chilean pesos and 3.2 Peruvian nuevos soles at March 31, 2007. At estimated
aggregate annual Chilean peso payments of 160 billion for operating costs and
an
exchange rate of 539.4 Chilean pesos to one U.S. dollar, the exchange rate
as of
March 31, 2007, a ten-peso increase or decrease in the exchange rate would
result in an approximate $5.5 million change in aggregate annual operating
costs. At estimated aggregate annual Peruvian nuevo sol payments of 330
million for operating costs and an exchange rate of 3.2 Peruvian nuevos soles
to
one U.S. dollar, the exchange rate as of March 31, 2007, a 0.10 nuevo sol
increase or decrease in the exchange rate would result in an approximate $3.0
million change in aggregate annual operating costs.
Interest
Rate Risk
As
of
March 31, 2007, we had approximately $12.0 billion of long-term debt.
Approximately 48 percent of our debt is variable rate debt, with an interest
rate based on London Interbank Offered Rate (LIBOR). An increase in LIBOR would
increase our interest costs and would negatively affect our cash flows and
results of operations.
CONTRACTUAL
OBLIGATIONS
In
connection with the acquisition of Phelps Dodge, contractual obligations
(including debt) as of March 31, 2007, have increased when compared to December
31, 2006. The following table, as of March 31, 2007, reflects an update of
only
the major changes to the similar table presented in our 2006 Annual Report
on
Form 10-K, and the effect such obligations are expected to have on our liquidity
and cash flows in future periods
(in
millions):
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
+5
Years
|
Short-term
debt
|
$
|
96.1
|
|
$
|
96.1
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Long-term
debt
|
|
11,940.0
|
|
|
103.1
|
|
|
379.5
|
|
|
181.4
|
|
|
11,276.0
|
Scheduled
interest payment obligations
a
|
|
7,663.4
|
|
|
887.2
|
|
|
2,519.7
|
|
|
1,669.1
|
|
|
2,587.4
|
Asset
retirement obligations
b
|
|
104.4
|
|
|
65.1
|
|
|
36.9
|
|
|
2.1
|
|
|
0.3
|
Take-or-pay
contracts
c
|
|
1,574.9
|
|
|
1,132.1
|
|
|
320.6
|
|
|
85.8
|
|
|
36.4
|
Total
contractual cash obligations
d
|
$
|
21,378.8
|
|
$
|
2,283.6
|
|
$
|
3,256.7
|
|
$
|
1,938.4
|
|
$
|
13,900.1
|
a.
|
Scheduled
interest payment obligations were calculated using stated coupon
rates for
fixed debt and interest rates applicable at March 31, 2007, for variable
debt.
|
b.
|
Asset
retirement obligations only include our estimated contractual cash
payments associated with reclamation activities at certain Phelps
Dodge
sites we acquired for which our costs are estimable and the timing
of
payments was reasonably determinable as of March 31, 2007. The timing
and
the amount of these payments could change as a result of changes
in
regulatory requirements, changes in scope of reclamation activities
and as
actual reclamation spending occurs. The table excludes remaining
cash
payments of approximately $66 million that are expected to be incurred
in
connection with accelerating certain closure projects at our discretion.
We have also excluded payments for reclamation activities that are
expected to occur after five years and the associated trust assets
of
approximately $522 million that have been dedicated to funding those
reclamation activities because a majority of these cash flows are
expected
to occur over an extended period of time and are dependent upon the
timing
of the end of the mine life, which is subject to
revision.
|
c.
Take-or-pay contracts acquired in the acquisition of Phelps Dodge primarily
include contracts for copper deliveries of specified volumes
at
market-based prices (approximately $1 billion), transportation and port fee
commitments (approximately $211 million) and contracts for electricity
(approximately
|
$124
million). Approximately 39 percent of our take-or-pay electricity
obligations are through Phelps Dodge Energy Services (PDES), the
legal
entity used to manage power for North American operations at generally
fixed-priced arrangements. PDES has the right and the ability to
resell
the electricity as circumstances warrant.
|
d.
|
This
table excludes certain other obligations in our Condensed Consolidated
Balance Sheet, 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. Environmental obligations
and
contingencies for which the timing of payments is not determinable
are
also excluded.
|
Hedging
Activities
In
connection with the acquisition of Phelps Dodge, we acquired certain derivative
instruments entered into by Phelps Dodge. The most significant of these
derivatives are zero-premium copper collars (consisting of both put and call
options) and copper put options (see Note 14). These derivative
instruments
do not qualify for hedge accounting and are adjusted to fair market value based
on the forward curve price and implied volatility as of the last day of the
respective reporting period, with the gain or loss recorded in revenues.
First-quarter 2007 results include charges to revenues totaling $38.1 million
($23.2 million to net income or $0.10 per share) representing the increase
in
the mark-to-market liability from March 20, 2007, to March 31, 2007. The actual
impact of our 2007 zero-premium copper collar price protection program will
not
be fully determinable until their maturity at year-end 2007, with final
adjustments based on the average annual LME price.
At
March
31, 2007, these zero-premium copper collars covered 486.0 million pounds of
copper sales. At March 31, 2007, the liability associated with these contracts
totaled $461.5 million. At March 31, 2007, we also had in place copper put
options acquired in the Phelps Dodge acquisition at a strike price of $0.95
per
pound for approximately 730 million pounds of 2007 copper sales.
Based on
copper prices at April 30, 2007, the mark-to-market accounting adjustments
in
the second quarter of 2007 for the copper collars would reduce revenues by
approximately $147 million (approximately $90 million to net income). The 2007
copper collars and put contracts will settle in the first quarter of 2008 based
on the average 2007 LME price.
We
do not
currently intend to enter into similar hedging programs in the future.
ENVIRONMENTAL
AND RECLAMATION MATTERS
Environmental
We
are
subject to stringent federal, state and local environmental laws and regulations
that govern emissions of air pollutants; discharges of water pollutants; and
generation, handling, storage and disposal of hazardous substances, hazardous
wastes and other toxic materials. We also are subject to potential liabilities
arising under CERCLA and similar state laws that impose responsibility on
persons who arranged for the disposal of hazardous substances, and on current
and previous owners and operators of a facility for the cleanup of hazardous
substances released from the facility into the environment, including damages
to
natural resources. In addition, we are subject to potential liabilities under
the Resource Conservation and Recovery Act (RCRA) and analogous state laws
that
require responsible parties to remediate releases of hazardous or solid waste
constituents into the environment associated with past or present
activities.
Phelps
Dodge or its subsidiaries previously have been advised by the U.S. Environmental
Protection Agency (EPA), U.S. Forest Service and several state agencies that
under CERCLA or similar state laws and regulations, they may be liable for
costs
of responding to environmental conditions at a number of sites that have been
or
are being investigated by the EPA, the U.S. Forest Service or states to
determine whether releases of hazardous substances have occurred and, if so,
to
develop and implement remedial actions to address environmental concerns. Phelps
Dodge has also been advised by trustees for natural resources that it may be
liable under CERCLA or similar state laws for damages to natural resources
caused by releases of hazardous substances.
Asset
Retirement Obligations
In
connection with the acquisition of Phelps Dodge, we acquired certain asset
retirement obligations (AROs). At March 31, 2007, we had $405.9 million recorded
for AROs in current and long-term liabilities on the balance sheet. We estimate
at March 31, 2007, that our share of the total cost of Phelps Dodge’s AROs,
including anticipated future disturbances and cumulative payments, to be
approximately $1.3 billion (unescalated, undiscounted and on a third-party
cost
basis), leaving approximately $900 million remaining to be accreted over time.
These aggregate costs may increase or decrease materially in the future as
a
result of changes in regulations, engineering designs and technology, permit
modifications or updates, mine plans or other factors and as actual reclamation
spending occurs. ARO activities and expenditures generally are made over an
extended period of time commencing near the end of the mine life; however,
certain reclamation activities could be accelerated if they are determined
to be
economically beneficial.
At
March
31, 2007, we had
a
trust
dedicated to funding global reclamation and remediation activities totaling
$422.4 million and also had trust assets that are legally restricted, totaling
$99.4 million, to fund a
portion
of our asset retirement obligations for Chino, Tyrone and Cobre as required
for
New Mexico financial assurance.
Refer
to
Note 11 for additional information on significant environmental matters and
asset retirement obligations.
Prior
to
its acquisition by FCX, Phelps Dodge had initiated a process of identifying
and
prioritizing opportunities to accelerate certain demolition, environmental
reserve and asset retirement obligation projects. The projects were prioritized
based on projects where it has regulatory flexibility to remediate at a faster
pace, structures that can be readily demolished, reclamation of visibly impacted
areas, and projects in Arizona and New Mexico where we have substantial
long-term closure obligations. The current plan is to spend, including capital,
at least $300 million through 2008 associated with environmental reserve and
reclamation projects.
NEW
ACCOUNTING STANDARDS
Effective
January 1, 2007, we adopted FASB Interpretation No. (FIN) 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,”
which prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The cumulative effect of adopting FIN 48
was
an increase in beginning retained earnings of approximately $4 million. Refer
to
Note 9 for further discussion.
In
February 2007, the Financial Accounting Standards Board issued SFAS No. 159
“The
Fair Value Option for Financial Assets and Liabilities - Including an amendment
of FASB No. 115.” SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement
is
effective for fiscal years beginning after November 15, 2007, with early
adoption allowed. We have not yet determined the impact, if any, that adopting
this standard might have on our financial statements.
PRODUCT
REVENUES AND PRODUCTION COSTS
Unit
net
cash costs per pound of copper is a measure intended to provide investors with
information about the cash generating capacity of our mining operations
expressed on a basis relating to our primary metal product, copper. We use
this
measure for the same purpose and for monitoring operating performance by our
mining operations. This information differs from measures of performance
determined in accordance with generally accepted accounting principles and
should not be considered in isolation or as a substitute for measures of
performance determined in accordance with generally accepted accounting
principles. This measure is presented by other copper and gold mining companies,
although our measures may not be comparable to similarly titled measures
reported by other companies.
We
present gross profit per pound of copper using both a “by-product” method and a
“co-product” method. We use the by-product method in our presentation of gross
profit per pound of copper because (1) the majority of our revenues are copper
revenues, (2) we mine ore, which contains copper, gold, molybdenum and other
metals, (3) it is not possible to specifically assign all of our costs to
revenues from the copper, gold, and molybdenum and other metals we produce,
(4)
it is the method used to compare mining operations in certain industry
publications and (5) it is the method used by our management and Board of
Directors to monitor operations. In the co-product method presentation below,
costs are allocated to the different products based on their relative revenue
values, which will vary to the extent our metals sales volumes and realized
prices change.
In
both
the by-product and the co-product method calculations below, we show adjustments
to copper revenues for prior period open sales as separate line items. Because
the copper pricing adjustments do not result from current period sales, we
have
reflected these separately from revenues on current period sales. Noncash and
nonrecurring costs consist of items such as stock-based compensation costs,
write-
offs
of
equipment or unusual charges. They are removed from site production and delivery
costs in the calculation of unit net cash costs. In addition, costs resulting
from the application of the purchase accounting method are removed. As discussed
above, gold, molybdenum and other metal revenues, excluding any impacts from
redemption of the gold- and silver-denominated preferred stocks, are reflected
as credits against site production and delivery costs in the by-product method.
Presentations under both methods are shown below together with reconciliations
to amounts reported in our consolidated financial statements or pro forma
consolidated results.
Indonesia
Mining Product Revenues and Production Costs
Three
Months Ended March 31, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
1,297.6
|
|
$
|
1,297.6
|
|
$
|
622.3
|
|
$
|
21.0
|
|
$
|
1,940.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncash
and nonrecurring costs shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
313.7
|
|
|
209.7
|
|
|
100.6
|
|
|
3.4
|
|
|
313.7
|
|
Gold
and silver credits
|
|
(643.3
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
153.3
|
|
|
102.5
|
|
|
49.1
|
|
|
1.7
|
|
|
153.3
|
|
Royalty
on metals
|
|
49.8
|
|
|
33.3
|
|
|
16.0
|
|
|
0.5
|
|
|
49.8
|
|
Unit
net cash (credits) costs
|
|
(126.5
|
)
|
|
345.5
|
|
|
165.7
|
|
|
5.6
|
|
|
516.8
|
|
Depreciation
and amortization
|
|
59.2
|
|
|
39.6
|
|
|
19.0
|
|
|
0.6
|
|
|
59.2
|
|
Noncash
and nonrecurring costs, net
|
|
8.8
|
|
|
5.9
|
|
|
2.8
|
|
|
0.1
|
|
|
8.8
|
|
Total
unit (credits) costs
|
|
(58.5
|
)
|
|
391.0
|
|
|
187.5
|
|
|
6.3
|
|
|
584.8
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales
|
|
(29.3
|
)
|
|
(29.3
|
)
|
|
-
|
|
|
-
|
|
|
(29.3
|
)
|
PT
Smelting intercompany profit elimination
|
|
(35.7
|
)
|
|
(23.9
|
)
|
|
(11.4
|
)
|
|
(0.4
|
)
|
|
(35.7
|
)
|
Gross
profit
|
$
|
1,291.1
|
|
$
|
853.4
|
|
$
|
423.4
|
|
$
|
14.3
|
|
$
|
1,291.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,940.9
|
|
$
|
313.7
|
|
$
|
59.2
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
above
|
|
N/A
|
|
|
8.8
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(153.3
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(49.8
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales per above
|
|
(29.3
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesian mining operations
|
|
1,708.5
|
|
|
322.5
|
|
|
59.2
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
594.4
|
|
|
629.6
|
|
|
57.1
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
2,302.9
|
|
$
|
952.1
|
|
$
|
116.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
Mining Product Revenues and Production Costs
Three
Months Ended March 31, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
543.1
|
|
$
|
543.1
|
|
$
|
282.8
|
|
$
|
7.8
|
|
$
|
833.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncash
and nonrecurring costs shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
275.0
|
|
|
179.2
|
|
|
93.3
|
|
|
2.5
|
|
|
275.0
|
|
Gold
and silver credits
|
|
(290.6
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
83.6
|
|
|
54.5
|
|
|
28.3
|
|
|
0.8
|
|
|
83.6
|
|
Royalty
on metals
|
|
19.9
|
|
|
13.0
|
|
|
6.7
|
|
|
0.2
|
|
|
19.9
|
|
Unit
net cash costs
|
|
87.9
|
|
|
246.7
|
|
|
128.3
|
|
|
3.5
|
|
|
378.5
|
|
Depreciation
and amortization
|
|
33.8
|
|
|
22.0
|
|
|
11.5
|
|
|
0.3
|
|
|
33.8
|
|
Noncash
and nonrecurring costs, net
|
|
11.7
|
|
|
7.6
|
|
|
4.0
|
|
|
0.1
|
|
|
11.7
|
|
Total
unit costs
|
|
133.4
|
|
|
276.3
|
|
|
143.8
|
|
|
3.9
|
|
|
424.0
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales and gold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedging
|
|
66.7
|
a
|
|
135.7
|
|
|
(69.0
|
)
|
|
-
|
|
|
66.7
|
|
PT
Smelting intercompany profit recognized
|
|
20.8
|
|
|
13.6
|
|
|
7.1
|
|
|
0.1
|
|
|
20.8
|
|
Gross
profit
|
$
|
497.2
|
|
$
|
416.1
|
|
$
|
77.1
|
|
$
|
4.0
|
|
$
|
497.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
833.7
|
|
$
|
275.0
|
|
$
|
33.8
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
above
|
|
N/A
|
|
|
11.7
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(83.6
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Royalty
per above
|
|
(19.9
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
prior period open sales and hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
66.7
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
Indonesia mining operations
|
|
796.9
|
|
|
286.7
|
|
|
33.8
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,513.8
|
|
|
2,140.0
|
|
|
313.0
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
3,310.7
|
|
$
|
2,426.7
|
|
$
|
346.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
a $69.0 million or $0.31 per pound loss on the redemption of FCX’s
Gold-Denominated Preferred Stock, Series
II.
|
TABLE OF CONTENTS
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended March 31, 2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
812.3
|
|
$
|
812.3
|
|
$
|
2.0
|
|
$
|
4.5
|
|
$
|
178.5
|
|
$
|
3.5
|
|
$
|
1,000.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
394.1
|
|
|
347.4
|
|
|
1.0
|
|
|
1.6
|
|
|
68.1
|
|
|
3.1
|
|
|
421.2
|
|
By-product
credits
|
|
(161.4
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
22.0
|
|
|
21.5
|
|
|
0.2
|
|
|
0.3
|
|
|
-
|
|
|
-
|
|
|
22.0
|
|
Unit
net cash costs
|
|
254.7
|
|
|
368.9
|
|
|
1.2
|
|
|
1.9
|
|
|
68.1
|
|
|
3.1
|
|
|
443.2
|
|
Depreciation
and amortization
|
|
39.6
|
|
|
33.7
|
|
|
0.1
|
|
|
0.2
|
|
|
5.6
|
|
|
-
|
|
|
39.6
|
|
Noncash
and nonrecurring costs, net
|
|
5.8
|
|
|
5.6
|
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
-
|
|
|
5.8
|
|
Total
unit costs
|
|
300.1
|
|
|
408.2
|
|
|
1.3
|
|
|
2.1
|
|
|
73.9
|
|
|
3.1
|
|
|
488.6
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
8.5
|
|
|
8.5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8.5
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(10.0
|
)
|
|
(10.0
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10.0
|
)
|
Gross
profit
|
$
|
510.7
|
|
$
|
402.6
|
|
$
|
0.7
|
|
$
|
2.4
|
|
$
|
104.6
|
|
$
|
0.4
|
|
$
|
510.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,000.8
|
|
$
|
421.2
|
|
$
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
5.8
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-acquisition
amounts
|
|
(943.4
|
)
|
|
(413.6
|
)
|
|
(34.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
North America operations
|
|
277.6
|
|
|
311.4
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
27.3
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
8.5
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
North American mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
343.5
|
|
|
352.1
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
1,959.4
|
|
|
600.0
|
|
|
102.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
2,302.9
|
|
$
|
952.1
|
|
$
|
116.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TABLE OF CONTENTS
North
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended March 31, 2006
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Molybdenum
|
|
Other
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
740.5
|
|
$
|
740.5
|
|
$
|
2.8
|
|
$
|
4.8
|
|
$
|
190.6
|
|
$
|
3.1
|
|
$
|
941.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
327.7
|
|
|
256.2
|
|
|
1.7
|
|
|
2.2
|
|
|
75.3
|
|
|
2.5
|
|
|
337.9
|
|
By-product
credits
|
|
(191.1
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
22.5
|
|
|
21.2
|
|
|
0.5
|
|
|
0.8
|
|
|
-
|
|
|
-
|
|
|
22.5
|
|
Unit
net cash costs
|
|
159.1
|
|
|
277.4
|
|
|
2.2
|
|
|
3.0
|
|
|
75.3
|
|
|
2.5
|
|
|
360.4
|
|
Depreciation
and amortization
|
|
36.3
|
|
|
29.2
|
|
|
0.2
|
|
|
0.2
|
|
|
6.6
|
|
|
0.1
|
|
|
36.3
|
|
Noncash
and nonrecurring costs, net
|
|
5.1
|
|
|
4.9
|
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
-
|
|
|
5.1
|
|
Total
unit costs
|
|
200.5
|
|
|
311.5
|
|
|
2.4
|
|
|
3.2
|
|
|
82.1
|
|
|
2.6
|
|
|
401.8
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(374.8
|
)
|
|
(374.8
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(374.8
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(6.8
|
)
|
|
(6.8
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6.8
|
)
|
Gross
profit
|
$
|
158.4
|
|
$
|
47.4
|
|
$
|
0.4
|
|
$
|
1.6
|
|
$
|
108.5
|
|
$
|
0.5
|
|
$
|
158.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
941.8
|
|
$
|
337.9
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
5.1
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(374.8
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
501.4
|
|
|
196.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,743.7
|
|
|
1,582.3
|
|
|
114.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported in FCX's pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
3,310.7
|
|
$
|
2,426.7
|
|
$
|
346.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TABLE OF CONTENTS
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
828.1
|
|
$
|
828.1
|
|
$
|
16.7
|
|
$
|
7.1
|
|
$
|
851.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
252.5
|
|
|
243.1
|
|
|
7.3
|
|
|
2.8
|
|
|
253.2
|
|
By-product
credits
|
|
(23.1
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
54.8
|
|
|
52.9
|
|
|
1.1
|
|
|
0.8
|
|
|
54.8
|
|
Unit
net cash costs
|
|
284.2
|
|
|
296.0
|
|
|
8.4
|
|
|
3.6
|
|
|
308.0
|
|
Depreciation
and amortization
|
|
44.1
|
|
|
43.1
|
|
|
0.7
|
|
|
0.3
|
|
|
44.1
|
|
Noncash
and nonrecurring costs, net
|
|
0.7
|
|
|
0.7
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
Total
unit costs
|
|
329.0
|
|
|
339.8
|
|
|
9.1
|
|
|
3.9
|
|
|
352.8
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
57.1
|
|
|
57.6
|
|
|
(0.4
|
)
|
|
(0.1
|
)
|
|
57.1
|
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(6.3
|
)
|
|
(6.0
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(6.3
|
)
|
Gross
profit
|
$
|
549.9
|
|
$
|
539.9
|
|
$
|
7.0
|
|
$
|
3.0
|
|
$
|
549.9
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
851.9
|
|
$
|
253.2
|
|
$
|
44.1
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
0.7
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(54.8
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Pre-acquisition
amounts
|
|
(631.7
|
)
|
|
(230.9
|
)
|
|
(37.2
|
)
|
|
|
|
|
|
|
Purchased
metal
|
|
68.0
|
|
|
68.0
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting impact
|
|
N/A
|
|
|
47.8
|
|
|
21.4
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(28.8
|
)
|
|
(22.8
|
)
|
|
0.1
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
57.1
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Total
South American mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
261.7
|
|
|
116.0
|
|
|
28.4
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,041.2
|
|
|
836.1
|
|
|
87.9
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
statements
|
$
|
2,302.9
|
|
$
|
952.1
|
|
$
|
116.3
|
|
|
|
|
|
|
|
South
America Mining Product Revenues and Production Costs (Pro
Forma)
Three
Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
Millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
710.9
|
|
$
|
710.9
|
|
$
|
17.0
|
|
$
|
6.2
|
|
$
|
734.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
205.3
|
|
|
198.1
|
|
|
5.2
|
|
|
2.0
|
|
|
205.3
|
|
By-product
credits
|
|
(23.2
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Treatment
charges
|
|
42.2
|
|
|
40.5
|
|
|
1.3
|
|
|
0.4
|
|
|
42.2
|
|
Unit
net cash costs
|
|
224.3
|
|
|
238.6
|
|
|
6.5
|
|
|
2.4
|
|
|
247.5
|
|
Depreciation
and amortization
|
|
46.6
|
|
|
45.8
|
|
|
0.6
|
|
|
0.2
|
|
|
46.6
|
|
Noncash
and nonrecurring costs, net
|
|
0.4
|
|
|
0.4
|
|
|
-
|
|
|
-
|
|
|
0.4
|
|
Total
unit costs
|
|
271.3
|
|
|
284.8
|
|
|
7.1
|
|
|
2.6
|
|
|
294.5
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging
|
|
(45.9
|
)
|
|
(39.2
|
)
|
|
(4.8
|
)
|
|
(1.9
|
)
|
|
(45.9
|
)
|
Idle
facility and other non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
inventoriable
costs
|
|
(4.3
|
)
|
|
(4.0
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(4.3
|
)
|
Gross
profit
|
$
|
389.4
|
|
$
|
382.9
|
|
$
|
4.9
|
|
$
|
1.6
|
|
$
|
389.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
734.1
|
|
$
|
205.3
|
|
$
|
46.6
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
0.4
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
(42.2
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchased
metal
|
|
45.1
|
|
|
45.0
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pricing
on prior period open sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
hedging per above
|
|
(45.9
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting adjustments
|
|
-
|
|
|
501.4
|
|
|
196.5
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,619.6
|
|
|
1,674.6
|
|
|
103.7
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
3,310.7
|
|
$
|
2,426.7
|
|
$
|
346.8
|
|
|
|
|
|
|
|
Henderson
Product Revenues and Production Costs (Pro
Forma)
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
(In
Millions)
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenues,
after adjustments shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
$
|
207.9
|
|
$
|
201.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
noncash and nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
shown below
|
|
38.9
|
|
|
33.8
|
|
|
|
|
|
|
|
|
|
|
Unit
net cash costs
|
|
38.9
|
|
|
33.8
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
8.7
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
Noncash
and nonrecurring costs, net
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total
unit costs
|
|
47.8
|
|
|
42.4
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
160.1
|
|
$
|
159.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
207.9
|
|
$
|
38.9
|
|
$
|
8.7
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
0.2
|
|
|
N/A
|
|
|
|
|
|
|
|
Purchase
accounting adjustments
|
|
N/A
|
|
|
N/A
|
|
|
1.7
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
2,095.0
|
|
|
913.0
|
|
|
105.9
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
results
|
$
|
2,302.9
|
|
$
|
952.1
|
|
$
|
116.3
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depreciation
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2006
|
|
|
|
and
|
|
and
|
|
|
|
|
|
|
|
(In
Millions)
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
201.4
|
|
$
|
33.8
|
|
$
|
8.4
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
above
|
|
N/A
|
|
|
0.2
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
3,109.3
|
|
|
2,392.7
|
|
|
338.4
|
|
|
|
|
|
|
|
As
reported in FCX’s pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
financial results
|
$
|
3,310.7
|
|
$
|
2,426.7
|
|
$
|
346.8
|
|
|
|
|
|
|
|
TABLE OF CONTENTS
CAUTIONARY
STATEMENT
Our
discussion and analysis contains forward-looking statements in which we discuss
our expectations regarding future performance. Forward-looking statements are
all statements other than historical facts, such as those regarding anticipated
sales volumes, ore grades, milling rates, commodity prices, selling, general
and
administrative expenses, unit net cash costs, operating cash flows, royalty
costs, capital expenditures, reclamation and closure costs, environmental
expenditures, litigation expenses and liabilities, the impact of copper, gold
and molybdenum price changes, the impact of changes in deferred intercompany
profits on earnings, projected debt and cash balances, treatment charge rates,
depreciation rates, exploration efforts and results, dividend payments,
liquidity and other financial commitments. Accuracy of the forward-looking
statements depends on assumptions about events that change over time and is
thus
susceptible to periodic change based on actual experience and new developments.
We caution readers that we assume no obligation to update or publicly release
any revisions to the forward-looking statements in this Form 10-Q and, except
to
the extent required by applicable law, do not intend to update or otherwise
revise the forward-looking statements more frequently than quarterly.
Additionally, important factors that might cause future results to differ from
these forward-looking statements include mine sequencing, production rates,
industry risks, regulatory changes, commodity prices, political risks,
weather-related risks, labor relations, environmental risks, litigation results,
currency translation risks and other factors described in more detail under
the
heading “Risk Factors” in Part II, Item 1A. of this Quarterly Report on Form
10-Q.
For
information about changes in our market risks since the year ended December
31,
2006, see “Disclosures About Market Risks” included in Part I, Item 2 of this
Quarterly Report on Form 10-Q.
On
March
19, 2007, Freeport McMoRan Copper & Gold Inc. (FCX) completed its
acquisition of Phelps Dodge Corporation (Phelps Dodge), at which time Phelps
Dodge became a wholly owned subsidiary of FCX. For accounting purposes, FCX
was
designated the acquiring entity.
FCX
considers the acquisition of Phelps Dodge material to the results of its
operations, financial position and cash flows from the date of acquisition
through March 31, 2007, and believes that the internal controls and procedures
of Phelps Dodge have a material effect on FCX’s internal control over financial
reporting. FCX is integrating the Phelps Dodge operations and has extended
its
Sarbanes-Oxley Act Section 404 compliance program to include Phelps Dodge.
FCX will report on its assessment of its combined operations within the time
provided by the Sarbanes-Oxley Act and applicable rules relating to business
acquisitions.
Although
FCX has generally maintained its disclosure controls and procedures that were
in
effect prior to the acquisition, since the acquisition there have been changes
in FCX’s internal control over financial reporting, including preparation of the
consolidated financial statements and changes of personnel with direct
responsibility for financing reporting. FCX believes these changes have not
negatively affected its internal control over financial reporting.
In
addition, as a matter of course, FCX continues to update its internal controls
over financial reporting as necessary to accommodate any modifications to its
business processes or accounting procedures.
Our
chief
executive officer and chief financial officer, with the participation of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this quarterly
report on Form 10-Q. Based on their evaluation, they have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to FCX (including our consolidated subsidiaries)
required to be disclosed in our periodic Securities and Exchange Commission
filings.
TABLE OF CONTENTS
Environmental
Proceedings
Pinal
Creek
The
Pinal
Creek site was listed under the Arizona Department of Environmental Quality’s
(ADEQ) Water Quality Assurance Revolving Fund program in 1989 for contamination
in the shallow alluvial aquifers within the Pinal Creek drainage near Miami,
Arizona. Since that time, environmental remediation has been performed by
members of the Pinal Creek Group (PCG), consisting of Phelps Dodge
Miami, Inc. (a wholly owned subsidiary of Phelps Dodge) and two other companies.
In 1998, the District Court approved a Consent Decree between the PCG members
and the state of Arizona resolving all matters related to an enforcement action
contemplated by the state of Arizona against the PCG members with respect to
the
groundwater matter. The Consent Decree committed Phelps Dodge Miami, Inc. and
the other PCG members to complete the remediation work outlined in the Consent
Decree. That work continues at this time pursuant to the Consent Decree and
consistent with state law and the National Contingency Plan prepared by the
U.S.
Environmental Protection Agency (EPA) under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA).
Phelps
Dodge Miami, Inc. and the other PCG members have been pursuing contribution
litigation against three other parties involved with the site. Phelps Dodge
Miami, Inc. dismissed its contribution claims against one defendant when another
PCG member agreed to be responsible for any share attributable to that
defendant. Phelps Dodge Miami, Inc. and the other members of the PCG settled
their contribution claims against another defendant in April 2005. While the
terms of the settlement are confidential, the proceeds of the settlement will
be
used to address remediation at the Pinal Creek site. The trial on the issue
of allocating liability has been postponed because of a discovery
dispute and related orders and appeals, and has not yet been
rescheduled.
Approximately
$96 million based on discounted present value calculations remained in the
Pinal
Creek remediation reserve at March 31, 2007. While recoveries or payments
may result from the contribution litigation, we cannot reasonably estimate
the
amount and, therefore, have not taken this into consideration in the recorded
reserve.
New
Mexico Closure Permits
Litigation
is pending regarding closure permits issued by the New Mexico Environmental
Department for the Phelps Dodge Tyrone, Inc. (Tyrone) and Chino Mines Company
(Chino) operations. Tyrone appealed a decision by the New Mexico Water Quality
Control Commission (WQCC) upholding certain conditions imposed by the New Mexico
Environment Department in Tyrone’s Supplemental Discharge Permit for Closure,
DP-1341.
Phelps
Dodge Tyrone, Inc. v. New Mexico Water Quality Control
Commission
,
No.
25027. In this case, Tyrone objected to permit conditions requiring Tyrone
to
perform approximately $75 million of additional closure work. On June 15, 2006,
the New Mexico Court of Appeals issued its decision overturning two permit
conditions that Tyrone had challenged in its closure permit. The New Mexico
Supreme Court denied Petitions for Certiorari and the case has been remanded
by
the Court of Appeals to WQCC for further proceedings to address the Court of
Appeals decision and a hearing before the WQCC is set for June 12,
2007.
Chino’s
Supplemental Discharge Permit for Closure, DP-1340, was appealed by a third
party, whose appeal was dismissed by WQCC on procedural grounds. WQCC’s decision
dismissing the appeal was overturned by the New Mexico Court of Appeals.
Gila
Resources Information Project v. New Mexico Water Quality Control
Commission
,
No.
24478. The permit decision has been remanded to WQCC for further proceedings.
WQCC has postponed the hearing on the Chino closure permit pending a report
by
the parties on settlement discussions, which are ongoing.
Arizona
Notice of Violation (NOV) - Sierrita operations
In
September and October 2006, ADEQ sent NOVs to the Phelps Dodge Sierrita
operations in southeastern Arizona. The two NOVs alleged certain visibility
and
permit violations associated with dust emissions from Sierrita’s tailing
facility during high-wind events. No action has been filed at this time and
Sierrita has responded to the NOVs by acknowledging that dust likely did exceed
a certain visibility standard, but denying the other allegations. Sierrita
has
implemented response actions that ADEQ has accepted, and has entered into
discussions with ADEQ to seek to resolve the NOVs.
EPA
Notice re Violation of Consent Decree - Sierrita
operations
In
September 2006, EPA notified Phelps Dodge Sierrita, Inc. (PDSI) of the possible
assessment of stipulated penalties arising from deviations from certain
provisions of a Consent Decree dated June 21, 2004, by and among PDSI, the
United States and ADEQ, entitled
United
States and the State of Arizona v. Phelps Dodge Sierrita, Inc.
No. CIV
04-312 TUC FRZ. PDSI is preparing to enter into negotiations with EPA and ADEQ
concerning the potential assessment of the stipulated penalties.
Asbestos
Claims
Since
approximately 1990, Phelps Dodge or its subsidiaries have been named as a
defendant in a large number of product liability or premises
lawsuits
claiming
injury from exposure to asbestos found in electrical wire products produced
or marketed many years ago, or from asbestos at certain Phelps Dodge
properties. We believe our liability, if any, in these matters
will not have a material adverse effect, either individually or in the
aggregate, upon our business, financial condition, liquidity, results of
operations or cash flow. There can be no assurance, however, that future
developments will not alter this conclusion.
Antitrust
Claims
Columbian
Chemicals Company (Columbian), formerly a subsidiary of Phelps Dodge, together
with several other companies, is a defendant in an action entitled
Technical
Industries, Inc. v. Cabot Corporation, et al.
,
No. CIV
03-10191 WGY, filed on January 30, 2003, in the U.S. District Court in Boston,
Massachusetts, and 14 other actions filed in four U.S. district courts, on
behalf of a purported class of all individuals or entities who purchased carbon
black directly from the defendants since January 1999. The Judicial Panel on
Multidistrict Litigation consolidated all of these actions in the U.S. District
Court for the District of Massachusetts under the caption
In
Re
Carbon Black Antitrust Litigation
.
The
consolidated amended complaint, which alleges that the defendants fixed the
prices of carbon black and engaged in other unlawful activities in violation
of
the U.S. antitrust laws, seeks treble damages in an unspecified amount and
attorney’s fees. The court certified a class that includes all direct purchasers
of carbon black in the United States from January 30, 1999 through January
18,
2005. On March 20, 2007, the court approved a $4 million settlement by one
group
of defendants. The motion for summary judgment filed by Columbian and the other
remaining defendants is still pending. The court has scheduled a trial date
of
July 23, 2007, if the motion is not granted.
A
separate action entitled
Carlisle
Companies Incorporated, et al. v. Cabot Corporation, et al.
,
was
filed against Columbian and other defendants on behalf of a group of affiliated
companies that opted out of the federal class action. This action, which asserts
similar claims as the class action, was filed in the Northern District of New
York on July 28, 2005, but was transferred to the District of Massachusetts,
where the class action is pending, and was consolidated with the class action
for pretrial purposes. No separate proceedings have occurred in this action,
which is not subject to the summary judgment motion in the class
action.
Actions
are pending in state courts in California, Florida, Kansas, South Dakota
and
Tennessee on behalf of purported classes of indirect purchasers of carbon
black
in those and six other states, alleging violations of state antitrust and
deceptive trade practices laws. Motions to dismiss are pending in the Kansas
and
South Dakota actions. A motion for class certification has been filed in
the
Tennessee action.
Similar
actions filed in state courts in New Jersey and North Carolina, and additional
actions in Florida and Tennessee, have been dismissed. Columbian also received
a
demand for relief on behalf of indirect purchasers in Massachusetts, but
no
lawsuit has been filed.
Phelps
Dodge retained responsibility for the claims against Columbian pursuant to
the
agreement for the sale of Columbian. Columbian has committed to provide
appropriate assistance to defend these matters. We believe the claims are
without merit and intend to defend the lawsuits vigorously.
Shareholder
Litigation
Phelps
Dodge and its directors were named as defendants in three actions brought on
behalf of a purported class of all shareholders of Phelps Dodge, one filed
in
the Supreme Court of the State of New York, County of New York (
Phillips
v. Phelps Dodge Corporation, et al.
,
No.
06604255, filed December 12, 2006) and two in the Superior Court of the state
of
Arizona, county of Maricopa, (
Nathanson
v. Phelps Dodge Corporation, et al.
,
No.
CV2006-017963, filed November 22, 2006, and
Knisley
v. Phelps Dodge Corp. et al.
,
No.
CV2006-053422, filed December 14, 2006), alleging that the directors breached
their fiduciary duties when they approved the proposed merger of Phelps Dodge
and FCX. We were also named as a defendant in the
Knisley
case.
The complaints in these actions seek various forms of injunctive relief,
including prohibition of the consummation of the merger, imposition of a
constructive trust on any benefits improperly received by the defendants, an
accounting for any damages sustained by the purported class members, and costs
and disbursements, including plaintiffs’ attorney fees.
We
have entered into a memorandum of understanding with the plaintiffs with
respect to a settlement of the three cases. Pursuant to this agreement in
principle, we agreed that if, within 12 months after the closing of the merger,
we sell all or substantially all of the capital stock or assets of Phelps Dodge,
we will pay $125 million in additional pro rata consideration (less any fees
awarded to plaintiffs’ counsel with respect to such consideration) to the
shareholders of Phelps Dodge who received the merger consideration in the
merger. In addition, Phelps Dodge agreed to make additional disclosures beyond
the information provided in the definitive joint proxy statement/prospectus,
which was provided in a Current Report on Form 8-K filed March 9,
2007.
The
settlement is subject to agreement on a stipulation of settlement and court
approval after notice to the class members.
Arizona
Water Rights
Arizona
surface water law is based on the doctrine of prior appropriation (first in
time, first in right) and permits the water right holder the right to use public
waters for a statutorily defined beneficial use, at a designated location.
Arizona has initiated two water rights adjudications in order to quantify and
prioritize all of the surface water rights and water right claims to two of
the
state’s river systems and sources. Groundwater is not subject to the
adjudication; however, wells may be adjudicated to the extent that they are
found to produce or impact surface water. The two cases that could
potentially impact Phelps Dodge’s surface water rights and claims (including
some wells) are entitled
In
Re
The General Adjudication of All Rights to Use Water in the Little Colorado
Water
System and Source
,
Arizona
Superior Court, Apache County, Cause No. 6417 (1978) and
In
Re
The General Adjudication of All Rights to Use Water in the Gila River System
and
Source
,
Arizona
Superior Court, Maricopa County, Cause Nos. W-1 (Salt), W-2 (Verde), W-3 (Upper
Gila), W-4 (San Pedro), (1974). The major parties in addition to Phelps Dodge
in
these matters are: the State of Arizona, Arizona Public Service Company, the
Gila Valley Irrigation District, the San Carlos Irrigation and Drainage
District, the Salt River Project, the San Carlos Apache Tribe, the Gila River
Indian Community, and the United States on behalf of those Tribes, on its own
behalf, and on the behalf of the White Mountain Apache Tribe, Ft. McDowell
Mohave-Apache Indian Community, Salt River Pima-Maricopa Indian Community,
the
Payson Community of Yavapai Apache Indians, the Navajo Nation, the Hopi Indian
Tribe, and the San Juan Southern Paiute Tribe.
TABLE
OF
CONTENTS
Phelps
Dodge has four active operations in Arizona: Morenci, Miami, Sierrita and
Bagdad. Each facility requires water for operational and related support
facilities. With the exception of Bagdad, each operation is located in a
watershed subject to ongoing surface water adjudication. Each operation has
sufficient water claims in the ongoing adjudications to cover operational
demands. In many instances, the water supply comes from a variety of possible
sources.
Other
Water Adjudications and Settlements
Gila
River Indian Community Water Settlement
In
1988,
Phelps Dodge executed a settlement agreement with the Gila River Indian
Community (the Community). The Phelps Dodge settlement with the Community
was
later incorporated into the comprehensive Gila River Settlement which was
authorized by federal legislation passed in December 2004. The legislation
authorizing the settlement provided that the parties must obtain necessary
court
approval and that the Secretary of Interior must make certain findings by
December 31, 2007 in order for the settlement to become enforceable. The
remaining contractual obligations prior to December 31, 2007 include
participation on a technical committee for implementation of certain aspects
of
the settlement, and cooperation to obtain court approval of the settlement.
Our
remaining payment obligations may not occur until up to seven years after
December 31, 2007. The exact payment date is dependent on the outcome of
future
water exchange negotiations.
Gila
River Indian Community
In
1988,
the Community intervened in
United
States v. Gila Valley Irrigation District, et al.
,
and
Globe
Equity No. 59
.
The
underlying actions were initiated by the United States in 1925 to settle
conflicting claims to water rights in certain portions of the Gila River
watershed, although Phelps Dodge was dismissed as a defendant in March 1935.
In
1935, the Court entered a decree setting forth the water rights of numerous
parties, minus Phelps Dodge, but retained jurisdiction of the case. The 1988
intervention does not name Phelps Dodge as a defendant; however, it does name
the Gila Valley Irrigation District as a defendant which could affect the
approximately 3,000 acre-feet of water that Phelps Dodge has the right to divert
annually from Eagle Creek, Chase Creek or the San Francisco River pursuant
to
decreed rights and an agreement between Phelps Dodge and the Gila Valley
Irrigation District.
During
1997, 1998 and 2007, Phelps Dodge purchased additional water rights that are
subject to this litigation. As a result, Phelps Dodge has been named and served
as a party in this case. The lands and associated water rights are not currently
used in connection with any Phelps Dodge mining operation.
The
Miami
operation’s predecessor (formerly named Cyprus Miami Mining Corporation) was
named and served as a defendant in this action in 1989. These proceedings
potentially affect water rights associated with Miami holdings in the Gila
River
watershed.
Various
Indian Tribes
Prior
to
January 1, 1983, various Indian tribes filed several suits in Arizona Federal
Court claiming superior rights to use waters, which at present are being used
by
many water users, including Phelps Dodge, and claiming damages for prior use
in
derogation of their allegedly superior rights. These federal proceedings have
been stayed pending state court adjudication.
Tohono
O’odham Nation
Cyprus
Sierrita Corporation, a subsidiary of Phelps Dodge, was a defendant in
United
States, et al. v. City of Tucson, et al.
,
No. CIV 75-39 (D. Ariz.). This is a consolidation of several actions
seeking a declaration of the rights of the United States, the Tohono O’odham
Nation (the Nation), and individual allottees of the Nation, to surface water
and groundwater in the Santa Cruz River watershed; damages from the defendants’
use of surface water and groundwater from the watershed in derogation of
those
rights; and injunctive relief. Federal legislation has been passed authorizing
a
settlement. The parties have until
December
31, 2007, to finalize the agreements and
meet certain obligations for the settlement to become enforceable. The outcome
of this dispute could impact water right claims associated with the operations
at Sierrita, and miscellaneous land holdings in the Santa Cruz River
watershed.
FINANCIAL
RISKS
Our
substantial indebtedness, including the indebtedness incurred in connection
with
our recent acquisition of Phelps Dodge, could adversely affect our
operating
results and financial condition.
We
incurred significant debt to fund a portion of the cash consideration
p
aid
to
the Phelps Dodge shareholders in our acquisition of Phelps Dodge. As of
March 31, 2007,
the
outstanding principal amount of our indebtedness was approximately
$12.0 billion (excluding unused availability under our revolving credit
facility of approximately $1.4 billion after giving effect to outstanding
letters of credit). Our level of indebtedness could have important consequences.
For example, it could:
·
|
make
it difficult for us to satisfy our debt
obligations;
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions;
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations
and
proceeds of equity issuances or asset sales to payments on our
indebtedness, thereby reducing the availability of cash flows to
fund
working capital, capital expenditures, acquisitions, investments
and other
general corporate purposes;
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our businesses
and the markets in which we
operate;
|
·
|
place
us at a competitive disadvantage to our competitors that have less
debt;
|
·
|
limit
our ability to borrow money or sell stock to fund our working capital,
capital expenditures, acquisitions and debt service requirements
and other
financing needs; and
|
·
|
increase
our interest expense if interest rates in general increase, because
a
substantial portion of our indebtedness bears interest at floating
rates.
|
In
addition, we may need to incur additional indebtedness in the future in the
ordinary course of business. The terms of our new senior credit facilities
and
other agreements governing our indebtedness allow us to incur additional
debt
,
subject
to limitations. If new debt is added to current debt levels, the risks described
above could intensify. Further, if future debt financing is not available to
us
when required or is not available on acceptable terms, we may be unable to
grow
our business, take advantage of business opportunities, respond to competitive
pressures or refinance maturing debt, any of which could have a material adverse
effect on our operating results and financial condition. Most of the financial
assurance provided for our southwestern U.S. mines requires a demonstration
that
we meet financial tests showing our capability to perform the required closure
and remediation. Demonstrations of financial capability have been made for
all
of the financial assurance for our Arizona mines. We maintain a part of our
financial assurance using financial strength tests in New Mexico and Arizona.
However, a portion of our financial assurance requirements might be required
to
be supplied in another form, such as letters of credit, real property collateral
or cash. Moreover, our ability to satisfy financial tests or utilize third-party
guarantees for financial assurance with respect to reclamation obligations
may
be adversely affected if our
credit
ratings continue to be rated below investment grade and we are unable to pass
the affirmative financial tests.
The
agreements governing our indebtedness contain provisions that limit our
discretion in the operation of our business and require us to meet financial
maintenance tests and other covenants. The failure to comply with such tests
and
covenants could have a material adverse effect on us.
The
agreements governing our indebtedness contain covenants that restrict our
ability to:
·
|
incur
additional indebtedness;
|
·
|
engage
in transactions with affiliates;
|
·
|
create
liens on our assets;
|
·
|
make
payments
in respect of, or redeem or acquire, debt or equity issued by us
or our
subsidiaries, including the payment of dividends on our common
stock;
|
·
|
make
acquisitions of new subsidiaries;
|
·
|
make
investments in, or loans, to entities that we do not control, including
joint ventures;
|
·
|
use
assets as security in other
transactions;
|
·
|
sell
assets, subject to certain
exceptions;
|
·
|
merge
with or into other companies;
|
·
|
enter
into sale and leaseback
transactions;
|
·
|
enter
into unrelated businesses;
|
·
|
enter
into agreements or arrangements that restrict the ability of certain
of
our subsidiaries to pay dividends or other
distributions;
|
·
|
prepay
indebtedness; and
|
·
|
enter
into certain new hedging transactions other than in the ordinary
course of
business.
|
In
addition, our senior credit facilities require that we meet specified financial
tests at any time that borrowings are outstanding under our revolving credit
facility, including a leverage ratio test and a secured leverage ratio test.
Any
failure to comply with the restrictions of our senior credit facilities or
any
agreement governing our other indebtedness may result in an event of default.
Such default may allow the creditors to accelerate the related debt, which
may
trigger cross-acceleration or cross-default provisions in other debt agreements.
Our assets and cash flow may not be sufficient to fully repay borrowings under
our debt instruments that are accelerated upon an event of default.
If
we are
unable to repay, refinance or restructure our indebtedness under, or amend
the
covenants contained in, our senior credit agreements at maturity or in the
event
of a default, the lenders under our senior credit facilities could terminate
their commitments thereunder, cease making further loans, declare all borrowings
outstanding (together with accrued interest and other fees) immediately due
and
payable and institute foreclosure proceedings against the security. Any such
actions could force us into bankruptcy or liquidation.
We
need significant amounts of cash to service our debt. If we are unable to
generate sufficient cash to service our debt, our financial condition and
results of operations could be negatively affected.
We
must
generate significant amounts of cash to service and repay our debt. Our ability
to generate cash will be affected by general economic, financial, competitive
and other factors that may be beyond our control
.
Future
borrowings may not be available to us under our senior credit facilities or
from
the capital markets in amounts sufficient to pay our obligations as they mature
or to fund other liquidity needs. If we are not able to obtain such borrowings
or generate sufficient cash from operations to service and repay our
indebtedness, we will need to refinance our indebtedness to avoid any default.
Such refinancing may not be available on favorable terms or at all. The
inability to service, repay or refinance our indebtedness could negatively
affect our financial condition and results of operations.
Declines
in the market prices of copper, gold and molybdenum could adversely affect
our
earnings and cash flows and, therefore, our ability to repay debt. Such declines
could also cause significant volatility in our financial performance and
adversely affect the trading prices of our debt and equity
securities.
Our
earnings and cash flows will be affected significantly by the market prices
of
copper and, to a lesser extent, gold and molybdenum. The world market prices
of
these commodities have fluctuated historically and
are
affected by numerous factors beyond our control. Many financial analysts who
follow the metals markets are predicting that copper prices will decline
significantly from their current, historically high levels over the next few
years. A decline in the world market
price
of
one or more of these commodities could adversely affect our earnings and cash
flows and, therefore, could adversely affect the ability to repay our debt
and
depress the trading prices of our common and preferred stock and of our publicly
traded debt securities.
World
copper prices have historically fluctuated widely. During the two years ended
December 31, 2006, LME daily closing spot prices ranged from $1.39 to
$3.99 per pound for copper. World copper prices are affected by numerous
factors beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other
industrialized and developing nations, including China, which has
become
the largest consumer of refined copper in the
world;
|
·
|
available
supplies of copper from mine production and
inventories;
|
·
|
sales
by holders and producers of copper;
|
·
|
demand
for industrial products containing
copper;
|
·
|
investment
activity, including speculation, in copper as a
commodity;
|
·
|
the
availability and cost of substitute materials;
and
|
·
|
currency
exchange fluctuations, including the relative strength or weakness
of the
U.S. dollar.
|
World
gold prices have historically fluctuated widely. During the two years ended
December 31, 2006, the daily closing prices on the London spot market
ranged from $411 to $726 per ounce for gold. World gold prices are affected
by numerous factors beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other
industrialized and developing nations, including
China;
|
·
|
global
or regional political or economic
crises;
|
·
|
the
relative strength of the U.S. dollar and other
currencies;
|
·
|
expectations
with respect to the rate of
inflation;
|
·
|
purchases
and sales of gold by central banks and other
holders;
|
·
|
demand
for jewelry containing gold; and
|
·
|
investment
activity, including speculation, in gold as a
commodity.
|
Molybdenum
prices also fluctuate widely, even more so than copper. Molybdenum demand
depends primarily on the global steel industry, which uses the metal as a
hardening and corrosion inhibiting agent. Approximately 80 percent of
molybdenum production is used in this application. The remainder is used in
specialty chemical applications such as catalysts, water treatment agents and
lubricants. Approximately 65 percent of global molybdenum production is a
by-product of copper mining, which is relatively insensitive to molybdenum
prices. During the two years ended December 31, 2006, the
Metals Week
Dealer
Oxide price for molybdenum ranged from $20.50 to $40.00 per pound.
Molybdenum prices are affected by numerous factors beyond our control,
including:
·
|
the
worldwide balance of molybdenum demand and
supply;
|
·
|
rates
of global economic growth, especially construction and infrastructure
activity that requires significant amounts of
steel;
|
·
|
the
volume of molybdenum produced as a by-product of copper
production;
|
·
|
currency
exchange fluctuations, including the relative strength of the U.S.
dollar;
and
|
·
|
production
costs of U.S. and foreign
competitors.
|
Our
2007 copper price protection program may cause significant volatility in our
financial performance.
At
March 31, 2007, we had in place zero-premium copper collars (consisting of
both put and call options) for approximately 486 million pounds of our expected
2007 copper sales. For 2007, the annual average LME call strike price (ceiling)
for our zero-premium copper collars is $2.00 per pound. At March 31, 2007,
we
also had in place copper put options for approximately 730 million pounds of
our
expected 2007 copper sales, with an annual average LME put strike price (floor)
of $0.95 per pound for 2007. In accordance with generally accepted accounting
principles in the U.S., transactions under the 2007 copper price protection
programs do not qualify for hedge accounting treatment and are adjusted to
fair
market value based on the forward-curve price and implied volatility as of
the
last day of the reporting period, with the gain or loss recorded in revenues.
These adjustments represent non-cash events as the contracts are settled in
cash
only after the end of 2007 based on the annual average LME copper price. The
2007 copper price protection program resulted in charges to revenues totaling
$38.1 million ($23.2 million to net income or $0.10 per share) for the first
quarter of 2007.
Movements
in foreign currency exchange rates or interest rates could negatively affect
our
operating results.
Substantially
all of our revenues and a significant portion of our costs are denominated
in
U.S. dollars; however, some of our costs, and certain of our asset and
liability accounts, are denominated in Indonesian rupiah, Chilean pesos,
Peruvian nuevos soles, Australia dollars, Euros and other foreign currencies.
As
a
result,
we will be generally less profitable when the U.S. dollar weakens in
relation to these foreign currencies.
As
of
March 31, 2007, approximately 48 percent of outstanding
debt of
approximately $12 billion was subject to variable interest rates. Increases
in
these rates will increase our interest costs and reduce our profits and
operating cash flows.
From
time
to time, we may implement currency
or
interest rate hedges intended to reduce our exposure to changes in foreign
currency exchange or interest rates. However, our hedging strategies may not
be
successful, and any of our unhedged foreign exchange or interest payments will
continue to be subject to market fluctuations.
OPERATIONAL
RISKS
The
volume and grade of ore reserves that we recover and our rate of production
may
be more or less than anticipated. In addition, our exploration activities may
not result in additional discoveries.
Our
ore
reserve amounts are determined in accordance with established mining industry
practices and standards, but are estimates of the mineral deposits that can
be
recovered economically and legally based on currently available data. Ore bodies
may not conform to standard geological expectations, and estimates may change
as
new data becomes available. Because ore bodies do not contain uniform grades
and
types
of minerals, our metal recovery rates will vary from time to time. There are
also uncertainties inherent in estimating quantities of ore reserves and copper
recovered from stockpiles. The quantity of copper contained in mill and leach
stockpiles is based on surveyed volumes of mined material and daily production
records. The volume and grade of ore reserves recovered, rates of production
and
recovered copper from stockpiles may be less than anticipated. Additionally,
because the determination of reserves is based partially on historical selling
prices, a prospective decrease in such prices may result in a reduction in
economically recoverable, and therefore reported, ore reserves. These factors
may result in variations in the volumes of mineral reserves that we report
and
the volume of minerals that we can sell from period to period.
Our
ability to replenish our ore reserves is important to our long-term viability.
Our exploration programs may not result in the discovery of sufficient
additional mineral deposits that can be mined profitably.
TABLE
OF
CONTENTS
Our
business is subject to operational risks that are generally outside of our
control and could adversely affect our business.
Mines
by
their nature are subject to many operational risks and factors that are
generally outside of our control and could adversely affect our business,
operating results and cash flows. These operational risks and factors include
the following:
·
|
unanticipated
ground and water conditions;
|
·
|
adverse
claims to water rights;
|
·
|
geological
problems, including earthquakes and other natural
disasters;
|
·
|
metallurgical
and other processing problems;
|
·
|
the
occurrence of unusual weather or operating conditions and other force
majeure events;
|
·
|
lower
than expected ore grades or recovery
rates;
|
·
|
delays
in the receipt of or failure to receive necessary government
permits;
|
·
|
the
results of litigation, including appeals of agency
decisions;
|
·
|
uncertainty
of exploration and development;
|
·
|
delays
in transportation;
|
·
|
inability
to hire and retain a sufficient number of skilled
employees;
|
·
|
inability
to obtain satisfactory insurance
coverage;
|
·
|
unavailability
of materials and equipment; and
|
·
|
the
failure of equipment or processes to operate in accordance with
specifications or expectations.
|
Increased
energy and other production costs could reduce our profitability and cash
flow.
Our
production costs have increased significantly in recent years, primarily because
of higher costs of energy and other consumables, higher mining costs and higher
labor costs (including pension and health-care costs).
Energy
represents a significant portion of our production costs. Our principal energy
sources are electricity, purchased petroleum products, natural gas and coal.
Because energy represents a significant portion of our production costs, an
inability to procure sufficient energy at reasonable prices could adversely
affect our profits and cash flow.
Our
production costs also are affected by the prices of commodities we consume
or
use in our operations, such as sulfuric acid, grinding media, steel, reagents,
liners, explosives and diluents. The prices of such commodities are influenced
by supply and demand trends affecting the copper industry in general and other
factors outside our control, and such prices are at times subject to volatile
movements. Increases in the cost of these commodities could make our operations
less profitable, even in an environment of relatively high copper prices.
Increases in the costs of commodities that we consume or use may also
significantly affect the capital costs of new projects.
In
addition to the usual risks encountered in the mining industry, our Indonesian
operations involve additional risks because they are located on unusually
difficult terrain in a very remote area.
Our
Grasber
g
mining
operations are located in steeply mountainous terrain in a very remote area
in
Indonesia. Because of these conditions, we have had to overcome special
engineering difficulties and develop extensive infrastructure facilities. In
addition, the area receives considerable rainfall, which has led to periodic
floods and mudslides. The mine site is also in an active seismic area and has
experienced earth tremors from time to time. Our insurance may not sufficiently
cover an unexpected natural or operating disaster.
On
October 9, 2003, a slippage of material occurred in a section of the
Grasberg open pit, resulting in eight fatalities. On December 12, 2003, a
debris flow involving a relatively small amount of loose material
occurred
in the same section of the open pit resulting in only minor property damage.
The
events caused us to alter our short-term mine sequencing plans, which adversely
affected our 2003 and 2004 production. While we resumed normal production
activities in the second quarter of 2004, no assurance can be given that similar
events will not occur in the future.
On
March 23, 2006, a mud/topsoil slide involving approximately 75,000 metric
tons of material occurred from a mountain ridge above service facilities
supporting PT Freeport Indonesia’s mining facilities. Regrettably, three
contract workers were fatally injured in the event. The material damaged a
mess
hall and an adjacent area. As a result of investigations by PT Freeport
Indonesia and the Indonesian Department of Energy and Mineral Resources, we
conducted geotechnical studies to identify any potential hazards to facilities
from slides. The existing early warning system for potential slides, based
upon
rainfall and other factors, has also been expanded.
ENVIRONMENTAL
RISKS
Our
domestic and international operations are subject to complex and evolving
environmental laws and regulations, and compliance with environmental and
regulatory requirements involves significant costs.
Our
domestic operations are subject to various federal, state and local
environmental laws and regulations relating to improving or maintaining
environmental quality. Environmental laws often require parties to pay for
remedial action or to pay damages regardless of fault and may also often impose
liability with respect to divested or terminated operations, even if the
operations were terminated or divested many years ago. The federal Clean Air
Act
has had a significant impact, particularly on our domestic smelter and power
plants. We also have potential liability for certain U.S. sites we currently
operate or formerly operated and for certain third-party sites under the federal
Superfund law and similar state laws. We are also subject to claims for natural
resource damages where the release of hazardous substances is alleged to have
injured natural resources.
Our
mining operations and exploration activities, both in the U.S. and elsewhere,
are subject to extensive laws and regulations governing exploration,
development, production, exports, taxes, labor standards, occupational health,
mine safety, toxic substances, waste disposal, protection and remediation of
the
environment, protection of endangered and protected species, and other matters.
Compliance with these laws and regulations imposes substantial costs and
subjects us to significant potential liabilities.
In
addition to the cost of ongoing environmental regulation, we incur significant
costs for remediating environmental conditions and monitoring remediation
efforts on properties that we owned or operated in the past, or that were owned
or operated by companies we acquired or affiliates of those companies, including
properties that have been out of production for many years.
The
environmental laws and regulations that apply to us are complex and continuously
evolving, and they vary considerably from country to country. Costs associated
with environmental and regulatory compliance have increased over time, and
we
expect these costs to continue to increase in the future. In addition,
environmental laws and regulations may change in ways that could adversely
affect our operations or financial results. The costs of environmental
obligations may exceed the reserves that we have established for such
liabilities.
Although
the Kyoto Protocol, established in December 1997, has not been ratified by
the
U.S., several states have initiated potential legislative action on climate
change in late 2006 and early 2007. During 2007, the United States Congress
may
consider federal legislation on climate change, which could increase future
energy costs. We are evaluating the impact of potential climate change programs
on our operations.
Mine
closure regulations impose substantial costs on our
operations.
Our
domestic
operations are subject to various federal and state mine closure and mined-land
reclamation laws. The requirements of these laws vary depending upon the
jurisdiction. Over the last several years, there have been substantial changes
in these laws and regulations in the states in which
our
mines
are located, as well as changes in the regulations promulgated by the federal
Bureau of Land Management (BLM) for mining operations located on federal public
lands. The amended BLM regulations governing reclamation for mining on federal
lands will likely increase our regulatory obligations and compliance costs
over
time. As estimated costs increase, our domestic mines are required to post
increasing amounts of financial assurance to ensure the availability of funds
to
meet future closure and reclamation obligations.
Our
New
Mexico financial assurance amounts at March 31, 2007, which reflected reductions
for work completed through 2006 and agreed upon by the New Mexico Environment
Department and Mining Minerals Division, were $185 million for Chino and $29
million for Cobre. As of April 23, 2007, Tyrone’s financial assurance
requirement was adjusted to $218 million. Up to 70 percent of the financial
assurance for Chino, Tyrone and Cobre is in the form of guarantees issued by
Phelps Dodge on behalf of our operating subsidiaries and the balance is in
the
form of real property collateral, letters of credit and cash. These amounts
may
change based on the completion of additional permitting procedures, final agency
determinations and the results of administrative appeals, which could result
in
changes to the closure and reclamation plans and lead to increases in the cost
estimates and our related financial assurance obligations.
At
March
31, 2007, we had accrued closure costs of approximately $71 million for our
Arizona operations. The amount of financial assurance currently demonstrated
for
Arizona closure and reclamation activities is approximately $183
million.
We have
also approved mined-land reclamation plans and financial assurance in place
for
our two Colorado mines totaling approximately $81 million.
Most
of
the financial assurance provided for our U.S. mines requires that we meet
financial tests that demonstrate our capability to perform the required closure
and remediation. We have satisfactorily demonstrated our financial capability
for all of the financial assurances given for our Arizona mines. We maintain
a
part of our financial assurance using financial strength tests in New Mexico
and
Arizona. However, a portion of our financial assurance requirements might be
required to be supplied in another form, such as letters of credit, real
property collateral or cash.
In
recent
years, many surety companies have begun to require a significant level of
collateral to support surety bonds, and the costs associated with such bonds
have increased significantly. As a result, if surety bonds are unavailable
at
commercially reasonable terms to support our financial assurance obligations,
we
could be required to post other collateral or cash or cash equivalents directly
in support of those obligations.
In
addition, our international mines are subject to various mine closure and
mined-land reclamation laws, and there have recently been significant changes
in
closure and reclamation programs in both Peru and Chile that impose more
stringent obligations on us for closure and reclamation.
Our
mining operations in Indonesia create difficult and costly environmental
challenges, and future changes in environmental laws, or unanticipated
environmental impacts from those operations, could require us to incur increased
costs.
Mining
operations on the scale of our operations in Papua involve significant
environmental risks and challenges. Our primary challenge is to dispose of
the
large amount of crushed and ground rock material, called tailings, that results
from the process by which we physically separate the copper-, gold- and
silver-bearing materials from the ore that we mine. Our tailings management
plan
,
which
has been approved by the Government of Indonesia, uses the river system near
our
mine to transport the tailings to the lowlands where the tailings and natural
sediments are deposited in a controlled area contained within an engineered
levee system that will be revegetated. We incurred aggregate costs relating
to
tailings management of $3.6 million in the first three months of 2007,
$12.8 million in 2006 and $8.7 million in 2005.
Another
major environmental challenge is managing overburden, which is the rock that
must be moved aside in the mining process in order to reach the ore. In the
presence of air, water and naturally occurring
bacteria,
some overburden can cause acid rock drainage, or acidic water containing
dissolved metals which, if not properly managed, can have a negative impact
on
the environment.
Certain
Indonesian governmental officials have from time to time raised issues with
respect to our tailings and overburden management plans, including a suggestion
that we implement a pipeline system rather than our river deposition system
for
tailings disposal. Because our mining operations are remotely located in steep
mountainous terrain and in an active
seismic
area, a pipeline system would be costly, difficult to construct and maintain,
and more prone to catastrophic failure, and could therefore involve significant
potentially adverse environmental issues. Based on our own studies and others
conducted by third parties, we do not believe that a pipeline system is
necessary or practical.
In
March
2006, the Indonesian Ministry of Environment announced the preliminary results
of its PROPER (Program for Pollution Control, Evaluation and Rating)
environmental management audit, acknowledging the effectiveness of PT Freeport
Indonesia’s environmental management practices in some areas while making
several suggestions for improvement in others. We are working with the Ministry
of Environment to address the issues raised as it completes the audit
process.
We
plan
to continue to spend significant financial and managerial resources on
environmental compliance related to our Indonesian operations. In addition,
changes in Indonesian environmental laws or unanticipated environmental impacts
from our operations could require us to incur significant unanticipated
costs.
INTERNATIONAL
RISKS
Our
acquisition of Phelps Dodge in March 2007 has broadened the geographical scope
of our operations, thereby broad
ening
the range of political, social and geographic risks to which we are
exposed.
Prior
to
our acquisition of Phelps Dodge, our primary operating assets were located
in
Indonesia, and our business could be adversely affected by Indonesian political,
economic and social uncertainties, in addition to the usual risks associated
with conducting business in a foreign country. As a result of the Phelps Dodge
acquisition, we now also conduct mining operations in the
U.S.
and
have expanded our international operations to Chile and Peru. We also have
a
significant development project in the Democratic Republic of Congo, which
is
expected to begin production by early 2009. Accordingly, our business may also
be adversely affected by political, economic and social uncertainties in each
of
these countries, in addition to the usual risks associated with conducting
business in a foreign country.
Such
risks include (1) forced modification of existing contracts, (2) changes in
a
country’s laws and policies, including those relating to labor, taxation,
royalties, divestment, imports, exports, trade regulations, currency and
environmental matters, (3) political instability and civil strife, (4) exchange
controls, and (5) the risk of having to submit to the jurisdiction of a foreign
court or arbitration panel or having to enforce the judgment of a foreign court
or arbitration panel against a sovereign nation within its own territory. We
may
also be subject to the risk of expropriation, and our insurance does not cover
losses caused by expropriation.
Our
Grasberg mine in Papua, Indonesia remains our most significant operating asset,
and because it is located in the Republic of Indonesia, our business may
continue to be adversely affected by Indonesian political, economic and social
uncertainties.
Indonesia
has faced political, economic and social uncertainties, including separatist
movements and civil and religious strife in a number of provinces. In
particular, several separatist groups are opposing Indonesian rule over the
province of Papua, where our Grasberg mine is located, and have sought political
independence for the province. In response, Indonesia enacted regional autonomy
laws, which became effective January 1, 2001. The manner in which the new
laws are being implemented and the degree of political and economic autonomy
that they may bring to individual provinces, including Papua, are uncertain
and
are ongoing issues in Indonesian politics. In Papua, there have been sporadic
attacks on civilians by separatists and sporadic but highly publicized conflicts
between separatists and the Indonesian
military.
Social, economic and political instability in Papua could materially and
adversely affect us if it results in damage to our property or interruption
of
our activities.
Maintaining
a good working relationship with the Indonesian government is important to
us
because our mining operations there are among Indonesia’s most significant
business enterprises and are conducted pursuant to a Contract of Work with
the
Indonesian government. Partially because of their significance to Indonesia’s
economy, the environmentally sensitive area in which they are located, and
the
number of people employed, our operations are occasionally the subject of
criticism in the Indonesian press and in political debates, and have been the
target of protests and occasional violence.
Most
recently, Grasberg operated at reduced mining and milling rates during a
four-day period from April 18 to April 21 as a result of peaceful protests
by
certain workers regarding benefits. The protests ended on April 21 with an
agreement on a framework for minimum wages for its workers and Grasberg has
returned to normal operations. The impacts to production were not
significant.
We
cannot
predict whether additional incidents will occur that could disrupt our
Indonesian operations, or whether similar incidents may occur in other countries
that could affect our other operations. If additional protests or other
disruptive incidents occur at any of our facilities, they could adversely affect
our business and profitability in ways that we cannot predict at this
time.
We
do not expect to mine all of our Indonesian ore reserves before the initial
term
of our Contract of Work in Indonesia expires.
All
of
our
Indonesian
proven and probable ore reserves, including the Grasberg deposit, are located
in
Block A. The initial term of our Contract of Work covering these ore reserves
expires at the end of 2021. We can extend this term for two successive 10-year
periods, subject to the approval of the Indonesian government, which under
our
Contract of Work cannot be withheld or delayed unreasonably. Our ore reserves
reflect estimates of minerals that can be recovered through the end of 2041
(i.e., through the expiration of the two 10-year extensions) and our current
mine plan has been developed, and our operations are based on the assumption
that we will receive the two 10-year extensions. As a result, we will not mine
all of these ore reserves during the current term of our Contract of Work,
and
there can be no assurance that the Indonesian government will approve the
extensions. Prior to the end of 2021, we expect to mine approximately 39 percent
of aggregate proven and probable recoverable ore at December 31, 2006,
representing approximately 45 percent of PT Freeport Indonesia’s share of
recoverable copper reserves and approximately 59 percent of its share of
recoverable gold reserves.
The
terrorist attacks in the
U.S.
in 2001, subsequent attacks in other parts of the world and the potential for
additional future terrorist acts have created economic and political
uncertainties that could materially and adversely affect our
business.
On
August 31, 2002, three people were killed and 11 others were wounded in an
ambush by a group of unidentified assailants on the road near Tembagapura,
the
mining town where the majority of PT Freeport Indonesia’s personnel reside. The
assailants shot at several vehicles transporting international contract teachers
from our school in Tembagapura, their family members and other contractors
to PT
Freeport Indonesia
.
The
U.S. FBI investigated the incident, which resulted in the U.S. indictment of
an
alleged operational commander of the Free Papua Movement/National Freedom Force.
In January 2006, Indonesian Police, accompanied by FBI agents, arrested the
alleged operational commander and 11 other Papuans. In November 2006, verdicts
and sentencing were announced for seven of those accused in the August 2002
shooting, including a life sentence for the confessed leader of the
attack.
On
October 12, 2002, a bombing killed 202 people in the Indonesian province of
Bali, which is 1,500 miles west of our mining and milling operations. Indonesian
authorities arrested 35 people in connection with this bombing and 29 of those
arrested have been tried and convicted. On August 5, 2003,
12
people
were killed and over 100 others were injured by a car bomb detonated outside
of
the JW Marriott Hotel in Jakarta, Indonesia. On September 9, 2004, 11
people were killed and over 200 others injured by a car bomb detonated in front
of the Australian embassy in Jakarta. On October 1, 2005, three suicide
bombers killed 19 people and wounded over 100 others in Bali. The same
international terrorist organizations are suspected in each of these incidents.
In November 2005, Indonesian Police raided a house in East Java
that
resulted in the death of other accused terrorists linked to the bombings
discussed above. Our mining and milling operations were not interrupted by
these
incidents, but PT Freeport Indonesia’s corporate office in Jakarta had to
relocate for several months following the bombing in front of the Australian
embassy.
In
addition to the Bali, JW Marriott Hotel and Australian embassy bombings, there
have been anti-American demonstrations in certain sections of Indonesia
reportedly led by radical Islamic activists. Radical activists have also
threatened to attack foreign interests and have called for the expulsion of
U.S.
and British citizens and companies from Indonesia.
We
cannot
predict whether additional incidents similar to those described above will
occur
in Indonesia or in other countries where we operate. Any such incidents that
do
occur could materially and adversely affect our business and profitability
in
ways that we cannot predict at this time.
Terrorist
attacks and other events have caused uncertainty in the world’s financial and
insurance markets and may significantly increase global political, economic
and
social instability. It is possible that further acts of terrorism may be
directed against the U.S. domestically or abroad, and such acts could be
directed against properties and personnel of companies such as ours. The attacks
and the resulting economic and political uncertainties, including the potential
for further terrorist acts, have negatively affected insurance markets.
Moreover, while our property and business interruption insurance covers damages
to insured property directly caused by terrorism, this insurance does not cover
damages and losses caused by war. Terrorism and war developments may materially
and adversely affect our business and profitability in ways that we cannot
predict at this time.
Our
Contracts of Work in Indonesia are subject to termination if we do not comply
with our contractual obligations, and if a dispute arises, we may have to submit
to the jurisdiction of a foreign court or arbitration
panel.
PT
Freeport Indonesia’s Contract of Work and other Contracts of Work in which we
have an interest were entered into under Indonesia’s 1967 Foreign Capital
Investment Law, which provides guarantees of remittance rights and protection
against nationalization. Our Contracts of Work can be terminated by the
Government of Indonesia if we do not satisfy our contractual obligations, which
include the payment of royalties and taxes to the government and the
satisfaction of certain mining, environmental, safety and health
requirements.
At
times,
certain government officials and others in Indonesia have questioned the
validity of contracts entered into by the Government of Indonesia prior to
May
1998 (i.e., during the Suharto regime, which lasted over 30 years),
including PT Freeport Indonesia’s Contract of Work, which was signed in December
1991. We cannot assure you that the validity of, or our compliance with, the
Contracts of Work will not be challenged for political or other reasons. PT
Freeport Indonesia’s Contract of Work and our other Contracts of Work require
that disputes with the Indonesian government be submitted to international
arbitration. Consequently, if a dispute arises under the Contracts of Work,
we
face the risk of having to submit to the jurisdiction of a foreign court or
arbitration panel, and if we prevail in such a dispute, we will face the
additional risk of having to enforce the judgment of a foreign court or
arbitration panel against Indonesia within its own territory.
Indonesian
government officials have periodically undertaken reviews regarding our
compliance with Indonesian environmental laws and regulations and the terms
of
the Contracts of Work. In 2006, the Government of Indonesia created a joint
team
for “Periodic Evaluation on Implementation of the PT-FI Contract of Work (COW)”
to conduct an evaluation every five years. The team consists of five
working
groups, whose members are from relevant ministries or agencies, covering
production, state revenues, community development, environmental issues and
security issues. We have conducted numerous meetings with these groups. The
joint team has indicated that it will issue a report. While we believe that
we
comply with PT Freeport Indonesia’s Contract of Work in all material respects,
we cannot assure you that the report will support that conclusion. Separately,
the Indonesian House of Representatives created a working committee on PT
Freeport Indonesia. Members of this group have also visited our operations
and
held a number of hearings in Jakarta. We will continue to work with these groups
to respond to their questions about our operations and our compliance with
PT
Freeport Indonesia’s Contract of Work.
TABLE
OF
CONTENTS
Any
suspension of required activities under our Contracts of Work requires the
consent of the Indonesian government.
Our
Contracts of Work permit us to suspend certain contractually required
activities, including exploration, for a period of one year by making a written
request to the Indonesian government. These requests are subject to the approval
of the Indonesian government and are renewable annually. If we do not request
a
suspension or are denied a suspension, then we are required to continue our
activities under the Contract of Work or potentially be declared in default.
Moreover, if a suspension continues for more than one year for reasons other
than force majeure and the Indonesian government has not approved such
continuation, then the government would be entitled to declare a default under
the Contract of Work.
We
suspended our field exploration activities outside of Block A in recent years
due to safety and security issues and regulatory uncertainty relating to a
possible conflict between our mining and exploration rights in certain forest
areas and an Indonesian Forestry law enacted in 1999 prohibiting open-pit mining
in forest preservation areas. In 2001, we requested and received from the
Government of Indonesia, formal temporary suspensions of our obligations under
the Contracts of Work in all areas outside of Block A. Recent Indonesian
legislation permits open-pit mining in PT Freeport Indonesia’s Block B area,
subject to certain requirements. Following an assessment of these requirements
and a review of security issues, in 2007 we resumed exploration activities
in
certain prospective Contract of Work areas outside of Block A.
OTHER
RISKS
The
impact of purchase accounting in connection with our acquisition of Phelps
Dodge
in March 2007
will
adversely affect our reported earnings.
Purchase
accounting requires us to allocate the price paid in our acquisition of Phelps
Dodge on the basis of the fair value of Phelps Dodge’s assets at the time the
transaction closed. Those adjustments resulted in significant increases in
the
carrying values of certain acquired assets, including, based on preliminary
estimates, increases of approximately $1.7 billion in metal inventories and
stockpiles and approximately $14.6 billion in property, plant and equipment
costs.
The
increased value of metal inventories and stockpiles will cause our cost of
goods
sold to increase in the year those inventories are recognized as sold, and
because we changed Phelps Dodge’s method of accounting for metal inventories
from their previous method of last-in, first-out to the average cost method,
the
increase in our cost of goods will occur in the near term. The increased value
of property, plant and equipment costs will increase our depreciation, depletion
and amortization expense. These items will reduce reported earnings but have
no
effect on cash flows.
A
decline
in the market price of metals produced by us could result in a write down of
metal and stockpile inventories to recoverable values and the recognition of
impairment charges to property, plant and equipment costs. These charges would
have the effect of reducing reported earnings, although they would have no
effect on cash flows.
In
addition, our estimate of goodwill associated with the acquisition of Phelps
Dodge is approximately $7.4 billion. We will annually assess this amount for
impairment. If we conclude that the goodwill associated with the transaction
is
impaired, the amount of the impairment would reduce our reported earnings but
would have no effect on cash flows.
As
a result of our acquisition of Phelps Dodge, we may experience difficulty in
effectively integrating both businesses, which could deprive us of many of
the
anticipated benefits of these transactions.
Achieving
the anticipated benefits of the acquisition of Phelps Dodge will depend in
part
on whether we integrate the businesses in an efficient and effective manner.
We
may not be able to accomplish this integration process smoothly or successfully.
The difficulties of combining both companies’ businesses potentially will
include, among other things:
·
|
the
necessity of coordinating geographically separated organizations
and
addressing possible differences in corporate cultures and management
philosophies, and the integration of diverse operations, which will
require the dedication of significant management resources that may
temporarily distract management’s attention from our day-to-day
business;
|
·
|
any
inability of our management to adapt to the addition of lines of
business
in which we have not historically
engaged; and
|
·
|
any
inability of our management to cause best practices to be applied
to all
of our businesses.
|
An
inability to realize the full extent of the anticipated benefits of the
acquisition, as well as any delays encountered in the transition process, could
have an adverse effect on the revenues, level of expenses and our operating
results.
We
depend on our senior management team and other key employees, and the loss
of
any of these employees could adversely affect our
business.
Our
success depends in part on our ability to retain senior management and other
key
employees. Competition for qualified personnel can be very intense. In addition,
senior management and key employees may depart because of issues relating to
the
uncertainty or difficulty associated with the successful integration of the
business and operations as formerly conducted by Phelps Dodge, or a desire
not
to remain with us. Accordingly, no assurance can be given that we will be able
to retain senior management and key employees to the same extent that we have
been able to do so in the past.
Our
holding company structure may impact your ability to receive
dividends
.
We
are a
holding company with no material assets other than the capital stock of our
subsidiaries. As a result, our ability to repay our indebtedness and pay
dividends is dependent on the generation of cash flow by our subsidiaries and
their ability to make such cash available to us, by dividend, debt repayment
or
otherwise. Our subsidiaries do not have any obligation to make funds available
to us to repay our indebtedness or pay dividends. In addition, our subsidiaries
may not be able to, or be permitted to, make distributions to enable us to
repay
our indebtedness or pay dividends. Each of our subsidiaries is a distinct legal
entity and, under certain circumstances, legal and contractual restrictions,
as
well as the financial condition and operating requirements of our subsidiaries,
may limit our ability to obtain cash from our subsidiaries. Our rights to
participate in any distribution of our subsidiaries’ assets upon their
liquidation, reorganization or insolvency would generally be subject to the
prior claims of the subsidiaries’ creditors, including any trade creditors and
preferred shareholders.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition
of
us more difficult.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition
of
us more difficult. These provisions:
·
|
authorize
our board of directors to issue preferred stock without stockholder
approval and to designate the rights, preferences and privileges
of each
class; if issued, such preferred stock would increase the number
of
outstanding shares of our capital stock and could include terms that
may
deter an acquisition of us;
|
·
|
establish
advanced notice requirements for nominations to the board of directors
or
for proposals that can be acted on at stockholder
meetings; and
|
·
|
limit
who may call stockholder meetings.
|
In
addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law, which
may prohibit large stockholders from consummating a merger with, or acquisition
of, us.
These
provisions may deter an acquisition of us that might otherwise be attractive
to
stockholders.
(c)
In
October 2003, our Board of Directors approved a new open market share purchase
program for up to 20 million shares, which replaced our previous program. The
program does not have an expiration date. No shares were purchased during the
three-month period ended March 31, 2007, and 12.2 million shares remain
available for purchase.
The
following table sets forth information with respect to shares of common stock
of
FCX purchased by FCX during the three months ended March 31, 2007:
|
|
|
|
|
|
|
|
|
(d)
Maximum Number
|
|
|
|
|
|
|
|
(c)
Total Number of
|
|
(or
Approximate
|
|
|
(a)
Total
|
|
|
|
|
Shares
(or Units)
|
|
Dollar
Value) of Shares
|
|
|
Number
of
|
|
(b)
Average
|
|
Purchased
as Part of
|
|
(or
Units) That May
|
|
|
Shares
(or Units)
|
|
Price
Paid Per
|
|
Publicly
Announced
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchased
a
|
|
Share
(or Unit)
|
|
Plans
or Programs
|
|
the
Plans or Programs
|
January
1-31, 2007
|
|
-
|
|
$
|
-
|
|
-
|
|
-
|
February
1-28, 2007
|
|
237,517
|
|
|
-
|
|
-
|
|
-
|
March
1-31, 2007
|
|
854,988
|
|
|
61.59
|
|
-
|
|
-
|
Total
|
|
1,092,505
|
|
|
61.59
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
a.
|
This
category include shares repurchased under FCX’s applicable stock incentive
plans (Plans) and its non-qualified supplemental savings plan (SSP).
In
February 2007 FCX repurchased previously issued shares to satisfy
exercise
prices on option awards under the Plans. In March 2007 FCX repurchased
shares to satisfy tax obligations on restricted stock awards under
the
Plans. In the SSP, FCX repurchases shares as a result of changes
in
investment elections by plan
participants.
|
A
special
meeting of stockholders was held on March 14, 2007 (the “Special Meeting”).
Proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended. The following matters were submitted to a vote of
security holders during our Special Meeting:
|
For
|
Against
|
Abstentions
|
1.
Proposal to amend our certificate of incorporation to increase the
authorized number of shares of capital stock to 750,000,000, increase
the
number of shares of Class B common stock to 700,000,000, rename the
Class
B common stock as common stock and delete the provisions governing
and
references to the previously designated classes and series of our
preferred stock of which no shares are outstanding (other than the
Series
A Participating Cumulative Preferred Stock and the 5½% Convertible
Perpetual Preferred Stock).
|
131,604,795
|
1,168,227
|
1,189,607
|
TABLE OF CONTENTS
|
For
|
Against
|
Abstentions
|
2.
Proposal to issue shares of our common stock in connection with the
transaction contemplated by the Agreement and Plan of Merger dated
as of
November 18, 2006, among Freeport-McMoRan Copper & Gold Inc., Phelps
Dodge Corporation, and Panther Acquisition Corporation, a direct
wholly
owned subsidiary of Freeport-McMoRan Copper & Gold Inc., as amended.
|
131,641,450
|
1,131,345
|
1,189,834
|
3.
Proposal to approve an adjournment of the Special Meeting, if necessary,
to permit solicitation of additional proxies in favor of the above
proposals.
|
121,694,167
|
11,012,900
|
1,255,562
|
The
exhibits to this report are listed in the Exhibit Index beginning on Page E-1
hereof.
TABLE OF CONTENTS
FREEPORT-McMoRan
COPPER & GOLD INC.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
FREEPORT-McMoRan
COPPER & GOLD INC.
By:
/s/
C. Donald Whitmire, Jr.
C.
Donald
Whitmire, Jr.
Vice
President and
Controller-Financial
Reporting
(authorized
signatory and
Principal
Accounting Officer)
Date:
May
10, 2007
TABLE OF CONTENTS
Freeport-McMoRan
Copper & Gold Inc.
Exhibit
Number
Description
2.1
|
|
Agreement
and Plan of Merger dated as of November 18, 2006, by and among
Freeport-McMoRan Copper & Gold Inc. (FCX), Phelps Dodge Corporation
and Panther Acquisition Corporation. Incorporated by reference to
Exhibit
2.1 to the Preliminary Joint Proxy Statement/Prospectus included
in the
Registration Statement on Form S-4 (File No. 333-139252) filed December
11, 2006, as amended on January 18, 2007 and February 12, 2007.
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of FCX. Incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K of FCX
dated
March 19, 2007.
|
|
|
|
3.2
|
|
Amended
and Restated By-Laws of FCX, as amended effective May 1, 2007.
Incorporated by reference to Exhibit 3.3 to the Current Report on
Form 8-K
of FCX dated May 1, 2007.
|
|
|
|
4.1
|
|
Certificate
of Designations of 5½% Convertible Perpetual Preferred Stock of FCX.
Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K
of FCX dated March 30, 2004.
|
|
|
|
4.2
|
|
Credit
Agreement dated as of March 19, 2007, by and among FCX, the lenders
party
thereto, the issuing banks party thereto, JPMorgan Chase Bank, N.A.
as
administrative agent and collateral agent, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as syndication agent. Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of FCX
dated
March 19, 2007.
|
|
|
|
4.3
|
|
Amended
and Restated Credit Agreement dated as of March 19, 2007, by and
among
FCX, PT Freeport Indonesia, the lenders party thereto, the issuing
banks
party thereto, JPMorgan Chase Bank, N.A. as administrative agent,
collateral agent, security agent and JAA security agent, U.S. Bank
National Association, as FI trustee, and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as syndication agent. Incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K of FCX dated March
19,
2007.
|
|
|
|
4.4
|
|
Senior
Indenture dated as of November 15, 1996, from FCX to The Chase Manhattan
Bank, as Trustee. Incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-3 (File No. 333-72760) of FCX filed
November 5, 2001 (the FCX November 5, 2001 Form S-3).
|
|
|
|
4.5
|
|
First
Supplemental Indenture dated as of November 18, 1996, from FCX to
The
Chase Manhattan Bank, as Trustee, providing for the issuance of the
Senior
Notes and supplementing the Senior Indenture dated November 15, 1996,
from
FCX to such Trustee, providing for the issuance of the 7.50% Senior
Notes
due 2006 and the 7.20% Senior Notes due 2026. Incorporated by reference
to
Exhibit 4.5 to the FCX November 5, 2001 Form S-3.
|
|
|
|
4.6
|
|
Indenture
dated as of January 29, 2003, from FCX to The Bank of New York, as
Trustee, with respect to the 10
⅛
%
Senior Notes due 2010. Incorporated by reference to Exhibit 4.1 to
the
Current Report on Form 8-K of FCX dated February 6,
2003.
|
|
|
|
|
|
Supplemental
Indenture dated March 19, 2007 from FCX to the Bank of New York,
as
Trustee, providing for an equal and ratable subsidiary guaranty and
supplementing the Indenture dated January 23, 2003.
|
|
|
|
4.8
|
|
Indenture
dated as of February 11, 2003, from FCX to The Bank of New York,
as
Trustee, with respect to the 7% Convertible Senior Notes due 2011.
Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K
of FCX dated February 11, 2003.
|
4.9
|
|
Indenture
dated as of February 3, 2004, from FCX to The Bank of New York, as
Trustee, with respect to the 6⅞% Senior Notes due 2014. Incorporated by
reference to Exhibit 4.12 to the Annual Report on Form 10-K of FCX
for the
fiscal year ended December 31, 2003 (the FCX 2003 Form
10-K).
|
|
|
|
|
|
Supplemental
Indenture dated March 19, 2007 from FCX to the Bank of New York,
as
Trustee, providing for an equal and ratable subsidiary guaranty and
supplementing the Indenture dated February 3, 2004.
|
|
|
|
4.11
|
|
Rights
Agreement dated as of May 3, 2000, between FCX and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent. Incorporated by reference to Exhibit
4.26 to the Quarterly Report on Form 10-Q of FCX for the quarter
ended
March 31, 2000.
|
|
|
|
4.12
|
|
Amendment
No. 1 to Rights Agreement dated as of February 26, 2002, between
FCX and
Mellon Investor Services. Incorporated by reference to Exhibit 4.16
to the
Quarterly Report on Form 10-Q of FCX for the quarter ended March
31,
2002.
|
|
|
|
4.13
|
|
Indenture
dated as of March 19, 2007, from FCX to The Bank of New York, as
Trustee,
with respect to the 8.25% Senior Notes due 2015, 8.375% Senior Notes
due
2017, and the Senior Floating Rate Notes due 2015. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K of FCX
dated
March 19, 2007.
|
|
|
|
4.14
|
|
Certificate
of Designations of 6
¾
%
Mandatory Convertible Preferred Stock of FCX. Incorporated by reference
to
Exhibit 4.1 to the Current Report on Form 8-K of FCX dated March
22,
2007.
|
|
|
|
|
|
Note:
Certain instruments with respect to long-term debt of FCX have not
been filed as exhibits to this Quarterly Report on Form 10-Q since
the
total amount of securities authorized under any such instrument does
not
exceed 10 percent of the total assets of FCX and its
subsidiaries on a consolidated basis. FCX agrees to furnish a copy of
each such instrument upon request of the Securities and Exchange
Commission.
|
|
|
|
10.1
|
|
Contract
of Work dated December 30, 1991, between the Government of the Republic
of
Indonesia and PT Freeport Indonesia. Incorporated by reference to
Exhibit
10.1 to the FCX November 5, 2001 Form S-3.
|
|
|
|
10.2
|
|
Contract
of Work dated August 15, 1994, between the Government of the Republic
of
Indonesia and PT Irja Eastern Minerals Corporation. Incorporated
by
reference to Exhibit 10.2 to the FCX November 5, 2001 Form
S-3.
|
|
|
|
10.3
|
|
Participation
Agreement dated as of October 11, 1996, between PT Freeport Indonesia
and
P.T. RTZ-CRA Indonesia with respect to a certain contract of work.
Incorporated by reference to Exhibit 10.4 to the FCX November 5,
2001 Form
S-3.
|
|
|
|
10.4
|
|
Agreement
dated as of October 11, 1996, to Amend and Restate Trust Agreement
among
PT Freeport Indonesia, FCX, the RTZ Corporation PLC, P.T. RTZ-CRA
Indonesia, RTZ Indonesian Finance Limited and First Trust of New
York,
National Association, and The Chase Manhattan Bank, as Administrative
Agent, JAA Security Agent and Security Agent. Incorporated by reference
to
Exhibit 10.3 to the Current Report on Form 8-K of FCX dated November
13,
1996.
|
|
|
|
10.5
|
|
Concentrate
Purchase and Sales Agreement dated effective December 11, 1996, between
PT
Freeport Indonesia and PT Smelting. Incorporated by reference to
Exhibit
10.3 to the FCX November 5, 2001 Form
S-3.
|
10.6
|
|
Second
Amended and Restated Joint Venture and Shareholders’ Agreement dated as of
December 11, 1996, among Mitsubishi Materials Corporation, Nippon
Mining
and Metals Company, Limited and PT Freeport Indonesia. Incorporated
by
reference to Exhibit 10.5 to the FCX November 5, 2001 Form
S-3.
|
|
|
|
10.7
|
|
Participation
Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation,
Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals
Company, a Delaware corporation, Cyprus Climax Metals Company, a
Delaware
corporation, Sumitomo Corporation, a Japanese corporation, Summit
Global
Management, B.V., a Dutch corporation, Sumitomo Metal Mining Co.,
Ltd., a
Japanese corporation, Compa
ñ
ia
de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta,
and
Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form
8-K of Phelps Dodge Corporation dated March 16, 2005.
|
|
|
|
10.8
|
|
Guarantee,
dated as of March 16, 2005, among Phelps Dodge Corporation, Sumitomo
Corporation, a Japanese corporation, and Sumitomo Metal Mining Co.,
Ltd.,
a Japanese corporation incorporated by reference to Exhibit 10.2
to the
Current Report on Form 8-K of Phelps Dodge Corporation dated March
16,
2005.
|
|
|
|
10.9
|
|
Shareholders
Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation,
Cyprus Climax Metals Company, a Delaware corporation, Sumitomo
Corporation, a Japanese corporation, Sumitomo Metal Mining Co., Ltd.,
a
Japanese corporation, Summit Global Management B.V., a Dutch corporation,
SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compa
ñ
ia
de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta,
and
Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form
8-K of Phelps Dodge Corporation dated June 1, 2005.
|
|
|
|
10.10
|
|
Master
Participation Agreement, dated as of September 30, 2005, among Sociedad
Minera Cerro Verde S.A.A., Japan Bank for International Cooperation,
Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi,
Ltd.,
KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The
Bank of
Nova Scotia, Mizuho Corporation Bank, Ltd. and Calyon New York Branch,
as
administrative agent. Incorporated by reference to Exhibit 10.1 to
the
Quarterly Report on Form 10-Q of Phelps Dodge Corporation for the
quarter
ended September 30, 2005 (the PD 2005 Third Quarter Form 10-Q). First
Amendment to Master Participation Agreement, dated as of December
16,
2005. Incorporated by reference to Exhibit 10.22 to the Annual Report
on
Form 10-K of Phelps Dodge Corporation for the fiscal year ended December
31, 2005 (the PD 2005 Form 10-K).
|
|
|
|
10.11
|
|
Completion
Guarantee, dated as of September 30, 2005, among Sumitomo Metal Mining
Co., Ltd., Sumitomo Corporation, Compañia de Minas Buenaventura S.A.A.,
Phelps Dodge Corporation, Japan Bank for International Cooperation,
Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi,
Ltd.,
KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The
Bank of
Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch,
as
administrative agent. Incorporated by reference to Exhibit 10.2 to
the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
10.12
|
|
Master
Security Agreement, dated as of September 30, 2005, among Sociedad
Minera
Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo
Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW,
Calyon New York Branch, The Royal Bank of Scotland plc, The Bank
of Nova
Scotia, Mizuho Corporate Bank, Ltd., Calyon New York Branch, as
administrative agent, and Citibank, N.A. and Citibank del Peru S.A.
Incorporated by reference to Exhibit 10.3 to the PD 2005 Third Quarter
Form 10-Q.
|
|
|
|
TABLE
OF
CONTENTS
10.13
|
|
Transfer
Restrictions Agreement, dated as of September 30, 2005, among SMM
Cerro
Verde Netherlands, B.V., Compañia de Minas Buenaventura S.A.A., Cyprus
Climax Metals Company, Sumitomo Metal Mining Co., Ltd., Sumitomo
Corporation, Phelps Dodge Corporation, Japan Bank for International
Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of
Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal
Bank of
Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd.,
and
Calyon New York Branch, as administrative agent. Incorporated by
reference
to Exhibit 10.4 to the PD 2005 Third Quarter Form 10-Q
.
|
|
|
|
10.14
|
|
JBIC
Loan Agreement, dated as of September 30, 2005, among Sociedad
Minera
Cerro Verde S.A.A., Japan Bank for International Cooperation, and
Sumitomo
Mitsui Banking Corporation, as JBIC Agent. Incorporated by reference
to
Exhibit 10.5 to the PD 2005 Third Quarter Form 10-Q. First Amendment
to
JBIC Loan Agreement, dated as of December 19, 2005. Incorporated
by
reference to Exhibit 10.26 to the PD 2005 Form 10-K.
|
|
|
|
10.15
|
|
KfW
Loan Agreement, dated as of September 30, 2005, between Sociedad
Minera
Cerro Verde S.A.A. and KfW. Incorporated by reference to Exhibit
10.6 to
the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
10.16
|
|
Loan
Agreement, dated as of September 30, 2005, among Sociedad Minera
Cerro
Verde S.A.A., Calyon New York Branch (as administrative agent),
Calyon New
York Branch, Mizuho Corporate Bank, Ltd., The Bank of Nova Scotia,
and The
Royal Bank of Scotland plc. Incorporated by reference to Exhibit
10.7 to
the PD 2005 Third Quarter Form 10-Q.
|
|
|
|
10.17
|
|
Parent
Company Guarantee, dated as of September 30, 2005, between Phelps
Dodge
Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee
is with
respect to the Operator’s Agreement, dated June 1, 2005, between Sociedad
Minera Cerro Verde S.A.A. and Minera Phelps Dodge del Peru S.A.C.).
Incorporated by reference to Exhibit 10-8 to the PD 2005 Third
Quarter
Form 10-Q.
|
|
|
|
10.18
|
|
Master
Agreement and Plan of Merger between Columbian Chemicals Company,
Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger
Sub,
Inc., dated November 15, 2005. Incorporated by reference to Exhibit
10.31
to the PD 2005 Form 10-K.
|
|
|
|
10.19
|
|
Phelps
Dodge Corporation Retiree Medical Plan Welfare Benefit Trust Agreement
between Phelps Dodge Corporation and The Northern Trust Company,
dated
December 15, 2005. Incorporated by reference to Exhibit 10.33 to
the PD
2005 Form 10-K.
|
|
|
|
10.20
|
|
Reclamation
and Remediation Trust Agreement between Phelps Dodge Corporation
and Wells
Fargo Delaware Trust Company, dated December 22, 2005. Incorporated
by
reference to Exhibit 10.34 to the PD 2005 Form 10-K.
|
|
|
|
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.21 through
10.80)
|
|
|
|
10.21
|
|
FCX
Performance Incentive Awards Program as amended effective February
2,
1999. Incorporated by reference to the Annual Report on Form 10-K
of FCX
for the fiscal year ended December 31, 1998 (the FCX 1998 Form
10-K).
|
|
|
|
10.22
|
|
FCX
President
’s
Award Program. Incorporated by reference to Exhibit 10.7 to the
FCX
November 5, 2001 Form S-3.
|
|
|
|
|
|
FCX
1995 Stock Option Plan, as amended and restated.
|
|
|
|
|
|
FCX
Amended and Restated 1999 Stock Incentive Plan, as amended and
restated.
|
|
|
|
10.25
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 1999 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.14 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended June 30,
2005
(the FCX 2005 Second Quarter Form 10-Q).
|
|
|
|
10.26
|
|
Form
of Restricted Stock Unit Agreement under the 1999 Stock Incentive
Plan.
Incorporated by reference to Exhibit 10.15 to the FCX 2005 Second
Quarter
Form 10-Q.
|
|
|
|
10.27
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the 1999
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.16 to the
FCX 2005
Second Quarter Form 10-Q.
|
|
|
|
10.28
|
|
FCX
1999 Long-Term Performance Incentive Plan. Incorporated by reference
to
Exhibit 10.19 to the Annual Report of FCX on Form 10-K for the fiscal
year
ended December 31, 1999 (the FCX 1999 Form 10-K).
|
|
|
|
10.29
|
|
FCX
Stock Appreciation Rights Plan dated May 2, 2000. Incorporated by
reference to Exhibit 10.20 to the Quarterly Report on Form 10-Q of
FCX for
the quarter ended June 30, 2001 (the FCX 2001 Second Quarter Form
10-Q).
|
|
|
|
|
|
FCX
2003 Stock Incentive Plan, as amended and restated.
|
|
|
|
10.31
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2003 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.20 to the
FCX 2005
Second Quarter Form 10-Q.
|
|
|
|
10.32
|
|
Form
of Restricted Stock Unit Agreement under the 2003 Stock Incentive
Plan.
Incorporated by reference to Exhibit 10.21 to the FCX 2005 Second
Quarter
Form 10-Q.
|
|
|
|
10.33
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the 2003
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.22 to the
FCX 2005
Second Quarter Form 10-Q.
|
|
|
|
|
|
FCX
1995 Stock Option Plan for Non-Employee Directors, as amended and
restated.
|
|
|
|
|
|
FCX
2004 Director Compensation Plan, as amended and restated.
|
|
|
|
10.36
|
|
Form
of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options
and
Stock Appreciation Rights under the 2004 Director Compensation Plan.
Incorporated by reference to Exhibit 10.4 to the Current Report on
Form
8-K of FCX dated May 2, 2006.
|
|
|
|
|
|
FCX
2006 Stock Incentive Plan, as amended and restated.
|
|
|
|
10.38
|
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2006 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.7 to the
Current
Report on Form 8-K of FCX dated May 2, 2006.
|
|
|
|
10.39
|
|
Form
of Restricted Stock Unit Agreement under the 2006 Stock Incentive
Plan.
Incorporated by reference to Exhibit 10.8 to the Current Report on
Form
8-K of FCX dated May 2, 2006.
|
|
|
|
10.40
|
|
Form
of Performance-Based Restricted Stock Unit Agreement under the 2006
Stock
Incentive Plan. Incorporated by reference to Exhibit 10.9 to the
Current
Report on Form 8-K of FCX dated May 2, 2006.
|
|
|
|
10.41
|
|
FCX
Director Compensation. Incorporated by reference to Exhibit 10.25
to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31,
2004 (the FCX 2004 Form 10-K).
|
|
|
|
10.42
|
|
FCX
Supplemental Executive Retirement Plan, as amended and restated.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form
8-K of FCX dated January 30, 2007.
|
|
|
|
10.43
|
|
FCX
2005 Annual Incentive Plan. Incorporated by reference to Exhibit
10.1 to
the Current Report on Form 8-K of FCX dated May 5,
2005.
|
|
|
|
10.44
|
|
FCX
Executive Services Program. Incorporated by reference to Exhibit
10.5 to
the Current Report on Form 8-K of FCX dated May 2,
2006.
|
|
|
|
10.45
|
|
FM
Services Company Performance Incentive Awards Program as amended
effective
February 2, 1999. Incorporated by reference to Exhibit 10.19 to the
FCX
1998 Form 10-K.
|
|
|
|
10.46
|
|
Consulting
Agreement dated as of December 22, 1988, with Kissinger Associates,
Inc.
(Kissinger Associates). Incorporated by reference to Exhibit 10.21
to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31,
1997 (the FCX 1997 Form 10-K).
|
|
|
|
10.47
|
|
Letter
Agreement dated May 1, 1989, with Kent Associates, Inc. (Kent Associates,
predecessor in interest to Kissinger Associates). Incorporated by
reference to Exhibit 10.22 to the FCX 1997 Form 10-K.
|
|
|
|
10.48
|
|
Letter
Agreement dated January 27, 1997, among Kissinger Associates, Kent
Associates, FCX, Freeport-McMoRan Inc., and FM Services Company (FMS).
Incorporated by reference to Exhibit 10.26 to the Annual Report on
Form
10-K of FCX for the fiscal year ended December 31, 2001 (the FCX
2001 Form
10-K).
|
|
|
|
10.49
|
|
Supplemental
Consulting Agreement with Kissinger Associates and Kent Associates,
effective as of January 1, 2007. Incorporated by reference to Exhibit
10.38 to the Quarterly Report on Form 10-Q of FCX for the quarter
ended
September 30, 2006 (the FCX 2006 Third Quarter Form
10-Q).
|
|
|
|
10.50
|
|
Agreement
for Consulting Services between FTX and B. M. Rankin, Jr. effective
as of
January 1, 1990 (assigned to FMS as of January 1, 1996). Incorporated
by
reference to Exhibit 10.24 to the FCX 1997 Form 10-K.
|
|
|
|
10.51
|
|
Supplemental
Agreement between FMS and B. M. Rankin, Jr. dated December 15, 1997.
Incorporated by reference to Exhibit 10.25 to the FCX 1997 Form
10-K.
|
|
|
|
10.52
|
|
Supplemental
Letter Agreement between FMS and B. M. Rankin, Jr., effective as
of
January 1, 2007. Incorporated by reference to Exhibit 10.41 to the
Annual
Report on Form 10-K of FCX for the fiscal year ended December 31,
2006.
|
|
|
|
10.53
|
|
Letter
Agreement effective as of January 7, 1997, between Senator J. Bennett
Johnston, Jr. and FMS. Incorporated by reference to Exhibit 10.31
to the
FCX 2001 Form 10-K.
|
|
|
|
10.54
|
|
Supplemental
Letter Agreement dated July 14, 2003, between J. Bennett Johnston,
Jr. and
FMS. Incorporated by reference to Exhibit 10.28 to the Quarterly
Report on
Form 10-Q of FCX for the quarter ended June 30, 2003.
|
|
|
|
10.55
|
|
Supplemental
Letter Agreement between FMS and J. Bennett Johnston, Jr., dated
January
18, 2005. Incorporated by reference to Exhibit 10.40 to the FCX 2004
Form
10-K.
|
|
|
|
10.56
|
|
Supplemental
Consulting Agreement between FMS and J. Bennett Johnston, Jr., effective
as of January 1, 2007. Incorporated by reference to Exhibit 10.45
to the
FCX 2006 Third Quarter Form 10-Q.
|
|
|
|
10.57
|
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K. McDonald.
Incorporated by reference to Exhibit 10.33 to the FCX 1999 Form
10-K.
|
|
|
|
10.58
|
|
Supplemental
Letter Agreement, between FMS and Gabrielle K. McDonald, effective
as of
January 1, 2007. Incorporated by reference to Exhibit 10.47 to the
FCX
2006 Third Quarter Form 10-Q.
|
|
|
|
10.59
|
|
Executive
Employment Agreement dated April 30, 2001, between FCX and James
R.
Moffett. Incorporated by reference to Exhibit 10.35 to the FCX 2001
Second
Quarter Form 10-Q.
|
|
|
|
10.60
|
|
Executive
Employment Agreement dated April 30, 2001, between FCX and Richard
C.
Adkerson. Incorporated by reference to Exhibit 10.36 to the FCX 2001
Second Quarter Form 10-Q.
|
|
|
|
10.61
|
|
Change
of Control Agreement dated April 30, 2001, between FCX and James
R.
Moffett. Incorporated by reference to Exhibit 10.37 to the FCX 2001
Second
Quarter Form 10-Q.
|
|
|
|
10.62
|
|
Change
of Control Agreement dated April 30, 2001, between FCX and Richard
C.
Adkerson. Incorporated by reference to Exhibit 10.38 to the FCX 2001
Second Quarter Form 10-Q.
|
|
|
|
10.63
|
|
First
Amendment to Executive Employment Agreement dated December 10, 2003,
between FCX and James R. Moffett. Incorporated by reference to Exhibit
10.36 to the FCX 2003 Form 10-K.
|
|
|
|
10.64
|
|
First
Amendment to Executive Employment Agreement dated December 10, 2003,
between FCX and Richard C. Adkerson. Incorporated by reference to
Exhibit
10.37 to the FCX 2003 Form 10-K.
|
|
|
|
10.65
|
|
First
Amendment to Change of Control Agreement dated December 10, 2003,
between
FCX and James R. Moffett. Incorporated by reference to Exhibit 10.38
to
the FCX 2003 Form 10-K.
|
|
|
|
10.66
|
|
First
Amendment to Change of Control Agreement dated December 10, 2003,
between
FCX and Richard C. Adkerson. Incorporated by reference to Exhibit
10.39 to
the FCX 2003 Form 10-K.
|
|
|
|
10.67
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and Michael
J.
Arnold. Incorporated by reference to Exhibit 10.40 to the FCX 2003
Form
10-K.
|
|
|
|
10.68
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and Mark
J.
Johnson. Incorporated by reference to Exhibit 10.41 to the FCX 2003
Form
10-K.
|
|
|
|
10.69
|
|
Change
of Control Agreement dated February 3, 2004, between FCX and Kathleen
L.
Quirk. Incorporated by reference to Exhibit 10.42 to the FCX 2003
Form
10-K.
|
|
|
|
10.70
|
|
Phelps
Dodge 2003 Stock Option and Restricted Stock Plan, as amended.
Incorporated by reference to Exhibit 10.1 to the Registration Statement
on
Form S-8 (File No. 333-141358) of FCX filed March 16, 2007 (the FCX
March
16, 2007 Form S-8).
|
|
|
|
10.71
|
|
Phelps
Dodge 1998 Stock Option and Restricted Stock Plan, as amended.
Incorporated by reference to Exhibit 10.2 to the FCX March 16, 2007
Form
S-8.
|
|
|
|
10.72
|
|
Phelps
Dodge Corporation 2006 Executive Performance Incentive Plan. Incorporated
by reference to Appendix A of Phelps Dodge Corporation’s 2005 definitive
Proxy Statement on Schedule 14A filed April 15, 2005.
|
|
|
|
|
|
Letter
of employment by and between Freeport-McMoRan Copper & Gold Inc. and
Timothy R. Snider dated April 4, 2007.
|
|
|
|
10.74
|
|
Form
of Change of Control Agreement (amended and restated effective January
1,
2005), adopted by Phelps Dodge Corporation for agreements entered
into
between Phelps Dodge Corporation and other of its executive officers
and
other members of its senior management team. Incorporated by reference
to
Exhibit 10.1 to Amendment No. 1 to the Annual Report on Form 10-K
of
Phelps Dodge Corporation for the fiscal year ended December 31, 2006
(Amendment No. 1 to the PD 2006 Form 10-K).
|
|
|
|
TABLE OF CONTENTS
10.75
|
|
Form
of Severance Agreement (as amended and restated effective January
1, 2005)
adopted by Phelps Dodge Corporation and entered into between Phelps
Dodge
Corporation and certain of its executives. Incorporated by reference
to
Exhibit 10.2 of Amendment No. 1 to the PD 2006 Form
10-K.
|
|
|
|
|
|
Form
of Amendment to the ELIP Split Dollar Life Insurance Agreement
(Endorsement Method) adopted by Phelps Dodge Corporation and entered
into
by and between Phelps Dodge and certain of its
executives.
|
|
|
|
|
|
The
Phelps Dodge Corporation Supplemental Retirement Plan, amended and
restated effective January 1, 2005 and adopted on March 16,
2007.
|
|
|
|
|
|
The
Phelps Dodge Corporation Supplemental Savings Plan, amended and restated
effective January 1, 2005, and adopted on March 16,
2007.
|
|
|
|
|
|
First
Amendment to the Phelps Dodge Corporation Supplemental Savings Plan,
dated
March 16, 2007.
|
|
|
|
|
|
Second
Amendment to the Phelps Dodge Corporation Supplemental Savings Plan,
dated
as of March 16, 2007.
|
|
|
|
|
|
Letter
from Ernst & Young LLP regarding unaudited interim financial
statements.
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d -
14(a).
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d -
14(a).
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350.
|
Exhibit
4.7
SUPPLEMENTAL
INDENTURE
SUPPLEMENTAL
INDENTURE (this “Supplemental Indenture”) dated as of March 19, 2007, among the
guarantors party hereto (the “New Guarantors”), each a subsidiary of
FREEPORT-MCMORAN COPPER & GOLD INC. (or its successor), a Delaware
corporation (the “Company”), and THE BANK OF NEW YORK, a New York banking
corporation, as trustee under the indenture referred to below (the
“Trustee”).
W
I T N E
S S E T H :
WHEREAS
the Company has heretofore executed and delivered to the Trustee an Indenture
(the “Indenture”) dated as of January 29, 2003, providing for the issuance
of an unlimited amount of 10
1
/
8
%
Senior
Notes due 2010 (the “Securities”);
WHEREAS
Section 4.11 of the Indenture provides that under certain circumstances the
Company is required to cause the New Guarantors to execute and deliver to the
Trustee a supplemental indenture pursuant to which the New Guarantors shall
unconditionally guarantee all the Company’s obligations under the Securities
pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein;
and
WHEREAS
pursuant to Section 9.01(iv) of the Indenture, the Trustee, the Company and
any existing guarantors (the “Existing Guarantors”) are authorized to execute
and deliver this Supplemental Indenture;
NOW
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the New Guarantors,
the Company, the Existing Guarantors and the Trustee mutually covenant and
agree
for the equal and ratable benefit of the holders of the Securities as
follows:
1.
Agreement
to Guarantee.
The New
Guarantors hereby agree, jointly and severally with all the Existing Guarantors,
to unconditionally guarantee the Company’s obligations under the Securities on
the terms and subject to the conditions set forth in Article 10 of the
Indenture and to be bound by all other applicable provisions of the Indenture
and the Securities.
2.
Ratification
of Indenture; Supplemental Indentures Part of Indenture.
Except
as expressly amended hereby, the Indenture is in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain
in
full force and effect. This Supplemental Indenture shall form a part of
the Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
3.
Governing
Law.
THIS
SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
4.
Trustee
Makes No Representation.
The
Trustee makes no representation as to the validity or sufficiency of this
Supplemental Indenture. The recitals and statements herein are deemed to be
those of the Company and not of the Trustee.
5.
Counterparts.
The
parties may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
6.
Effect
of Headings.
The
Section headings herein are for convenience only and shall not effect the
construction thereof.
IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to
be duly executed as of the date first above written.
NEW
GUARANTORS:
FREEPORT-MCMORAN
COPPER & GOLD INVESTMENT CO., S.A.
FREEPORT-MCMORAN
SPAIN INC.
INTERNATIONAL
SUPPORT INC.
By:
_/s/
Kathleen L. Quirk___________
Name:
Kathleen
L. Quirk
Title:
Treasurer
INTERNATIONAL
AIR CAPITAL INC.
By:
__/s/
Kathleen L. Quirk_______
Name:
Kathleen
L. Quirk
Title:
Senior
Vice President and Treasurer
FREEPORT
RESEARCH AND ENGINEERING COMPANY
By:
__/s/
Richard C. Adkerson___
Name
Richard
C. Adkerson
Title:
Chairman
of the Board and President
INTERNATIONAL
PURVEYORS INC.
By:
__/s/
Richard C. Adkerson_______
Name:
Richard
C. Adkerson
Title:
President
FCX
INVESTMENT LLC
By:
__/s/
Dean T. Falgoust__________
Name:
Dean
T.
Falgoust
Title:
Vice
President
CHINO
ACQUISITION INC.
CHINO
MINES COMPANY
CLIMAX
ENGINEERED MATERIALS, LLC
CLIMAX
MOLYBDENUM COMPANY
CYPRUS
AMAX MINERALS COMPANY
CYPRUS
CLIMAX METALS COMPANY
CYPRUS
EL
ABRA CORPORATION
CYPRUS
METALS COMPANY
PD
CHILE
HOLDING COMPANY LIMITADA
PD
CHILE
INVESTMENTS, LLC
PHELPS
DODGE BAGDAD, INC.
PHELPS
DODGE CHICAGO ROD, INC.
PHELPS
DODGE CHINO, INC.
PHELPS
DODGE EXPLORATION CORPORATION
PHELPS
DODGE INDUSTRIES, INC.
PHELPS
DODGE MIAMI, INC.
PHELPS
DODGE REFINING CORPORATION
PHELPS
DODGE SAFFORD, INC.
PHELPS
DODGE SALES COMPANY, INCORPORATED
PHELPS
DODGE SIERRITA, INC.
PHELPS
DODGE TYRONE, INC.
TYRONE
MINING, LLC
By:
_/s/
S.
David Colton___________
Name:
S.
David
Colton
Title:
Senior
Vice President
PD
CHILE
FINANCE COMPANY
By:
__/s/
S.
David Colton__________
Name:
S.
David
Colton
Title:
Vice
President
CLIMAX
MOLYBDENUM MARKETING CORPORATION
KINETICS
CLIMAX, INC.
By:
_/s/
Stanton K. Rideout__________
Name:
Stanton
K. Rideout
Title:
Vice
President
PHELPS
DODGE CORPORATION
By:
___/s/
S.
David Colton__________________________
Name:
_S.
David
Colton_____________________________
Title:
__Senior
Vice President and General Counsel________
COMPANY:
FREEPORT-MCMORAN
COPPER & GOLD INC.
By:
__/s/
Kathleen L. Quirk___________________
Name:
Kathleen
L. Quirk
Title:
Senior
Vice President, Chief Financial Officer and
Treasurer
TRUSTEE:
THE
BANK
OF NEW YORK, as Trustee,
By:
___/s/
Robert A. Massimillo______________________
Name:
_Robert
A. Massimillo_______________________
Title:
__Vice
President_____________________________
Exhibit
4.10
SUPPLEMENTAL
INDENTURE
SUPPLEMENTAL
INDENTURE (this “Supplemental Indenture”) dated as of March 19, 2007, among the
guarantors party hereto (the “New Guarantors”), each a subsidiary of
FREEPORT-MCMORAN COPPER & GOLD INC. (or its successor), a Delaware
corporation (the “Company”), and THE BANK OF NEW YORK, a New York banking
corporation, as trustee under the indenture referred to below (the
“Trustee”).
W
I T N E
S S E T H :
WHEREAS
the Company has heretofore executed and delivered to the Trustee an Indenture
(the “Indenture”) dated as of February 3, 2004, providing for the issuance
of an unlimited amount of 6⅞% Senior Notes due 2014 (the
“Securities”);
WHEREAS
Section 4.11 of the Indenture provides that under certain circumstances the
Company is required to cause the New Guarantor to execute and deliver to the
Trustee a supplemental indenture pursuant to which the New Guarantor shall
unconditionally guarantee all the Company’s obligations under the Securities
pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein;
and
WHEREAS
pursuant to Section 9.01(iv) of the Indenture, the Trustee, the Company and
any existing guarantors (the “Existing Guarantors”) are authorized to execute
and deliver this Supplemental Indenture;
NOW
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the New Guarantor,
the Company, the Existing Guarantors and the Trustee mutually covenant and
agree
for the equal and ratable benefit of the holders of the Securities as
follows:
1.
Agreement
to Guarantee
.
The New
Guarantor hereby agrees, jointly and severally with all the Existing Guarantors,
to unconditionally guarantee the Company’s obligations under the Securities on
the terms and subject to the conditions set forth in Article 10 of the
Indenture and to be bound by all other applicable provisions of the Indenture
and the Securities.
2.
Ratification
of Indenture; Supplemental Indentures Part of Indenture
.
Except
as expressly amended hereby, the Indenture is in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain
in
full force and effect. This Supplemental Indenture shall form a part of
the Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
3.
Governing
Law
.
THIS
SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
4.
Trustee
Makes No Representation
.
The
Trustee makes no representation as to the validity or sufficiency of this
Supplemental Indenture. The recitals and statements herein are deemed to be
those of the Company and not of the Trustee.
5.
Counterparts
.
The
parties may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
6.
Effect
of Headings
.
The
Section headings herein are for convenience only and shall not effect the
construction thereof.
IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to
be duly executed as of the date first above written.
NEW
GUARANTORS:
FREEPORT-MCMORAN
COPPER & GOLD INVESTMENT CO., S.A.
FREEPORT-MCMORAN
SPAIN INC.
INTERNATIONAL
SUPPORT INC.
By:
__/s/
Kathleen L. Quirk_____________________________
Name:
Kathleen
L. Quirk
Title:
Treasurer
INTERNATIONAL
AIR CAPITAL INC.
By:
__/s/
Kathleen L. Quirk________________________
Name:
Kathleen
L. Quirk
Title:
Senior
Vice President and Treasurer
FREEPORT
RESEARCH AND ENGINEERING COMPANY
By:
__/s/
Richard C. Adkerson___________________
Name
Richard
C. Adkerson
Title:
Chairman
of the Board and President
INTERNATIONAL
PURVEYORS INC.
By:
__/s/
Richard C. Adkerson__________________________
Name:
Richard
C. Adkerson
Title:
President
FCX
INVESTMENT LLC
By:
___/s/
Dean T. Falgoust_________________________
Name:
Dean
T.
Falgoust
Title:
Vice
President
CHINO
ACQUISITION INC.
CHINO
MINES COMPANY
CLIMAX
ENGINEERED MATERIALS, LLC
CLIMAX
MOLYBDENUM COMPANY
CYPRUS
AMAX MINERALS COMPANY
CYPRUS
CLIMAX METALS COMPANY
CYPRUS
EL
ABRA CORPORATION
CYPRUS
METALS COMPANY
PD
CHILE
HOLDING COMPANY LIMITADA
PD
CHILE
INVESTMENTS, LLC
PHELPS
DODGE BAGDAD, INC.
PHELPS
DODGE CHICAGO ROD, INC.
PHELPS
DODGE CHINO, INC.
PHELPS
DODGE EXPLORATION CORPORATION
PHELPS
DODGE INDUSTRIES, INC.
PHELPS
DODGE MIAMI, INC.
PHELPS
DODGE REFINING CORPORATION
PHELPS
DODGE SAFFORD, INC.
PHELPS
DODGE SALES COMPANY, INCORPORATED
PHELPS
DODGE SIERRITA, INC.
PHELPS
DODGE TYRONE, INC.
TYRONE
MINING, LLC
By:
__/s/
S.
David Colton____________________________
Name:
S.
David
Colton
Title:
Senior
Vice President
PD
CHILE
FINANCE COMPANY
By:
__/s/
S.
David Colton_________________________
Name:
S.
David
Colton
Title:
Vice
President
CLIMAX
MOLYBDENUM MARKETING CORPORATION
KINETICS
CLIMAX, INC.
By:
__/s/
Stanton K. Rideout_______________________________
Name:
Stanton
K. Rideout
Title:
Vice
President
PHELPS
DODGE CORPORATION
By:
___/s/
S.
David Colton________________________
Name:
_S.
David
Colton____________________________
Title:
__Senior
Vice President and General Counsel______
COMPANY:
FREEPORT-MCMORAN
COPPER & GOLD INC.
By:
__/s/
Kathleen L. Quirk___________________________
Name:
Kathleen
L. Quirk
Title:
Senior
Vice President, Chief Financial Officer and
Treasurer
TRUSTEE:
THE
BANK
OF NEW YORK, as Trustee,
By:
__/s/
Robert A. Massimillo________________________
Name:
__Robert
A. Massimillo_______________________
Title:
___Vice
President____________________________
Exhibit
10.23
FREEPORT-McMoRan
COPPER & GOLD INC.
1995
STOCK OPTION PLAN
SECTION
1
Purpose
.
The
purpose of the Freeport-McMoRan Copper & Gold Inc. 1995 Stock Option Plan
(the “Plan”) is to motivate and reward key personnel by giving them a
proprietary interest in the Company’s continued success.
SECTION
2
Definitions
.
As used
in the Plan, the following terms shall have the meanings set forth
below:
“Award”
shall mean any Option, Stock Appreciation Right, Limited Right or Other
Stock-Based Award.
“Award
Agreement” shall mean any written agreement, contract or other instrument or
document evidencing any Award, which may, but need not, be executed or
acknowledged by a Participant.
“Board”
shall mean the Board of Directors of the Company.
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to
time.
“Committee”
shall mean a committee of the Board designated by the Board to administer the
Plan and composed of not fewer than two directors, each of which directors,
to
the extent necessary to comply with Rule 16b-3 only, is a “disinterested
person” within the meaning of Rule 16b-3. Until otherwise determined by the
Board, the Committee shall be the Corporate Personnel Committee of the
Board.
“Company”
shall mean Freeport-McMoRan Copper & Gold Inc.
“Designated
Beneficiary” shall mean the beneficiary designated by the Participant, in a
manner determined by the Committee, to receive the benefits due the Participant
under the Plan in the event of the Participant’s death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean
the
Participant’s estate.
“Employee”
shall mean (i) any person providing services as an officer of the Company or
a
Subsidiary, whether or not employed by such entity, including any such person
who is also a director of the Company, (ii) any employee of the Company or
a
Subsidiary, including any director who is also an employee of the Company or
a
Subsidiary, (iii) any officer or employee of an entity with which the Company
has contracted to receive executive or management services who provides services
to the Company or a Subsidiary through such arrangement and
(iv)
any
person who has agreed in writing to become a person described in clauses (i),
(ii) or (iii) within not more than 30 days following the date of grant of such
person’s first Award under the Plan.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.
“Incentive
Stock Option” shall mean an option granted under Section 6 of the Plan that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
“Limited
Right” shall mean any right granted under Section 8 of the
Plan.
“Nonqualified
Stock Option” shall mean an option granted under Section 6 of the Plan that is
not intended to be an Incentive Stock Option.
“Offer”
shall mean any tender offer, exchange offer or series of purchases or other
acquisitions, or any combination of those transactions, as a result of which
any
person, or any two or more persons acting as a group, and all affiliates of
such
person or persons, shall beneficially own more than 40% of all classes and
series of the Company’s stock outstanding, taken as a whole, that has voting
rights with respect to the election of directors of the Company (not including
any series of preferred stock of the Company that has the right to elect
directors only upon the failure of the Company to pay dividends).
“Offer
Price” shall mean the highest price per Share paid in any Offer that is in
effect at any time during the period beginning on the ninetieth day prior to
the
date on which a Limited Right is exercised and ending on and including the
date
of exercise of such Limited Right. Any securities or property that comprise
all
or a portion of the consideration paid for Shares in the Offer shall be valued
in determining the Offer Price at the higher of (i) the valuation placed on
such
securities or property by the person or persons making such Offer, or (ii)
the
valuation, if any, placed on such securities or property by the Committee or
the
Board.
“Option”
shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
“Other
Stock-Based Award” shall mean any right or award granted under Section 9 of
the Plan.
“Participant”
shall mean any Employee granted an Award under the Plan.
“Person”
shall mean any individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, government or political subdivision
thereof or other entity.
“Rule
16b-3” shall mean Rule 16b-3 promulgated by the SEC under the Exchange Act, or
any successor rule or regulation thereto as in effect from time to
time.
“SAR”
shall mean any Stock Appreciation Right.
“SEC”
shall mean the Securities and Exchange Commission, including the staff thereof,
or any successor thereto.
“Shares”
shall mean the shares of Class B Common Stock, par value $0.10 per share, of
the
Company and such other securities of the Company or a Subsidiary as the
Committee may from time to time designate.
“Stock
Appreciation Right” shall mean any right granted under Section 7 of the
Plan.
“Subsidiary”
shall mean (i) any corporation or other entity in which the Company possesses
directly or indirectly equity interests representing at least 50% of the total
ordinary voting power or at least 50% of the total value of all classes of
equity interests of such corporation or other entity and (ii) any other entity
in which the Company has a direct or indirect economic interest that is
designated as a Subsidiary by the Committee.
SECTION
3
Administration
.
The
Plan shall be administered by the Committee. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power
and
authority to: (i) designate Participants; (ii) determine the type or types
of
Awards to be granted to an eligible Employee; (iii) determine the number of
Shares to be covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, whole
Shares, other whole securities, other Awards, other property or other cash
amounts payable by the Company upon the exercise of that or other Awards, or
canceled, forfeited or suspended and the method or methods by which Awards
may
be settled, exercised, canceled, forfeited or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable by the Company with
respect to an Award shall be deferred either automatically or at the election
of
the holder thereof or of the Committee; (vii) interpret and administer the
Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (ix) make any other determination and take any other action that
the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the
Plan or any Award shall be within the sole discretion of the Committee, may
be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any
Employee.
SECTION
4
Eligibility
.
Any
Employee who is not a member of the Committee shall be eligible to be granted
an
Award.
SECTION
5
(a)
Shares
Available for Awards
.
Subject
to adjustment as provided in Section 5(b):
(i)
Calculation
of Number of Shares Available
.
The
number of Shares with respect to which Awards may be granted under the Plan
shall be 10,000,000. Shares subject to Awards that are not granted in tandem
with an Option and that by their terms may be settled only in cash shall not
be
counted against such total, except as may be required to comply with Rule 16b-3.
If, after the effective date of the Plan, an Award granted under the Plan
expires or is exercised, forfeited, canceled or terminated without the delivery
of Shares, then the Shares covered by such Award or to which such Award relates,
or the number of Shares otherwise counted against the aggregate number of Shares
with respect to which Awards may be granted, to the extent of any such
expiration, exercise, forfeiture, cancellation or termination without the
delivery of Shares, shall again be, or shall become, Shares with respect to
which Awards may be granted.
(ii)
Substitute
Awards
.
Any
Shares delivered by the Company, any Shares with respect to which Awards are
made by the Company, or any Shares with respect to which the Company becomes
obligated to make Awards, through the assumption of, or in substitution for,
outstanding awards previously granted by an acquired company or a company with
which the Company combines, shall not, except in the case of Shares with respect
to which Awards are granted to Employees who are officers or directors of the
Company for purposes of Section 16 of the Exchange Act or any successor section
thereto, be counted against the Shares available for Awards under the
Plan.
(iii)
Sources
of Shares Deliverable Under Awards
.
Any
Shares delivered pursuant to an Award may consist of authorized and unissued
Shares or of treasury Shares, including Shares held by the Company or a
Subsidiary and Shares acquired in the open market or otherwise obtained by
the
Company or a Subsidiary.
(iv)
Individual
Limit
.
Any
provision of the Plan to the contrary notwithstanding, no individual may receive
in any year Awards under the Plan that relate to more than 1,750,000
Shares.
(b)
Adjustments
.
In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, Subsidiary securities, other securities
or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that
an
adjustment is determined by the Committee to be appropriate to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award and, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award and, if
deemed
appropriate, adjust outstanding Awards to provide the rights contemplated by
Section 9(b) hereof;
provided
,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b)(1) of the Code or any successor provision thereto and,
with respect to all Awards under the Plan, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
requirements for full deductibility under Section 162(m) of the Code and the
regulations thereunder; and
provided
further
,
that
the number of Shares subject to any Award denominated in Shares shall always
be
a whole number.
SECTION
6
(a)
Stock
Options
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the option price therefor and
the
conditions and limitations applicable to the exercise of the Option. The
Committee shall have the authority to grant Incentive Stock Options,
Nonqualified Stock Options or both. In the case of Incentive Stock Options,
the
terms and conditions of such grants shall be subject to and comply with such
rules as may be required by Section 422 of the Code, as from time to time
amended, and any implementing regulations. Except in the case of an Option
granted in assumption of or substitution for an outstanding award of a company
acquired by the Company or with which the Company combines, the exercise price
of any Option granted under this Plan shall not be less than 100% of the fair
market value of the underlying Shares on the date of grant.
(b)
Exercise
.
Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable Award Agreement or thereafter, provided, however, that in no event
may any Option granted hereunder be exercisable after the expiration of 10
years
after the date of such grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any condition
relating to the application of Federal or state securities laws, as it may
deem
necessary or advisable. Except in the case of an Option granted in assumption
of
or substitution for an outstanding award of a company acquired by the Company
or
with which the Company combines, no Option shall be exercisable earlier than
six
months after the date of grant.
(c)
Payment
.
No
Shares shall be delivered pursuant to any exercise of an Option until payment
in
full of the option price therefor is received by the Company. Such payment
may
be made in cash, or its equivalent, or, if and to the extent permitted by the
Committee, by applying cash amounts payable by the Company upon the exercise
of
such Option or other Awards by the optionee or by exchanging whole Shares owned
by the optionee (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash, cash equivalents, cash amounts so payable by the Company
upon
exercises of Awards and the fair market value of any such whole Shares so
tendered to the Company, valued (in accordance with procedures established
by
the Committee) as of the effective date of such exercise, is at least equal
to
such option price.
SECTION
7
(a)
Stock
Appreciation Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Employees to whom Stock Appreciation Rights shall
be
granted, the number of Shares to be covered by each Award of Stock Appreciation
Rights, the grant price thereof and the conditions and limitations applicable
to
the exercise thereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated
to
any other Award. Stock Appreciation Rights granted in tandem with or in addition
to an Option or other Award may be granted either at the same time as the Option
or other Award or at a later time. Stock Appreciation Rights shall not be
exercisable earlier than six months after the date of grant nor after the
expiration of 10 years after the date of grant. Except in the case of a Stock
Appreciation Right granted in assumption of or substitution for an outstanding
award of a company acquired by the Company or with which the Company combines,
the grant price of any Stock Appreciation Right granted under this Plan shall
not be less than 100% of the fair market value of the Shares covered by such
Stock Appreciation Right on the date of grant or, in the case of a Stock
Appreciation Right granted in tandem with a then outstanding Option or other
Award, on the date of grant of such related Option or Award.
(b)
A
Stock
Appreciation Right shall entitle the Participant to receive upon exercise,
for
each Share to which the SAR relates, an amount equal to the excess, if any,
of
the fair market value of a Share on the date of exercise of the Stock
Appreciation Right over the grant price. Any Stock Appreciation Right shall
be
settled in cash, unless the Committee shall determine at the time of grant
of a
Stock Appreciation Right that it shall or may be settled in cash, Shares or
a
combination of cash and Shares.
SECTION
8
(a)
Limited
Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Employees to whom Limited Rights shall be granted,
the number of Shares to be covered by each Award of Limited Rights, the grant
price thereof and the conditions and limitations applicable to the exercise
thereof. Limited Rights may be granted in tandem with another Award, in addition
to another Award, or freestanding and unrelated to any Award. Limited Rights
granted in tandem with or in addition to an Award may be granted either at
the
same time as the Award or at a later time. Limited Rights shall not be
exercisable earlier than six months after the date of grant nor after the
expiration of 10 years after the date of grant and shall only be exercisable
during a period determined at the time of grant by the Committee beginning
not
earlier than one day and ending not more than ninety days after the expiration
date of an Offer. Except in the case of a Limited Right granted in assumption
of
or substitution for an outstanding award of a company acquired by the Company
or
with which the Company combines, the grant price of any Limited Right granted
under this Plan shall not be less than 100% of the fair market value of the
Shares covered by such Limited Right on the date of grant or, in the case of
a
Limited Right granted in tandem with a then outstanding Option or other Award,
on the date of grant of such related Option or Award.
(b)
A
Limited
Right shall entitle the Participant to receive upon exercise, for each Share
to
which the Limited Right relates, an amount equal to the excess, if any, of
the
Offer
Price
on
the date of exercise of the Limited Right over the grant price. Any Limited
Right shall be settled in cash, unless the Committee shall determine at the
time
of grant of a Limited Right that it shall or may be settled in cash, Shares
or a
combination of cash and Shares.
SECTION
9
(a)
Other
Stock-Based Awards
.
The
Committee is hereby authorized to grant to eligible Employees an “Other
Stock-Based Award”, which shall consist of an Award, the value of which is based
in whole or in part on the value of Shares, that is not an instrument or Award
specified in Sections 6 through 8 of this Plan. Other Stock-Based Awards may
be
awards of Shares or may be denominated or payable in, valued in whole or in
part
by reference to, or otherwise based on or related to, Shares (including, without
limitation, securities convertible or exchangeable into or exercisable for
Shares), as deemed by the Committee consistent with the purposes of the Plan.
The Committee shall determine the terms and conditions of any such Other
Stock-Based Award. Except in the case of an Other Stock-Based Award granted
in
assumption of or in substitution for an outstanding award of a company acquired
by the Company or with which the Company combines, the price at which securities
may be purchased pursuant to any Other Stock-Based Award granted under this
Plan, or the provision, if any, of any such Award that is analogous to the
purchase or exercise price, shall not be less than 100% of the fair market
value
of the securities to which such Award relates on the date of grant.
(b)
Dividend
Equivalents
.
In the
sole and complete discretion of the Committee, an Award, whether made as an
Other Stock-Based Award under this Section 9 or as an Award granted pursuant
to
Sections 6 through 8 hereof, may provide the Participant with dividends or
dividend equivalents, payable in cash, Shares, Subsidiary securities, other
securities or other property on a current or deferred basis.
SECTION
10
(a)
Amendments
to the Plan
.
The
Board may amend, suspend or terminate the Plan or any portion thereof at any
time, provided that no amendment shall be made without stockholder approval
if
such approval is necessary to comply with any tax or regulatory requirement,
including for these purposes any approval requirement that is a prerequisite
for
exemptive relief from Section 16(b) of the Exchange Act or any successor
provision thereto. Notwithstanding anything to the contrary contained herein,
the Committee may amend the Plan in such manner as may be necessary for the
Plan
to conform with local rules and regulations in any jurisdiction outside the
United States.
(b)
Amendments
to Awards
.
The
Committee may amend, modify or terminate any outstanding Award with the
Participant’s consent at any time prior to payment or exercise in any manner not
inconsistent with the terms of the Plan, including without limitation, (i)
to
change the date or dates as of which an Award becomes exercisable, or (ii)
to
cancel an Award and grant a new Award in substitution therefor under such
different terms and conditions as it determines in its sole and complete
discretion to be appropriate.
(c)
Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
.
The
Committee is hereby authorized to make adjustments in the terms and conditions
of,
and
the
criteria included in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 5(b) hereof)
affecting the Company, or the financial statements of the Company or any
Subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
(d)
Cancellation
.
Any
provision of this Plan or any Award Agreement to the contrary notwithstanding,
the Committee may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the holder of
such
canceled Award equal in value to such canceled Award. The determinations of
value under this subparagraph shall be made by the Committee in its sole
discretion.
SECTION
11
(a)
Delegation
.
Subject
to the terms of the Plan and applicable law, the Committee may delegate to
one
or more officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to, or to cancel,
modify or waive rights with respect to, or to alter, discontinue, suspend,
or
terminate Awards held by, Employees who are not officers or directors of the
Company for purposes of Section 16 of the Exchange Act, or any successor section
thereto, or who are otherwise not subject to such Section.
(b)
Award
Agreements
.
Each
Award hereunder shall be evidenced by a writing delivered to the Participant
that shall specify the terms and conditions thereof and any rules applicable
thereto, including but not limited to the effect on such Award of the death,
retirement or other termination of employment of the Participant and the effect
thereon, if any, of a change in control of the Company.
(c)
Withholding
.
(i)
A
Participant shall be required to pay to the Company, and the Company shall
have
the right to deduct from all amounts paid to a Participant (whether under the
Plan or otherwise), any taxes required by law to be paid or withheld in respect
of Awards hereunder to such Participant. The Committee may provide for
additional cash payments to holders of Awards to defray or offset any tax
arising from the grant, vesting, exercise or payment of any Award.
(ii)
At
any
time that a Participant is required to pay to the Company an amount required
to
be withheld under the applicable tax laws in connection with the issuance of
Shares under the Plan, the Participant may, if permitted by the Committee,
satisfy this obligation in whole or in part by delivering currently owned Shares
or by electing (the “Election”) to have the Company withhold from the issuance
Shares, which Shares shall have a value equal to the minimum amount required
to
be withheld. The value of the Shares delivered or withheld shall be based on
the
fair market value of the Shares on the date as of which the amount of tax to
be
withheld shall be determined in accordance with applicable tax laws (the “Tax
Date”).
(iii)
Each
Election to have Shares withheld must be made prior to the Tax Date. If a
Participant wishes to deliver Shares in payment of taxes, the Participant must
so notify the Company prior to the Tax Date.
(d)
Nontransferability
.
No
Award shall be transferable by a Participant other than by will or the laws
of
descent and distribution or, to the maximum extent permitted by Rule 16b-3,
pursuant to a qualified domestic relations order (“QDRO”), as determined by the
Committee. An Award may be exercised, during the Participant’s lifetime, only by
the Participant or the transferee under the QDRO. The designation of a
Designated Beneficiary shall not be a violation of this paragraph
11(d).
(e)
Share
Certificates
.
All
certificates for Shares or other securities delivered under the Plan pursuant
to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the
rules, regulations, and other requirements of the SEC, any stock exchange upon
which such Shares or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or legends to be
put
on any such certificates to make appropriate reference to such
restrictions.
(f)
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company from adopting or continuing
in
effect other compensation arrangements, which may, but need not, provide for
the
grant of options, stock appreciation rights and other types of Awards provided
for hereunder (subject to stockholder approval of any such arrangement if
approval is required), and such arrangements may be either generally applicable
or applicable only in specific cases.
(g)
No
Right to Employment
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ of the Company or any Subsidiary or in the employ of
any
other entity providing services to the Company. The Company or any Subsidiary
or
any such entity may at any time dismiss a Participant from employment, or
terminate any arrangement pursuant to which the Participant provides services
to
the Company, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. No Employee,
Participant or other person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Employees, Participants
or
holders or beneficiaries of Awards.
(h)
Governing
Law
.
The
validity, construction, and effect of the Plan, any rules and regulations
relating to the Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(i)
Severability
.
If any
provision of the Plan or any Award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in
the
determination of the Committee, materially altering the intent of the Plan
or
the Award, such provision shall be stricken as to such jurisdiction, Person
or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(j)
No
Trust or Fund Created
.
Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the
Company
and a Participant or any other Person. To the extent that any Person acquires
a
right to receive payments from the Company pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company.
(k)
No
Fractional Shares
.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other securities or
other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(l)
Headings
.
Headings are given to the subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material
or
relevant to the construction or interpretation of the Plan or any provision
thereof.
SECTION
12
Effective
Date of the Plan
.
The
Plan shall be effective as of the date of its approval by the holders of the
common stock of the Company.
SECTION
13
Term
of the Plan
.
No
Award shall be granted under the Plan after the fifth anniversary of the
effective date of the Plan; however, unless otherwise expressly provided in
the
Plan or in an applicable Award Agreement, any Award theretofore granted may,
and
the authority of the Committee to amend, alter, adjust, suspend, discontinue,
or
terminate any such Award or to waive any conditions or rights under any such
Award shall, extend beyond such date.
Exhibit
10.24
AMENDED
AND RESTATED
FREEPORT-McMoRan
COPPER & GOLD INC.
1999
STOCK INCENTIVE PLAN
SECTION
1
Purpose
.
The
purpose of the Freeport-McMoRan Copper & Gold Inc. 1999 Stock Incentive Plan
(the “Plan”) is to motivate officers, key employees, consultants and advisers by
giving them an opportunity to acquire a proprietary interest in the Company
and
reward them for the successful future performance of the Company.
SECTION
2
Definitions
.
As used
in the Plan, the following terms shall have the meanings set forth
below:
“Award”
shall mean any Option, Stock Appreciation Right, Limited Right, Restricted
Stock
or Other Stock-Based Award.
“Award
Agreement” shall mean any written or electronic notice of grant, agreement,
contract or other instrument or document evidencing any Award, which may, but
need not, be required to be executed, acknowledged or accepted by a
Participant.
“Board”
shall mean the Board of Directors of the Company.
“Class
B
Common Stock” shall mean the Class B Common Stock, $.10 par value per share of
the Company.
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to
time.
“Committee”
shall mean, until otherwise determined by the Board, the Corporate Personnel
Committee of the Board.
“Company”
shall mean Freeport-McMoRan Copper & Gold Inc.
“Designated
Beneficiary” shall mean the beneficiary designated by the Participant, in a
manner determined by the Committee, to receive the benefits due the Participant
under the Plan in the event of the Participant’s death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean
the
Participant’s estate.
“Eligible
Individual” shall mean (i) any person providing services as an officer of the
Company or a Subsidiary, whether or not employed by such entity, including
any
such person who is also a director of the Company, (ii) any employee of the
Company or a Subsidiary, including any director who is also an employee of
the
Company or a Subsidiary, (iii) any officer or employee of an entity with which
the Company has contracted to receive executive, management or legal services
who provides services to the Company or a Subsidiary through
such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or
to
an entity described in clause (iii) hereof who provides services to the Company
or a Subsidiary through such arrangement and (v) any person who has agreed
in
writing to become a person described in clauses (i), (ii), (iii) or (iv) within
not more than 30 days following the date of grant of such person’s first Award
under the Plan.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.
“Incentive
Stock Option” shall mean an option granted under Section 6 of the Plan that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
“Limited
Right” shall mean any right granted under Section 8 of the Plan.
Notwithstanding anything contained herein to the contrary, no Limited Rights
shall be granted after October 3, 2004.
“Nonqualified
Stock Option” shall mean an option granted under Section 6 of the Plan that is
not intended to be an Incentive Stock Option.
“Offer”
shall mean any tender offer, exchange offer or series of purchases or other
acquisitions, or any combination of those transactions, as a result of which
any
person, or any two or more persons acting as a group, and all affiliates of
such
person or persons, shall beneficially own more than 40% of all classes and
series of the Company’s stock outstanding, taken as a whole, that has voting
rights with respect to the election of directors of the Company (not including
any series of preferred stock of the Company that has the right to elect
directors only upon the failure of the Company to pay dividends).
“Offer
Price” shall mean the highest price per Share paid in any Offer that is in
effect at any time during the period beginning on the ninetieth day prior to
the
date on which a Limited Right is exercised and ending on and including the
date
of exercise of such Limited Right. Any securities or property that comprise
all
or a portion of the consideration paid for Shares in the Offer shall be valued
in determining the Offer Price at the higher of (i) the valuation placed on
such
securities or property by the person or persons making such Offer, or (ii)
the
valuation, if any, placed on such securities or property by the Committee or
the
Board.
“Option”
shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
“Other
Stock-Based Award” shall mean any right or award granted under Section 10
of the Plan.
“Participant”
shall mean any Eligible Individual granted an Award under the Plan.
“Person”
shall mean any individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, government or political subdivision
thereof or other entity.
“Restricted
Stock” shall mean any restricted stock granted under Section 9 of the
Plan.
“SAR”
shall mean any Stock Appreciation Right.
“SEC”
shall mean the Securities and Exchange Commission, including the staff thereof,
or any successor thereto.
“Section
162(m)” shall mean Section 162(m) of the Code and all regulations promulgated
thereunder as in effect from time to time.
“Shares”
shall mean the shares of Class B Common Stock of the Company and such other
securities of the Company or a Subsidiary as the Committee may from time to
time
designate.
“Stock
Appreciation Right” shall mean any right granted under Section 7 of the
Plan.
“Subsidiary”
shall mean (i) any corporation or other entity in which the Company possesses
directly or indirectly equity interests representing at least 50% of the total
ordinary voting power or at least 50% of the total value of all classes of
equity interests of such corporation or other entity and (ii) any other entity
in which the Company has a direct or indirect economic interest that is
designated as a Subsidiary by the Committee.
SECTION
3
(a)
Administration
.
The
Plan shall be administered by the Committee. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power
and
authority to: (i) designate Participants; (ii) determine the type or types
of
Awards to be granted to an Eligible Individual; (iii) determine the number
of
Shares to be covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, whole
Shares, other whole securities, other Awards, other property or other cash
amounts payable by the Company upon the exercise of that or other Awards, or
canceled, forfeited or suspended and the method or methods by which Awards
may
be settled, exercised, canceled, forfeited or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable by the Company with
respect to an Award shall be deferred either automatically or at the election
of
the holder thereof or of the Committee; (vii) interpret and administer the
Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (ix) make any other determination and take any other action that
the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the
Plan or any Award shall be within the sole discretion of the Committee, may
be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any Eligible
Individual.
(b)
Delegation
.
Subject
to the terms of the Plan and applicable law, the Committee may delegate to
one
or more officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to, or to cancel,
modify or waive rights with respect to, or to alter, discontinue, suspend,
or
terminate Awards held by, Eligible Individuals who are not officers or directors
of the Company for purposes of Section 16 of the Exchange Act, or any successor
section thereto, or who are otherwise not subject to such Section.
SECTION
4
Eligibility
.
Any
Eligible Individual shall be eligible to be granted an Award.
SECTION
5
(a)
Shares
Available for Awards
.
Subject
to adjustment as provided in Section 5(b):
(i)
Calculation
of Number of Shares Available
.
(A)
Subject
to the other provisions of this Section 5(a), the number of Shares with respect
to which Awards payable in Shares may be granted under the Plan shall be
8,000,000 shares of Class B Common Stock. Awards that by their terms may be
settled only in cash shall not be counted against the maximum number of Shares
provided herein.
(B)
Grants
of
Stock Appreciation Rights, Limited Rights and Other Stock-Based Awards not
granted in tandem with Options and payable only in cash may relate to no more
than 8,000,000 Shares.
(C)
The
number of Shares that may be issued pursuant to Incentive Stock Options may
not
exceed 8,000,000 Shares.
(D)
Subject
to the other provisions of this Section 5(a), the maximum number of Shares
with
respect to which Awards in the form of Restricted Stock or Other Stock-Based
Awards payable in Shares for which a per share purchase price that is less
than
100% of the fair market value of the securities to which the Award relates
shall
be 2,500,000 Shares.
(E)
To
the
extent any Shares covered by an Award are not issued because the Award is
forfeited or canceled or the Award is settled in cash, such Shares shall again
be available for grant pursuant to new Awards under the Plan.
(F)
In
the
event that Shares are issued as Restricted Stock or Other Stock-Based Awards
under the Plan and thereafter are forfeited or reacquired by the Company
pursuant to rights reserved upon issuance thereof, such Shares shall again
be
available for grant pursuant to new Awards under the Plan.
(G)
If
the
exercise price of any Option is satisfied by tendering Shares to the Company,
only the number of Shares issued net of the Shares tendered shall be deemed
issued for purposes of determining the maximum number of Shares available for
issuance under
Section
5(a)(i)(A). However, all of the Shares issued upon exercise shall be deemed
issued for purposes of determining the maximum number of Shares that may be
issued pursuant to Incentive Stock Options.
(ii)
Shares
Deliverable Under Awards
.
Any
Shares delivered pursuant to an Award may consist of authorized and unissued
Shares or of treasury Shares, including Shares held by the Company or a
Subsidiary and Shares acquired in the open market or otherwise obtained by
the
Company or a Subsidiary. The issuance of Shares may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
(iii)
Individual
Limit
.
Any
provision of the Plan to the contrary notwithstanding, no individual may receive
in any calendar year Awards under the Plan, whether payable in cash or Shares,
that relate to more than 2,500,000 Shares.
(iv)
Use
of
Shares
.
Subject
to the terms of the Plan and the overall limitation on the number of Shares
that
may be delivered under the Plan, the Committee may use available Shares as
the
form of payment for compensation, grants or rights earned or due under any
other
compensation plans or arrangements of the Company or a Subsidiary, including,
but not limited to, the Company’s Annual Incentive Plan and the plans or
arrangements of the Company or a Subsidiary assumed in business
combinations.
(b)
Adjustments
.
In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, Subsidiary securities, other securities
or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that
an
adjustment is determined by the Committee to be appropriate to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award and, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award and, if deemed appropriate, adjust outstanding
Awards to provide the rights contemplated by Section 10(c) hereof;
provided
,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b)(1) of the Code or any successor provision thereto and,
with respect to all Awards under the Plan, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
requirements for full deductibility under Section 162(m); and
provided
further
,
that
the number of Shares subject to any Award denominated in Shares shall always
be
a whole number.
SECTION
6
(a)
Stock
Options
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Options shall be
granted, the number of Shares to be covered by each Option, the option price
therefor and the conditions and limitations applicable to the exercise of the
Option. The Committee shall have the authority to grant Incentive Stock Options,
Nonqualified Stock Options or both. In the case of Incentive Stock Options,
the
terms and conditions of such grants shall be subject to and comply with such
rules as may be required by Section 422 of the Code, as from time to time
amended, and any implementing regulations. Except in the case of an Option
granted in assumption of or substitution for an outstanding award of a company
acquired by the Company or with which the Company combines, the exercise price
of any Option granted under this Plan shall not be less than 100% of the fair
market value of the underlying Shares on the date of grant.
(b)
Exercise
.
Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable Award Agreement or thereafter, provided, however, that in no event
may any Option granted hereunder be exercisable after the expiration of 10
years
after the date of such grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any condition
relating to the application of federal or state securities laws, as it may
deem
necessary or advisable.
(c)
Payment
.
No
Shares shall be delivered pursuant to any exercise of an Option until payment
in
full of the option price therefor is received by the Company. Such payment
may
be made in cash, or its equivalent, or, if and to the extent permitted by the
Committee, by applying cash amounts payable by the Company upon the exercise
of
such Option or other Awards by the holder thereof or by tendering, by either
actual delivery of Shares or by attestation, whole Shares owned by such holder
(which are not the subject of any pledge or other security interest), or by
a
combination of the foregoing, provided that the combined value of all cash,
cash
equivalents, cash amounts so payable by the Company upon exercises of Awards
and
the fair market value of any such whole Shares so tendered to the Company,
valued (in accordance with procedures established by the Committee) as of the
effective date of such exercise, is at least equal to such option
price.
SECTION
7
(a)
Stock
Appreciation Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Stock Appreciation
Rights shall be granted, the number of Shares to be covered by each Award of
Stock Appreciation Rights, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. Stock Appreciation Rights may
be
granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to any other Award. Stock Appreciation Rights granted
in tandem with or in addition to an Option or other Award may be granted either
at the same time as the Option or other Award or at a later time. Stock
Appreciation Rights shall not be exercisable after the expiration of 10 years
after the date of grant. Except in the case of a Stock Appreciation Right
granted in assumption of or substitution for an outstanding award of a company
acquired by the Company or with which the Company
combines,
the grant price of any Stock Appreciation Right granted under this Plan shall
not be less than 100% of the fair market value of the Shares covered by such
Stock Appreciation Right on the date of grant or, in the case of a Stock
Appreciation Right granted in tandem with a then outstanding Option or other
Award, on the date of grant of such related Option or Award.
(b)
A
Stock
Appreciation Right shall entitle the holder thereof to receive upon exercise,
for each Share to which the SAR relates, an amount equal to the excess, if
any,
of the fair market value of a Share on the date of exercise of the Stock
Appreciation Right over the grant price. Any Stock Appreciation Right shall
be
settled in cash, unless the Committee shall determine at the time of grant
of a
Stock Appreciation Right that it shall or may be settled in cash, Shares or
a
combination of cash and Shares.
SECTION
8
(a)
Limited
Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Limited Rights shall
be
granted, the number of Shares to be covered by each Award of Limited Rights,
the
grant price thereof and the conditions and limitations applicable to the
exercise thereof. Limited Rights may be granted in tandem with another Award,
in
addition to another Award, or freestanding and unrelated to any Award. Limited
Rights granted in tandem with or in addition to an Award may be granted either
at the same time as the Award or at a later time. Limited Rights shall not
be
exercisable after the expiration of 10 years after the date of grant and shall
only be exercisable during a period determined at the time of grant by the
Committee beginning not earlier than one day and ending not more than ninety
days after the expiration date of an Offer. Except in the case of a Limited
Right granted in assumption of or substitution for an outstanding award of
a
company acquired by the Company or with which the Company combines, the grant
price of any Limited Right granted under this Plan shall not be less than 100%
of the fair market value of the Shares covered by such Limited Right on the
date
of grant or, in the case of a Limited Right granted in tandem with a then
outstanding Option or other Award, on the date of grant of such related Option
or Award.
(b)
A
Limited
Right shall entitle the holder thereof to receive upon exercise, for each Share
to which the Limited Right relates, an amount equal to the excess, if any,
of
the Offer Price on the date of exercise of the Limited Right over the grant
price. Any Limited Right shall be settled in cash, unless the Committee shall
determine at the time of grant of a Limited Right that it shall or may be
settled in cash, Shares or a combination of cash and Shares.
SECTION
9
(a)
Grant
of Restricted Stock
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Restricted Stock shall
be granted, the number of Shares to be covered by each Award of Restricted
Stock
and the terms, conditions, and limitations applicable thereto. An Award of
Restricted Stock may be subject to the attainment of specified performance
goals
or targets, restrictions on transfer, forfeitability provisions and such other
terms and conditions as the Committee may determine, subject to the provisions
of the Plan. An award of Restricted Stock may be made in lieu of the payment
of
cash compensation otherwise due to an Eligible
Individual.
To the extent that Restricted Stock is intended to qualify as “performance-
based compensation” under Section 162(m), it must meet the additional
requirements imposed thereby.
(b)
The
Restricted Period
.
At the
time that an Award of Restricted Stock is made, the Committee shall establish
a
period of time during which the transfer of the Shares of Restricted Stock
shall
be restricted (the “Restricted Period”). Each Award of Restricted Stock may have
a different Restricted Period. A Restricted Period of at least three years
is
required, except that if vesting of the Shares is subject to the attainment
of
specified performance goals, a Restricted Period of one year or more is
permitted. The expiration of the Restricted Period shall also occur as provided
under Section 12(a) hereof.
(c)
Escrow
.
The
Participant receiving Restricted Stock shall enter into an Award Agreement
with
the Company setting forth the conditions of the grant. Certificates representing
Shares of Restricted Stock shall be registered in the name of the Participant
and deposited with the Company, together with a stock power endorsed in blank
by
the Participant. Each such certificate shall bear a legend in substantially
the
following form:
The
transferability of this certificate and the shares of Common Stock represented
by it are subject to the terms and conditions (including conditions of
forfeiture) contained in the Freeport-McMoRan Copper & Gold Inc. 1999 Stock
Incentive Plan (the “Plan”) and a notice of grant issued thereunder to the
registered owner by Freeport-McMoRan Copper & Gold Inc. Copies of the Plan
and the notice of grant are on file at the principal office of Freeport-McMoRan
Copper & Gold Inc.
(d)
Dividends
on Restricted Stock
.
Any and
all cash and stock dividends paid with respect to the Shares of Restricted
Stock
shall be subject to any restrictions on transfer, forfeitability provisions
or
reinvestment requirements as the Committee may, in its discretion, prescribe
in
the Award Agreement.
(e)
Forfeiture
.
In the
event of the forfeiture of any Shares of Restricted Stock under the terms
provided in the Award Agreement (including any additional Shares of Restricted
Stock that may result from the reinvestment of cash and stock dividends, if
so
provided in the Award Agreement), such forfeited shares shall be surrendered
and
the certificates canceled. The Participants shall have the same rights and
privileges, and be subject to the same forfeiture provisions, with respect
to
any additional Shares received pursuant to Section 5(b) or Section 11(b) due
to
a recapitalization, merger or other change in capitalization.
(f)
Expiration
of Restricted Period
.
Upon
the expiration or termination of the Restricted Period and the satisfaction
of
any other conditions prescribed by the Committee or at such earlier time as
provided for in Section 9(b) and in the Award Agreement or an amendment thereto,
the restrictions applicable to the Restricted Stock shall lapse and a stock
certificate for the number of Shares of Restricted Stock with respect to which
the restrictions have lapsed shall be delivered, free of all such restrictions
and legends, except any that may be imposed by law, to the Participant or the
Participant’s estate, as the case may be.
(g)
Rights
as a Shareholder
.
Subject
to the terms and conditions of the Plan and subject to any restrictions on
the
receipt of dividends that may be imposed in the Award Agreement, each
Participant receiving Restricted Stock shall have all the rights of a
shareholder with respect to Shares of stock during any period in which such
Shares are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such Shares.
(h)
Performance-Based
Restricted Stock
.
The
Committee shall determine at the time of grant if a grant of Restricted Stock
is
intended to qualify as “performance-based compensation” as that term is used in
Section 162(m). Any such grant shall be conditioned on the achievement of one
or
more performance measures. The performance measures pursuant to which the
Restricted Stock shall vest shall be any or a combination of the following:
earnings per share, return on assets, an economic value added measure,
shareholder return, earnings, return on equity, return on investment, cash
provided by operating activities, increase in cash flow, or increase in
production of the Company, a division of the Company or a Subsidiary. For any
performance period, such performance objectives may be measured on an absolute
basis or relative to a group of peer companies selected by the Committee,
relative to internal goals or relative to levels attained in prior years. For
grants of Restricted Stock intended to qualify as “performance-based
compensation,” the grants of Restricted Stock and the establishment of
performance measures shall be made during the period required under Section
162(m).
SECTION
10
(a)
Other
Stock-Based Awards
.
The
Committee is hereby authorized to grant to Eligible Individuals an “Other
Stock-Based Award,” which shall consist of an Award, the value of which is based
in whole or in part on the value of Shares, that is not an instrument or Award
specified in Sections 6 through 9 of this Plan. Other Stock-Based Awards may
be
awards of Shares or may be denominated or payable in, valued in whole or in
part
by reference to, or otherwise based on or related to, Shares (including, without
limitation, restricted stock units or securities convertible or exchangeable
into or exercisable for Shares), as deemed by the Committee consistent with
the
purposes of the Plan. The Committee shall determine the terms and conditions
of
any such Other Stock-Based Award and may provide that such awards would be
payable in whole or in part in cash. An Other Stock-Based Award may be subject
to the attainment of such specified performance goals or targets as the
Committee may determine, subject to the provisions of the Plan. To the extent
that an Other Stock-Based Award is intended to qualify as “performance-based
compensation” under Section 162(m), it must meet the additional requirements
imposed thereby. Except in the case of an Other Stock-Based Award granted in
assumption of or in substitution for an outstanding award of a company acquired
by the Company or with which the Company combines, the price at which securities
may be purchased pursuant to any Other Stock-Based Award granted under this
Plan, or the provision, if any, of any such Award that is analogous to the
purchase or exercise price, shall not be less than 100% of the fair market
value
of the securities to which such Award relates on the date of grant. An
Other-Stock Based Award, including an outright grant of Shares, may be made
in
lieu of the payment of cash compensation otherwise due to an Eligible
Individual.
(b)
Performance-Based
Other Stock-Based Awards
.
The
Committee shall determine at the time of grant if the grant of an Other
Stock-Based Award is intended to qualify as “performance-based compensation” as
that term is used in Section 162(m). Any such grant
shall
be
conditioned on the achievement of one or more performance measures. The
performance measures pursuant to which the Other Stock-Based Award shall vest
shall be any or a combination of the following: earnings per share, return
on
assets, an economic value added measure, shareholder return, earnings, return
on
equity, return on investment, cash provided by operating activities, increase
in
cash flow, or increase in production of the Company, a division of the Company
or a Subsidiary. For any performance period, such performance objectives may
be
measured on an absolute basis or relative to a group of peer companies selected
by the Committee, relative to internal goals or relative to levels attained
in
prior years. For grants of Other Stock-Based Awards intended to qualify as
“performance-based compensation,” the grants of Other Stock-Based Awards and the
establishment of performance measures shall be made during the period required
under Section 162(m).
(c)
Dividend
Equivalents
.
In the
sole and complete discretion of the Committee, an Award, whether made as an
Other Stock-Based Award under this Section 10 or as an Award granted pursuant
to
Sections 6 through 9 hereof, may provide the holder thereof with dividends
or
dividend equivalents, payable in cash, Shares, Subsidiary securities, other
securities or other property on a current or deferred basis.
SECTION
11
(a)
Amendments
to the Plan
.
The
Board may amend, suspend or terminate the Plan or any portion thereof at any
time, provided that no amendment shall be made without stockholder approval
if
such approval is necessary to comply with any tax or regulatory requirement,
including for these purposes any approval necessary to qualify Awards as
“performance based” compensation under Section 162(m) or any successor provision
if such qualification is deemed necessary or advisable by the Committee.
Notwithstanding anything to the contrary contained herein, the Committee may
amend the Plan in such manner as may be necessary for the Plan to conform with
local rules and regulations in any jurisdiction outside the United
States.
(b)
Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
.
The
Committee is hereby authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 5(b) hereof) affecting the Company, or the financial statements of
the
Company or any Subsidiary, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
(c)
Cancellation
.
Any
provision of this Plan or any Award Agreement to the contrary notwithstanding,
the Committee may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the holder of
such
canceled Award equal in value to such canceled Award. Notwithstanding the
foregoing, no Options granted under the Plan shall be repriced without the
approval of the stockholders of the Company. The determinations of value under
this subparagraph shall be made by the Committee in its sole
discretion.
SECTION
12
(a)
Award
Agreements
.
Each
Award hereunder shall be evidenced by an agreement or notice delivered to the
Participant (by paper copy or electronically) that shall specify the terms
and
conditions thereof and any rules applicable thereto, including but not limited
to the effect on such Award of the death, retirement or other termination of
employment or cessation of consulting or advisory services of the Participant
and the effect thereon, if any, of a change in control of the
Company.
(b)
Withholding
.
(i)
A
Participant shall be required to pay to the Company, and the Company shall
have
the right to deduct from all amounts paid to a Participant (whether under the
Plan or otherwise), any taxes required by law to be paid or withheld in respect
of Awards hereunder to such Participant. The Committee may provide for
additional cash payments to holders of Awards to defray or offset any tax
arising from the grant, vesting, exercise or payment of any Award.
(ii)
At
any time that a Participant is required to pay to the Company an amount required
to be withheld under the applicable tax laws in connection with the issuance
of
Shares under the Plan, the Participant may, if permitted by the Committee,
satisfy this obligation in whole or in part by delivering currently owned Shares
or by electing (the “Election”) to have the Company withhold from the issuance
Shares, which Shares shall have a value equal to the minimum amount required
to
be withheld. The value of the Shares delivered or withheld shall be based on
the
fair market value of the Shares on the date as of which the amount of tax to
be
withheld shall be determined in accordance with applicable tax laws (the “Tax
Date”).
(iii)
Each Election to have Shares withheld must be made prior to the Tax Date. If
a
Participant wishes to deliver Shares in payment of taxes, the Participant must
so notify the Company prior to the Tax Date.
(c)
Transferability
.
No
Awards granted hereunder may be transferred, pledged, assigned or otherwise
encumbered by a Participant except: (i) by will; (ii) by the laws of descent
and
distribution; (iii) pursuant to a domestic relations order, as defined in the
Code, if permitted by the Committee and so provided in the Award Agreement
or an
amendment thereto; or (iv) if permitted by the Committee and so provided in
the
Award Agreement or an amendment thereto, Options and Limited Rights granted
in
tandem therewith may be transferred or assigned (a) to Immediate Family Members,
(b) to a partnership in which Immediate Family Members, or entities in which
Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the partners, (c) to a limited liability company in which
Immediate Family Members, or entities in which Immediate Family Members are
the
owners, members or beneficiaries, as appropriate, are the members, or (d) to
a
trust for the benefit of Immediate Family Members; provided, however, that
no
more than a
de
minimus
beneficial interest in a partnership, limited liability company or trust
described in (b), (c) or (d) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by
Immediate Family Members. “Immediate Family Members” shall be defined as the
spouse and natural or adopted children or grandchildren of the Participant
and
their spouses. To the extent that an Incentive Stock Option is permitted to
be
transferred during the lifetime of the Participant, it shall be treated
thereafter as a Nonqualified Stock Option. Any attempted
assignment,
transfer, pledge, hypothecation or other disposition of Awards, or levy of
attachment or similar process upon Awards not specifically permitted herein,
shall be null and void and without effect. The designation of a Designated
Beneficiary shall not be a violation of this Section 12(c).
(d)
Share
Certificates
.
All
certificates for Shares or other securities delivered under the Plan pursuant
to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the
rules, regulations, and other requirements of the SEC, any stock exchange upon
which such Shares or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or legends to be
put
on any such certificates to make appropriate reference to such
restrictions.
(e)
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company from adopting or continuing
in
effect other compensation arrangements, which may, but need not, provide for
the
grant of options, stock appreciation rights, restricted stock, and other types
of Awards provided for hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.
(f)
No
Right to Employment
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ of or as a consultant or adviser to the Company or any
Subsidiary or in the employ of or as a consultant or adviser to any other entity
providing services to the Company. The Company or any Subsidiary or any such
entity may at any time dismiss a Participant from employment, or terminate
any
arrangement pursuant to which the Participant provides services to the Company
or a Subsidiary, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. No Eligible
Individual or other person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Eligible Individuals,
Participants or holders or beneficiaries of Awards.
(g)
Governing
Law
.
The
validity, construction, and effect of the Plan, any rules and regulations
relating to the Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(h)
Severability
.
If any
provision of the Plan or any Award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in
the
determination of the Committee, materially altering the intent of the Plan
or
the Award, such provision shall be stricken as to such jurisdiction, Person
or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(i)
No
Trust or Fund Created
.
Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company and
a
Participant or any other Person. To the extent that any Person acquires a right
to
receive
payments from the Company pursuant to an Award, such right shall be no greater
than the right of any unsecured general creditor of the Company.
(j)
No
Fractional Shares
.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other securities or
other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(k)
Compliance
with Law
.
The
Company intends that Awards granted under the Plan, or any deferrals thereof,
will comply with the requirements of Section 409A of the Code and all
regulations and guidance promulgated thereunder, to the extent
applicable.
(l)
Headings
.
Headings are given to the subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material
or
relevant to the construction or interpretation of the Plan or any provision
thereof.
SECTION
13
Term
of the Plan
.
Subject
to Section 11(a), no Awards may be granted under the Plan later than May 6,
2009, which is ten years after the date the Plan was approved by the Company’s
stockholders; provided, however, that Awards granted prior to such date shall
remain in effect until all such Awards have either been satisfied, expired
or
canceled under the terms of the Plan, and any restrictions imposed on Shares
in
connection with their issuance under the Plan have lapsed.
Exhibit
10.30
FREEPORT-McMoRan
COPPER & GOLD INC.
2003
STOCK INCENTIVE PLAN
SECTION
1
Purpose
.
The
purpose of the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan
(the “Plan”) is to motivate and reward key employees, consultants and advisers
by giving them a proprietary interest in the Company’s success.
SECTION
2
Definitions
.
As used
in the Plan, the following terms shall have the meanings set forth
below:
“Award”
shall mean any Option, Stock Appreciation Right, Limited Right, Restricted
Stock
or Other Stock-Based Award.
“Award
Agreement” shall mean any written or electronic notice of grant, agreement,
contract or other instrument or document evidencing any Award, which may, but
need not, be required to be executed, acknowledged or accepted by a
Participant.
“Board”
shall mean the Board of Directors of the Company.
“Class
B
Common Stock” shall mean the Class B Common Stock, $.10 par value per share of
the Company.
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to
time.
“Committee”
shall mean, until otherwise determined by the Board, the Corporate Personnel
Committee of the Board.
“Company”
shall mean Freeport-McMoRan Copper & Gold Inc.
“Designated
Beneficiary” shall mean the beneficiary designated by the Participant, in a
manner determined by the Committee, to receive the benefits due the Participant
under the Plan in the event of the Participant’s death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean
the
Participant’s estate.
“Eligible
Individual” shall mean (i) any person providing services as an officer of the
Company or a Subsidiary, whether or not employed by such entity, including
any
such person who is also a director of the Company, (ii) any employee of the
Company or a Subsidiary, including any director who is also an employee of
the
Company or a Subsidiary, (iii) any officer or employee of an entity with which
the Company has contracted to receive executive, management or legal services
who provides services to the Company or a Subsidiary through
such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or
to
an entity described in clause (iii) hereof who provides services to the Company
or a Subsidiary through such arrangement and (v) any person who has agreed
in
writing to become a person described in clauses (i), (ii), (iii) or (iv) within
not more than 30 days following the date of grant of such person’s first Award
under the Plan.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.
“Incentive
Stock Option” shall mean an option granted under Section 6 of the Plan that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
“Limited
Right” shall mean any right granted under Section 8 of the Plan.
Notwithstanding anything contained herein to the contrary, no Limited Rights
shall be granted after October 3, 2004.
“Nonqualified
Stock Option” shall mean an option granted under Section 6 of the Plan that is
not intended to be an Incentive Stock Option.
“Offer”
shall mean any tender offer, exchange offer or series of purchases or other
acquisitions, or any combination of those transactions, as a result of which
any
person, or any two or more persons acting as a group, and all affiliates of
such
person or persons, shall beneficially own more than 40% of all classes and
series of the Company’s stock outstanding, taken as a whole, that has voting
rights with respect to the election of directors of the Company (not including
any series of preferred stock of the Company that has the right to elect
directors only upon the failure of the Company to pay dividends).
“Offer
Price” shall mean the highest price per Share paid in any Offer that is in
effect at any time during the period beginning on the ninetieth day prior to
the
date on which a Limited Right is exercised and ending on and including the
date
of exercise of such Limited Right. Any securities or property that comprise
all
or a portion of the consideration paid for Shares in the Offer shall be valued
in determining the Offer Price at the higher of (i) the valuation placed on
such
securities or property by the person or persons making such Offer, or (ii)
the
valuation, if any, placed on such securities or property by the Committee or
the
Board.
“Option”
shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
“Other
Stock-Based Award” shall mean any right or award granted under Section 10
of the Plan.
“Participant”
shall mean any Eligible Individual granted an Award under the Plan.
“Person”
shall mean any individual, corporation, partnership, limited liability company,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
“Restricted
Stock” shall mean any restricted stock granted under Section 9 of the
Plan.
“Section
162(m)” shall mean Section 162(m) of the Code and all regulations promulgated
thereunder as in effect from time to time.
“Shares”
shall mean the shares of Class B Common Stock of the Company and such other
securities of the Company or a Subsidiary as the Committee may from time to
time
designate.
“Stock
Appreciation Right” shall mean any right granted under Section 7 of the
Plan.
“Subsidiary”
shall mean (i) any corporation or other entity in which the Company possesses
directly or indirectly equity interests representing at least 50% of the total
ordinary voting power or at least 50% of the total value of all classes of
equity interests of such corporation or other entity and (ii) any other entity
in which the Company has a direct or indirect economic interest that is
designated as a Subsidiary by the Committee.
SECTION
3
(a)
Administration
.
The
Plan shall be administered by the Committee. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power
and
authority to: (i) designate Participants; (ii) determine the type or types
of
Awards to be granted to an Eligible Individual; (iii) determine the number
of
Shares to be covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, whole
Shares, other whole securities, other Awards, other property or other cash
amounts payable by the Company upon the exercise of that or other Awards, or
canceled, forfeited or suspended and the method or methods by which Awards
may
be settled, exercised, canceled, forfeited or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable by the Company with
respect to an Award shall be deferred either automatically or at the election
of
the holder thereof or of the Committee; (vii) interpret and administer the
Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (ix) make any other determination and take any other action that
the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the
Plan or any Award shall be within the sole discretion of the Committee, may
be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any Eligible
Individual.
(b)
Delegation
.
Subject
to the terms of the Plan and applicable law, the Committee may delegate to
one
or more officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant and set the terms of,
to
cancel, modify or waive rights with respect to, or to alter, discontinue,
suspend, or terminate Awards held by Eligible Individuals who are not officers
or directors of the Company for purposes of Section 16 of the Exchange Act,
or
any successor section thereto, or who are otherwise not subject to such Section;
provided, however, that the per share exercise price of any Option
granted
under this Section 3(b) shall be equal to the fair market value of the
underlying Shares on the date of grant.
SECTION
4
Eligibility
.
Any
Eligible Individual shall be eligible to be granted an Award.
SECTION
5
(a)
Shares
Available for Awards
.
Subject
to adjustment as provided in Section 5(b):
(i)
Calculation
of Number of Shares Available
.
(A)
Subject
to the other provisions of this Section 5(a), the number of Shares with respect
to which Awards payable in Shares may be granted under the Plan shall be
8,000,000 shares of Class B Common Stock. Awards that by their terms may be
settled only in cash shall not be counted against the maximum number of Shares
provided herein.
(B)
The
number of Shares that may be issued pursuant to Incentive Stock Options may
not
exceed 8,000,000 Shares.
(C)
Subject
to the other provisions of this Section 5(a):
(1)
the
maximum number of Shares with respect to which Awards in the form of Restricted
Stock or Other Stock-Based Awards payable in Shares for which a per share
purchase price that is less than 100% of the fair market value of the securities
to which the Award relates shall be 2,000,000 Shares; and
(2)
no
more
than 400,000 Shares may be issued pursuant to Awards in the form of Other
Stock-Based Awards payable in Shares for which the vesting period is less than
three years (with incremental vesting permitted), or one year (with incremental
vesting permitted) if the grant or vesting is subject to the attainment of
specified performance goals. If (x) an Other Stock-Based Award is granted with
a
minimum vesting period of at least three years or a minimum vesting period
of at
least one year, subject to the attainment of specific performance goals, and
(y)
the vesting of such Award is accelerated in accordance with Section 12(a) hereof
as a result of the Participant’s death, retirement or other termination of
employment or cessation of consulting or advisory services to the Company,
or a
change in control of the Company, such Shares shall not count against the
400,000 limitation described herein.
(D)
To
the
extent any Shares covered by an Award are not issued because the Award is
forfeited or canceled or the Award is settled in cash, such Shares shall again
be available for grant pursuant to new Awards under the Plan.
(E)
In
the
event that Shares are issued as Restricted Stock or Other Stock-Based Awards
under the Plan and thereafter are forfeited or reacquired by the Company
pursuant to rights reserved upon issuance thereof, such Shares shall again
be
available for grant pursuant to new Awards under the Plan.
(F)
If
the
exercise price of any Option is satisfied by tendering Shares to the Company,
only the number of Shares issued net of the Shares tendered shall be deemed
issued for purposes of determining the maximum number of Shares available for
issuance under Section 5(a)(i)(A). However, all of the Shares issued upon
exercise shall be deemed issued for purposes of determining the maximum number
of Shares that may be issued pursuant to Incentive Stock Options.
(ii)
Shares
Deliverable Under Awards
.
Any
Shares delivered pursuant to an Award may consist of authorized and unissued
Shares or of treasury Shares, including Shares held by the Company or a
Subsidiary and Shares acquired in the open market or otherwise obtained by
the
Company or a Subsidiary. The issuance of Shares may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
(iii)
Individual
Limit
.
Any
provision of the Plan to the contrary notwithstanding, no individual may receive
in any year Awards under the Plan, whether payable in cash or Shares, that
relate to more than 2,500,000 Shares.
(iv)
Use
of
Shares
.
Subject
to the terms of the Plan and the overall limitation on the number of Shares
that
may be delivered under the Plan, the Committee may use available Shares as
the
form of payment for compensation, grants or rights earned or due under any
other
compensation plans or arrangements of the Company or a Subsidiary, including,
but not limited to, the Company’s Annual Incentive Plan and the plans or
arrangements of the Company or a Subsidiary assumed in business
combinations.
(b)
Adjustments
.
In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, Subsidiary securities, other securities
or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that
an
adjustment is determined by the Committee to be appropriate to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award and, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award and, if deemed appropriate, adjust outstanding
Awards to provide the rights contemplated by Section 11(b) hereof;
provided
,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b)(1) of the Code or any successor provision thereto and,
with respect to all Awards under the Plan, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
requirements for full deductibility under Section 162(m); and
provided
further
that the
number of Shares subject to any Award denominated in Shares shall always be
a
whole number.
SECTION
6
(a)
Stock
Options
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Options shall be
granted, the number of Shares to be covered by each Option, the option price
thereof and the conditions and limitations applicable to the exercise of the
Option and the other terms thereof. The Committee shall have the authority
to
grant Incentive Stock Options, Nonqualified Stock Options or both. In the case
of Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be required by Section 422 of
the
Code, as from time to time amended, and any implementing regulations. Except
in
the case of an Option granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the Company
combines, the exercise price of any Option granted under this Plan shall not
be
less than 100% of the fair market value of the underlying Shares on the date
of
grant.
(b)
Exercise
.
Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable Award Agreement or thereafter, provided, however, that in no event
may any Option granted hereunder be exercisable after the expiration of 10
years
after the date of such grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any condition
relating to the application of Federal or state securities laws, as it may
deem
necessary or advisable. An option may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of Shares to be
purchased. The exercise notice shall be accompanied by the full purchase price
for the Shares.
(c)
Payment
.
The
Option price shall be payable in United States dollars and may be paid by (i)
cash or cash equivalent; (ii) delivery of shares of Class B Common Stock, which
shares shall be valued for this purpose at the fair market value (valued in
accordance with procedures established by the Committee) as of the effective
date of such exercise and, unless otherwise determined by the Committee, shall
have been held by the optionee for at least six months; or (iii) in such other
manner as may be authorized from time to time by the Committee. Prior to the
issuance of Shares upon the exercise of an Option, a Participant shall have
no
rights as a shareholder.
SECTION
7
(a)
Stock
Appreciation Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Stock Appreciation
Rights shall be granted, the number of Shares to be covered by each Award of
Stock Appreciation Rights, the grant price thereof and the conditions and
limitations applicable to the exercise of the Stock Appreciation Right and
the
other terms thereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated
to
any other Award. Stock Appreciation Rights granted in tandem with or in addition
to an Option or other Award may be granted either at the same time as the Option
or other Award or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of 10 years after the date of grant. Except
in
the case of a Stock Appreciation Right granted in assumption of or substitution
for an outstanding award of a
company
acquired by the Company or with which the Company combines, the grant price
of
any Stock Appreciation Right granted under this Plan shall not be less than
100%
of the fair market value of the Shares covered by such Stock Appreciation Right
on the date of grant or, in the case of a Stock Appreciation Right granted
in
tandem with a then outstanding Option or other Award, on the date of grant
of
such related Option or Award.
(b)
A
Stock
Appreciation Right shall entitle the holder thereof to receive upon exercise,
for each Share to which the Stock Appreciation Right relates, an amount equal
to
the excess, if any, of the fair market value of a Share on the date of exercise
of the Stock Appreciation Right over the grant price. Any Stock Appreciation
Right shall be settled in cash, unless the Committee shall determine at the
time
of grant of a Stock Appreciation Right that it shall or may be settled in cash,
Shares or a combination of cash and Shares.
SECTION
8
(a)
Limited
Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Limited Rights shall
be
granted, the number of Shares to be covered by each Award of Limited Rights,
the
grant price thereof and the conditions and limitations applicable to the
exercise of the Limited Rights and the other terms thereof. Limited Rights
may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to any Award. Limited Rights granted in tandem with
or in addition to an Award may be granted either at the same time as the Award
or at a later time. Limited Rights shall not be exercisable after the expiration
of 10 years after the date of grant and shall only be exercisable during a
period determined at the time of grant by the Committee beginning not earlier
than one day and ending not more than ninety days after the expiration date
of
an Offer. Except in the case of a Limited Right granted in assumption of or
substitution for an outstanding award of a company acquired by the Company
or
with which the Company combines, the grant price of any Limited Right granted
under this Plan shall not be less than 100% of the fair market value of the
Shares covered by such Limited Right on the date of grant or, in the case of
a
Limited Right granted in tandem with a then outstanding Option or other Award,
on the date of grant of such related Option or Award.
(b)
A
Limited
Right shall entitle the holder thereof to receive upon exercise, for each Share
to which the Limited Right relates, an amount equal to the excess, if any,
of
the Offer Price on the date of exercise of the Limited Right over the grant
price. Any Limited Right shall be settled in cash, unless the Committee shall
determine at the time of grant of a Limited Right that it shall or may be
settled in cash, Shares or a combination of cash and Shares.
SECTION
9
(a)
Grant
of Restricted Stock
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Restricted Stock shall
be granted, the number of Shares to be covered by each Award of Restricted
Stock
and the terms, conditions, and limitations applicable thereto. The Committee
shall also have authority to grant restricted stock units. Restricted stock
units shall be subject to the requirements applicable to Other Stock-Based
Awards under Section 10. An Award of Restricted Stock may be subject to the
attainment of specified performance goals or targets,
restrictions
on transfer, forfeitability provisions and such other terms and conditions
as
the Committee may determine, subject to the provisions of the Plan. An award
of
Restricted Stock may be made in lieu of the payment of cash compensation
otherwise due to an Eligible Individual. To the extent that Restricted Stock
is
intended to qualify as “performance- based compensation” under Section 162(m),
it must meet the additional requirements imposed thereby.
(b)
The
Restricted Period
.
At the
time that an Award of Restricted Stock is made, the Committee shall establish
a
period of time during which the transfer of the Shares of Restricted Stock
shall
be restricted (the “Restricted Period”). Each Award of Restricted Stock may have
a different Restricted Period. A Restricted Period of at least three years
is
required, with incremental vesting of the Award over the three-year period
permitted. However, if the grant or vesting of the Shares is subject to the
attainment of specified performance goals, a Restricted Period of at least
one
year with incremental vesting is permitted. The expiration of the Restricted
Period shall also occur as provided in the Award Agreement in accordance with
Section 12(a) hereof.
(c)
Escrow
.
The
Participant receiving Restricted Stock shall enter into an Award Agreement
with
the Company setting forth the conditions of the grant. Certificates representing
Shares of Restricted Stock shall be registered in the name of the Participant
and deposited with the Company, together with a stock power endorsed in blank
by
the Participant. Each such certificate shall bear a legend in substantially
the
following form:
The
transferability of this certificate and the shares of Class B Common Stock
represented by it are subject to the terms and conditions (including conditions
of forfeiture) contained in the Freeport-McMoRan Copper & Gold Inc. 2003
Stock Incentive Plan (the “Plan”) and a notice of grant issued thereunder to the
registered owner by Freeport-McMoRan Copper & Gold Inc. Copies of the Plan
and the notice of grant are on file at the principal office of Freeport-McMoRan
Copper & Gold Inc.
(d)
Dividends
on Restricted Stock
.
Any and
all cash and stock dividends paid with respect to the Shares of Restricted
Stock
shall be subject to any restrictions on transfer, forfeitability provisions
or
reinvestment requirements as the Committee may, in its discretion, prescribe
in
the Award Agreement.
(e)
Forfeiture
.
In the
event of the forfeiture of any Shares of Restricted Stock under the terms
provided in the Award Agreement (including any additional Shares of Restricted
Stock that may result from the reinvestment of cash and stock dividends, if
so
provided in the Award Agreement), such forfeited shares shall be surrendered
and
the certificates canceled. The Participants shall have the same rights and
privileges, and be subject to the same forfeiture provisions, with respect
to
any additional Shares received pursuant to Section 5(b) or Section 11(b) due
to
a recapitalization, merger or other change in capitalization.
(f)
Expiration
of Restricted Period
.
Upon
the expiration or termination of the Restricted Period and the satisfaction
of
any other conditions prescribed by the Committee or at such earlier time as
provided for in the Award Agreement or an amendment thereto, the restrictions
applicable to the Restricted Stock shall lapse and a stock certificate for
the
number of
Shares
of
Restricted Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions and legends, except any that may be
imposed by law, to the Participant or the Participant’s estate, as the case may
be.
(g)
Rights
as a Shareholder
.
Subject
to the terms and conditions of the Plan and subject to any restrictions on
the
receipt of dividends that may be imposed in the Award Agreement, each
Participant receiving Restricted Stock shall have all the rights of a
shareholder with respect to Shares of stock during any period in which such
Shares are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such Shares.
(h)
Performance-Based
Restricted Stock under Section 162(m)
.
The
Committee shall determine at the time of grant if a grant of Restricted Stock
is
intended to qualify as “performance-based compensation” as that term is used in
Section 162(m). Any such grant shall be conditioned on the achievement of one
or
more performance measures. The performance measures pursuant to which the
Restricted Stock shall vest shall be any or a combination of the following:
earnings per share, return on assets, an economic value added measure,
shareholder return, earnings, return on equity, return on investment, cash
provided by operating activities, increase in cash flow, return on cash flow,
or
increase in production of the Company, a division of the Company or a
Subsidiary. For any performance period, such performance objectives may be
measured on an absolute basis or relative to a group of peer companies selected
by the Committee, relative to internal goals or relative to levels attained
in
prior years. For grants of Restricted Stock intended to qualify as
“performance-based compensation,” the grants of Restricted Stock and the
establishment of performance measures shall be made during the period required
under Section 162(m).
SECTION
10
(a)
Other
Stock-Based Awards
.
The
Committee is hereby authorized to grant to Eligible Individuals an “Other
Stock-Based Award,” which shall consist of an Award that is not an instrument or
Award specified in Sections 6 through 9 of this Plan, the value of which is
based in whole or in part on the value of Shares, including a restricted stock
unit. Other Stock-Based Awards may be awards of Shares or may be denominated
or
payable in, valued in whole or in part by reference to, or otherwise based
on or
related to, Shares (including, without limitation, securities convertible or
exchangeable into or exercisable for Shares), as deemed by the Committee
consistent with the purposes of the Plan. The Committee shall determine the
terms and conditions, including any vesting requirements, of any such Other
Stock-Based Award and may provide that such awards would be payable in whole
or
in part in cash. To the extent that an Other Stock-Based Award is intended
to
qualify as “performance-based compensation” under Section 162(m), it must be
made subject to the attainment of one or more of the performance goals specified
in Section 10(b) hereof and meet the additional requirements imposed by Section
162(m).
(b)
Performance-Based
Other Stock-Based Awards under Section 162(m)
.
The
Committee shall determine at the time of grant if the grant of an Other
Stock-Based Award is intended to qualify as “performance-based compensation” as
that term is used in Section 162(m). Any such grant shall be conditioned on
the
achievement of one or more performance measures. The performance measures
pursuant to which the Other Stock-Based Award shall vest shall be
any
or a
combination of the following: earnings per share, return on assets, an economic
value added measure, shareholder return, earnings, return on equity, return
on
investment, cash provided by operating activities, increase in cash flow, return
on cash flow, or increase in production of the Company, a division of the
Company or a Subsidiary. For any performance period, such performance objectives
may be measured on an absolute basis or relative to a group of peer companies
selected by the Committee, relative to internal goals or relative to levels
attained in prior years. For grants of Other Stock-Based Awards intended to
qualify as “performance-based compensation,” the grants of Other Stock-Based
Awards and the establishment of performance measures shall be made during the
period required under Section 162(m).
(c)
Dividend
Equivalents
.
In the
sole and complete discretion of the Committee, an Award, whether made as an
Other Stock-Based Award under this Section 10 or as an Award granted pursuant
to
Sections 6 through 9 hereof, may provide the holder thereof with dividends
or
dividend equivalents, payable in cash, Shares, Subsidiary securities, other
securities or other property on a current or deferred basis.
SECTION
11
(a)
Amendment
or Discontinuance of the Plan
.
The
Board may amend or discontinue the Plan at any time; provided, however, that
no
such amendment may
(i)
without
the approval of the stockholders, (a) increase, subject to adjustments permitted
herein, the maximum number of shares of Class B Common Stock that may be issued
through the Plan, (b) materially increase the benefits accruing to Participants
under the Plan, (c) materially expand the classes of persons eligible to
participate in the Plan, or (d) amend Section 11(c) to permit a reduction in
the
exercise price of Options; or
(ii)
materially
impair, without the consent of the recipient, an Award previously
granted.
(b)
Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
.
The
Committee is hereby authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 5(b) hereof) affecting the Company, or the financial statements of
the
Company or any Subsidiary, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
(c)
Cancellation
.
Any
provision of this Plan or any Award Agreement to the contrary notwithstanding,
the Committee may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the holder of
such
canceled Award equal in value to such canceled Award. Notwithstanding the
foregoing, except for adjustments permitted under Sections 5(b) and 11(b),
no
action by the Committee shall cause a reduction in the exercise price of Options
granted under the Plan without the approval of the
stockholders
of the Company. The determinations of value under this subparagraph shall be
made by the Committee in its sole discretion.
SECTION
12
(a)
Award
Agreements
.
Each
Award hereunder shall be evidenced by an agreement or notice delivered to the
Participant (by paper copy or electronically) that shall specify the terms
and
conditions thereof and any rules applicable thereto, including but not limited
to the effect on such Award of the death, retirement or other termination of
employment or cessation of consulting or advisory services of the Participant
and the effect thereon, if any, of a change in control of the
Company.
(b)
Withholding
.
(i)
A
Participant shall be required to pay to the Company, and the Company shall
have
the right to deduct from all amounts paid to a Participant (whether under the
Plan or otherwise), any taxes required by law to be paid or withheld in respect
of Awards hereunder to such Participant. The Committee may provide for
additional cash payments to holders of Awards to defray or offset any tax
arising from the grant, vesting, exercise or payment of any Award.
(ii)
At
any time that a Participant is required to pay to the Company an amount required
to be withheld under the applicable tax laws in connection with the issuance
of
Shares under the Plan, the Participant may, if permitted by the Committee,
satisfy this obligation in whole or in part by delivering currently owned Shares
or by electing (the “Election”) to have the Company withhold from the issuance
Shares, which Shares shall have a value equal to the minimum amount required
to
be withheld. The value of the Shares delivered or withheld shall be based on
the
fair market value of the Shares on the date as of which the amount of tax to
be
withheld shall be determined in accordance with applicable tax laws (the “Tax
Date”).
(iii)
Each Election to have Shares withheld must be made prior to the Tax Date. If
a
Participant wishes to deliver Shares in payment of taxes, the Participant must
so notify the Company prior to the Tax Date.
(c)
Transferability
.
No
Awards granted hereunder may be transferred, pledged, assigned or otherwise
encumbered by a Participant except: (i) by will; (ii) by the laws of descent
and
distribution; (iii) pursuant to a domestic relations order, as defined in the
Code, if permitted by the Committee and so provided in the Award Agreement
or an
amendment thereto; or (iv) if permitted by the Committee and so provided in
the
Award Agreement or an amendment thereto, Options and Limited Rights granted
in
tandem therewith may be transferred or assigned (w) to Immediate Family Members,
(x) to a partnership in which Immediate Family Members, or entities in which
Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the partners, (y) to a limited liability company in which
Immediate Family Members, or entities in which Immediate Family Members are
the
owners, members or beneficiaries, as appropriate, are the members, or (z) to
a
trust for the benefit of Immediate Family Members; provided, however, that
no
more than a
de
minimus
beneficial interest in a partnership, limited liability company or trust
described in (x), (y) or (z) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by
Immediate Family Members. “Immediate Family Members” shall be defined as the
spouse
and natural or adopted children or grandchildren of the Participant and their
spouses. To the extent that an Incentive Stock Option is permitted to be
transferred during the lifetime of the Participant, it shall be treated
thereafter as a Nonqualified Stock Option. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of Awards, or levy of attachment
or
similar process upon Awards not specifically permitted herein, shall be null
and
void and without effect. The designation of a Designated Beneficiary shall
not
be a violation of this Section 12(c).
(d)
Share
Certificates
.
All
certificates for Shares or other securities delivered under the Plan pursuant
to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(e)
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company from adopting or continuing
in
effect other compensation arrangements, which may, but need not, provide for
the
grant of options, stock appreciation rights, restricted stock, and other types
of Awards provided for hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.
(f)
No
Right to Employment
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ of or as a consultant or adviser to the Company or any
Subsidiary or in the employ of or as a consultant or adviser to any other entity
providing services to the Company. The Company or any Subsidiary or any such
entity may at any time dismiss a Participant from employment, or terminate
any
arrangement pursuant to which the Participant provides services to the Company
or a Subsidiary, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. No Eligible
Individual or other person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Eligible Individuals,
Participants or holders or beneficiaries of Awards.
(g)
Governing
Law
.
The
validity, construction, and effect of the Plan, any rules and regulations
relating to the Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(h)
Severability
.
If any
provision of the Plan or any Award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in
the
determination of the Committee, materially altering the intent of the Plan
or
the Award, such provision shall be stricken as to such jurisdiction, Person
or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(i)
No
Trust or Fund Created
.
Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company and
a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company pursuant to an Award, such right shall
be
no greater than the right of any unsecured general creditor of the
Company.
(j)
No
Fractional Shares
.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other securities or
other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(k)
Deferral
Permitted
.
Payment
of cash or distribution of any Shares to which a Participant is entitled under
any Award shall be made as provided in the Award Agreement. Payment may be
deferred at the option of the Participant if provided in the Award
Agreement.
(l)
Compliance
with Law
.
The
Company intends that Awards granted under the Plan, or any deferrals thereof,
will comply with the requirements of Section 409A of the Code and all
regulations and guidance promulgated thereunder, to the extent
applicable.
(m)
Headings
.
Headings are given to the subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material
or
relevant to the construction or interpretation of the Plan or any provision
thereof.
SECTION
13
Term
of the Plan
.
Subject
to Section 11(a), no Awards may be granted under the Plan later than ten years
after the date the Plan was adopted by the Board; provided, however, that Awards
granted prior to such date shall remain in effect until such Awards have either
been satisfied, expired or canceled under the terms of the Plan, and any
restrictions imposed on Shares in connection with their issuance under the
Plan
have lapsed.
Exhibit
10.34
FREEPORT-McMoRan
COPPER & GOLD INC.
1995
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE
I
PURPOSE
OF THE PLAN
The
purpose of the 1995 Stock Option Plan for Non-Employee Directors (the “Plan”) is
to align more closely the interests of the non-employee directors of
Freeport-McMoRan Copper & Gold Inc. (the “Company”) with that of the
Company’s stockholders by providing for the automatic grant to such directors of
stock options (“Options”) to purchase Shares (as hereinafter defined) and Stock
Appreciation Rights (as hereinafter defined), in accordance with the terms
of
the Plan.
ARTICLE
II
DEFINITIONS
For
the
purposes of this Plan, the following terms shall have the meanings
indicated:
Amendment
Date
:
May 2,
2000.
Award
:
Any
Option, including any Pre-Amendment Option, or Stock Appreciation Right granted
under this Plan.
Award
Agreement
:
Any
written agreement, contract, notice, or other instrument or document evidencing
any Award, which may, but need not, be executed or acknowledged by the
individual granted such Award.
Board
:
The
Board of Directors of the Company.
Change
in Control
:
A
Change in Control shall be deemed to have occurred if either (a) any person,
or
any two or more persons acting as a group, and all affiliates of such person
or
persons, shall, otherwise than as a result of the Distribution, beneficially
own
more than 20% of all classes and series of the Company’s stock outstanding,
taken as a whole, that has voting rights with respect to the election of
directors of the Company (not including any series of preferred stock of the
Company that has the right to elect directors only upon the failure of the
Company to pay dividends) pursuant to a tender offer, exchange offer or series
of purchases or other acquisitions, or any combination of those transactions,
or
(b) there shall be a change in the composition of the Board at any time within
two years after any tender offer, exchange offer, merger, consolidation, sale
of
assets or contested election, or any combination of those transactions (a
“Transaction”), so that (i) the persons who were directors of the Company
immediately before the first such Transaction cease to constitute a majority
of
the Board of Directors of the corporation which shall thereafter be in control
of the companies that were parties to or otherwise involved in such Transaction,
or (ii) the number of persons who shall thereafter be directors of such
corporation shall be fewer than two-thirds of the number of directors of the
Company immediately prior to such first Transaction. A Change in Control shall
be
deemed
to take place upon the first to occur of the events specified in the foregoing
clauses (a) and (b).
Code
:
The
Internal Revenue Code of 1986, as amended from time to time.
Committee
:
A
committee of the Board designated by the Board to administer the Plan and
composed of not fewer than two directors, each of whom, to the extent necessary
to comply with Rule 16b-3 only, is a “non-employee director” within the meaning
of Rule 16b-3 and, to the extent necessary to comply with Section 162(m) only,
is an “outside director” under Section 162(m). Until otherwise determined by the
Board, the Committee shall be the Corporate Personnel Committee of the
Board.
Distribution
:
The
distribution by Freeport-McMoRan Inc. (“FTX”) of all the then outstanding Shares
owned by FTX to the holders of FTX common stock.
Eligible
Director
:
A
director of the Company who is not, and within the preceding one year has not
been, an officer or an employee of the Company or a Subsidiary, an officer
or an
employee of an entity with which the Company has contracted to receive executive
or management services, or otherwise eligible for selection to participate
in
any plan of the Company or any Subsidiary that entitles the participants therein
to acquire stock, stock options or stock appreciation rights of the Company
or
its Subsidiaries.
Exchange
Act
:
The
Securities Exchange Act of 1934, as amended from time to time.
Fair
Market Value
:
Except
as provided below in connection with a cashless exercise, for any purpose
relevant under the Plan, the fair market value of a Share or any other security
shall be the closing per Share or security sale price on the Composite Tape
for
New York Stock Exchange-Listed Stocks on the date in question or, if there
are
no reported sales on such date, on the last preceding date on which any reported
sale occurred. If on the date in question the Shares or other securities in
question are not listed on such Composite Tape, the fair market value shall
be
the closing sale price on the New York Stock Exchange on such date or, if no
sales occurred on such date, on the last previous day on which a sale on the
New
York Stock Exchange is reported. In the context of a cashless exercise, the
fair
market value shall be the price at which the Shares are actually
sold.
Grant
Date
:
August
1, 1995 and the anniversary of such date in each subsequent year through and
including 2004.
Option
Cancellation Gain
:
With
respect to the cancellation of an Option pursuant to Section 3 of Article IV
hereof, the excess of the Fair Market Value as of the Option Cancellation Date
(as that term is defined in Section 3 of Article IV hereof) of all the
outstanding Shares covered by such Option, whether or not then exercisable,
over
the purchase price of such Shares under such Option.
Participant
:
Any
individual granted an Award under this Plan.
Pre-Amendment
Option
:
An
Option granted under this Plan prior to the Amendment Date and outstanding
as of
the Amendment Date.
Rule
16b-3
:
Rule
16b-3 promulgated by the SEC under the Exchange Act, or any successor rule
or
regulation thereto as in effect from time to time.
SAR
:
A Stock
Appreciation Right.
SEC
:
The
Securities and Exchange Commission, including the staff thereof, or any
successor thereto.
Section
162(m)
:
Section
162(m) of the Code and all regulations promulgated thereunder as in effect
from
time to time.
Shares
:
Shares
of Class B Common Stock, par value $0.10 per share, of the Company and any
shares into which such Shares may be converted or combined in accordance with
the terms of the Company’s Certificate of Incorporation.
Stock
Appreciation Right
:
Any
award of stock appreciation rights granted under Article VII of this
Plan.
Subsidiary
:
Any
corporation of which stock representing at least 50% of the ordinary voting
power is owned, directly or indirectly, by the Company; and any other entity
of
which equity securities or interests representing at least 50% of the ordinary
voting power or 50% of the total value of all classes of equity securities
or
interests of such entity are owned, directly or indirectly, by the
Company.
Tax-Offset
Payment Right
:
A right
to receive a cash payment upon the exercise of a Pre-Amendment Option related
to
and intended to defray the income tax liability associated with the exercise
of
such Pre-Amendment Option.
ARTICLE
III
ADMINISTRATION
OF THE PLAN
This
Plan
shall be administered by the Board. The Board will interpret this Plan and
may
from time to time adopt such rules and regulations for carrying out the terms
and provisions of this Plan as it may deem best; however, the Board shall have
no discretion with respect to the selection of directors who receive Awards,
the
timing of the grant of Awards, the number of Shares subject to any Awards or
the
purchase or grant price thereof. Notwithstanding the foregoing, the Committee
shall have the authority to make all determinations with respect to the
transferability of Awards in accordance with Article VIII hereof. All
determinations by the Board or the Committee shall be made by the affirmative
vote of a majority of its respective members, but any determination reduced
to
writing and signed by a majority of its respective members shall be fully as
effective as if it had been made by a majority vote at a meeting duly called
and
held. Subject to any applicable provisions of the Company’s By-Laws or of this
Plan, all determinations by the Board and the Committee pursuant to the
provisions of this Plan, and all related orders or resolutions of the Board
and
the Committee, shall be final, conclusive and binding on all persons, including
the Company, its stockholders, employees, and directors, and any Eligible
Director or holder or beneficiary of any Award. In the event of any conflict
or
inconsistency between determinations, orders, resolutions, or other actions
of
the Committee and the Board taken in connection with this Plan, the action
of
the Board shall control.
ARTICLE
IV
STOCK
AND
STOCK APPRECIATION RIGHTS
SUBJECT
TO THE PLAN
Section
1.
The
Shares to be issued or delivered upon exercise of Options shall be made
available, at the discretion of the Board, either from the authorized but
unissued Shares of the Company or from Shares reacquired by the Company,
including Shares purchased by the Company in the open market or otherwise
obtained;
provided
,
however
,
that
the Company, at the discretion of the Board, may, upon exercise of Options
granted under this Plan, cause a Subsidiary to deliver Shares held by such
Subsidiary.
Section
2.
Subject
to the provisions of Section 3 of this Article IV, the aggregate number of
Shares that may be issued pursuant to Options granted after February 4, 2003
shall not exceed 180,000 and the number of SARs that may be granted under this
Plan shall not exceed 1,311,200.
Section
3.
In
the
event of any recapitalization, reclassification, stock dividend, stock split,
combination of shares or other change in the Shares, all limitations on the
number of Shares provided in this Plan, and the number of Shares subject to
outstanding Awards, shall be equitably adjusted in proportion to the change
in
outstanding Shares. In addition, in the event of any such change in the Shares,
the Committee shall make any other adjustment that it determines to be
equitable, including without limitation adjustments to the exercise price of
any
Option or base price of any SAR in order to provide Participants with the same
relative rights before and after such adjustment.
Section
4.
In
the
event the Company is merged or consolidated into or with another corporation
in
a transaction in which the Company is not the survivor, or in the event that
substantially all of the Company’s assets are sold to another entity not
affiliated with the Company, any holder of an Option, whether or not then
exercisable, shall be entitled to receive (unless the Company shall take such
alternative action as may be necessary to preserve the economic benefit of
the
Option for the optionee) on the effective date of any such transaction (the
“Option Cancellation Date”), in cancellation of such Option, an amount in cash
equal to the Option Cancellation Gain relating thereto, determined as of the
Option Cancellation Date.
ARTICLE
V
PURCHASE
OR GRANT PRICE OF AWARDS
The
purchase price per Share under each Option and the grant price of any SAR
granted under Section 4 of Article VII shall be 100% of the Fair Market Value
of
a Share at the time such Award is granted, but in no case shall such price
be
less than the par value of the Shares subject to such Award. The grant price
of
any SAR granted under Section 3 of Article VII shall be determined in the manner
described in Section 3 of Article VII.
ARTICLE
VI
ELIGIBILITY
OF RECIPIENTS
Options
and SARs awarded under Section 4 of Article VII will be granted only to
individuals who are Eligible Directors at the time of such grant. SARs awarded
under Section 3
of
Article VII will be granted only to holders of Pre-Amendment Options as provided
in Section 3 of Article VII.
ARTICLE
VII
GRANT
OF
AWARDS
Section
1.
Each
Option shall constitute a nonqualified stock option that is not intended to
qualify under Section 422 of the Code.
Section
2.
On
each
Grant Date, each Eligible Director, as of each such date, shall be granted
an
Option to purchase 10,000 Shares. Each Option shall become exercisable with
respect to 2,500 Shares on each of the first, second, third and fourth
anniversaries of the date of grant and may be exercised by the holder thereof
with respect to all or any part of the Shares comprising each installment as
such holder may elect at any time after such installment becomes exercisable
but
no later than the termination date of such Option; provided that each Option
shall become exercisable in full upon a Change in Control.
Section
3.
Effective
as of the Amendment Date, each holder of a Pre-Amendment Option shall receive
a
number of Stock Appreciation Rights equal to the number of Shares subject to
such Pre-Amendment Option as of the Amendment Date multiplied by .6556
(disregarding any fractional Share) and all Tax-Offset Payment Rights shall
be
immediately canceled. Except as set forth below, each such SAR shall have the
same remaining term and other terms and conditions (whether such terms and
conditions are contained in the related Pre-Amendment Option agreement or in
this Plan) and shall be exercisable to the same extent as the related
Pre-Amendment Option, with such changes and modifications as are necessary
to
substitute the SARs for the Tax-Offset Payment Rights set forth in such
Pre-Amendment Option. The grant price of each such SAR shall be equal to the
purchase price of the related Pre-Amendment Option as of the Amendment
Date.
Section
4.
On
the
Grant Date in 2000 and on each subsequent Grant Date, each Eligible Director,
as
of each such date, shall be granted 6,556 Stock Appreciation Rights relating
to
6,556 Shares. One-fourth, or 1,639, of such Stock Appreciation Rights shall
become exercisable on each of the first, second, third and fourth anniversaries
of the Grant Date of such Award, and all or any portion of the Stock
Appreciation Rights comprising each installment may be exercised by the holder
thereof as such holder may elect at any time after such installment becomes
exercisable but no later than the termination date of such Stock Appreciation
Rights; provided that each Stock Appreciation Right shall become exercisable
in
full upon a Change in Control.
Section
5.
A
Stock
Appreciation Right granted under any Section of this Article VII shall entitle
the holder thereof to receive upon exercise, for each Share to which the SAR
relates, an amount in cash equal to the excess, if any, of the Fair Market
Value
of a Share on the date of exercise of the SAR over the grant price.
ARTICLE
VIII
TRANSFERABILITY
OF AWARDS
No
Awards
granted hereunder may be transferred, pledged, assigned or otherwise encumbered
by a Participant except:
(a)
by
will;
(b)
by
the
laws of descent and distribution; or
(c)
if
permitted by the Committee and so provided in the Award Agreement or an
amendment thereto, (i) pursuant to a domestic relations order, as defined in
the
Code, (ii) to Immediate Family Members, (iii) to a partnership in which
Immediate Family Members, or entities in which Immediate Family Members are
the
owners, members or beneficiaries, as appropriate, are the partners, (iv) to
a
limited liability company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (v) to a trust for the benefit of Immediate
Family Members; provided, however, that no more than a
de
minimus
beneficial interest in a partnership, limited liability company or trust
described in (iii), (iv) or (v) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by
Immediate Family Members. “Immediate Family Members” shall be defined as the
spouse and natural or adopted children or grandchildren of the optionee and
their spouses.
Any
attempted assignment, transfer, pledge, hypothecation or other disposition
of
Awards, or levy of attachment or similar process upon Awards not specifically
permitted herein, shall be null and void and without effect.
ARTICLE
IX
EXERCISE
OF AWARDS
Section
1.
Each
Option granted hereunder and each SAR granted after the Amendment Date shall
terminate 10 years after the date on which it was granted. Each SAR granted
on
the Amendment Date in substitution for a Tax-Offset Payment Right shall
terminate on the date that the related Pre-Amendment Option terminates as
provided in Section 3 of Article VII.
Section
2.
Except
in
cases provided for in Article X hereof, each Award may be exercised by the
holder thereof only while the Participant to whom such Award was granted is
an
Eligible Director.
Section
3.
A
person
electing to exercise an SAR or any portion thereof then exercisable shall give
written notice to the Company of such election and the number of SARs such
person has elected to exercise. A person electing to exercise an Option or
any
portion thereof then exercisable shall give written notice to the Company of
such election and of the number of Shares such person has elected to purchase,
and shall at the time of purchase tender the full purchase price of such Shares,
which tender shall be made in cash or cash equivalent (which may be such
person’s personal check) or in Shares already owned by such person and held for
at least six months (which tender may be by actual delivery or by attestation)
and which
Shares
shall be valued for such purpose on the basis of their Fair Market Value on
the
date of exercise, or in any combination thereof. The Company shall have no
obligation to deliver Shares pursuant to the exercise of any Option, in whole
or
in part, until such payment in full of the purchase price of such Shares is
received by the Company. No optionee, or legal representative, legatee,
distributee, or assignee of such optionee shall be or be deemed to be a holder
of any Shares subject to such Option or entitled to any rights of a stockholder
of the Company in respect of any Shares covered by such Option distributable
in
connection therewith until such Shares have been paid for in full and have
been
issued or delivered by the Company.
Section
4.
Each
Option shall be subject to the requirement that if at any time the Board shall
be advised by counsel that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or under any state
or
federal law, or the consent or approval of any governmental regulatory body,
is
necessary or desirable as a condition of, or in connection with, the granting
of
such Option or the issue or purchase of Shares thereunder, such Option may
not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free
from any conditions not reasonably acceptable to such counsel for the
Board.
Section
5.
The
Company may establish appropriate procedures to provide for payment or
withholding of such income or other taxes as may be required by law to be paid
or withheld in connection with the exercise of Awards and to ensure that the
Company receives prompt advice concerning the occurrence of any event that
may
create, or affect the timing or amount of, any obligation to pay or withhold
any
such taxes or that may make available to the Company any tax deduction resulting
from the occurrence of such event.
ARTICLE
X
TERMINATION
OF SERVICE
AS
AN
ELIGIBLE DIRECTOR
Section
1.
If
and
when a Participant shall cease to be an Eligible Director for any reason other
than death or retirement from the Board, all of the Awards granted to such
Participant while serving as an Eligible Director shall be terminated except
that any Award, to the extent then exercisable, may be exercised by the holder
thereof within three months after such Participant ceases to be an Eligible
Director, but not later than the termination date of the Award.
Section
2.
If
and
when a Participant shall cease to be an Eligible Director by reason of the
Participant’s retirement from the Board, all of the Awards granted to such
Participant while serving as an Eligible Director shall be terminated except
that any Award, to the extent then exercisable or exercisable within one year
thereafter, may be exercised by the holder thereof within three years after
such
retirement, but not later than the termination date of the Award.
Section
3.
Should
a
Participant die while serving as an Eligible Director, all the Awards granted
to
such Participant shall be terminated, except that any Award to the extent
exercisable by the holder thereof at the time of such death, together with
the
unmatured installment (if any) of such Award that at that time is next scheduled
to become exercisable, may be exercised until the third anniversary of the
date
of such death, but not later than the
termination
date of the Award, by the holder thereof, the Participant’s estate, or the
person designated in the Participant’s last will and testament, as
appropriate.
Section
4.
Should
a
Participant die after ceasing to be an Eligible Director, all of the Awards
granted to such Participant shall be terminated, except that any Award, to
the
extent exercisable by the holder thereof at the time of such death, may be
exercised until the third anniversary of the date the Participant ceased to
be
an Eligible Director, but not later than the termination date of the Award,
by
the holder thereof, the Participant’s estate, or the person designated in the
Participant’s last will and testament, as appropriate.
ARTICLE
XI
AMENDMENTS
TO PLAN AND AWARDS
The
Board
may at any time terminate or from time to time amend, modify or suspend this
Plan; provided, however, that no such amendment or modification without the
approval of the stockholders shall:
(a)
except
pursuant to Section 3 of Article IV, increase the maximum number
(determined as provided in this Plan) of Shares that may be purchased pursuant
to Options, either individually or in aggregate;
(b)
permit
the granting of any Option or any SAR under Section 4 of Article VII at a
purchase or grant price other than 100% of the Fair Market Value of the Shares
at the time such Award is granted, subject to adjustment pursuant to
Section 3 of Article IV;
(c)
permit
the exercise of an Option unless the full purchase price of the Shares as to
which the Option is exercised is paid at the time of exercise;
(d)
extend
beyond May 1, 2004 the period during which Awards may be granted;
(e)
modify
in
any respect the class of individuals who constitute Eligible Directors;
or
(f)
materially
increase the benefits accruing to participants hereunder.
Exhibit
10.35
FREEPORT-MCMORAN
COPPER & GOLD INC.
2004
DIRECTOR COMPENSATION PLAN
1.
Purpose
of the Plan.
The
purpose of the Freeport-McMoRan Copper & Gold Inc. 2004 Director
Compensation Plan is to promote the interests of the Company and its
stockholders by strengthening the Company’s ability to attract, motivate and
retain directors of experience and ability, and to encourage the highest level
of director performance by providing directors with (i) a proprietary interest
in the Company’s financial success and growth through the annual grants of
Options to purchase the Company's Common Stock and Restricted Stock Units and
the ability to elect to receive compensation in shares of Common Stock and
(ii)
the ability to defer compensation. In recognition of their continued service
to
the Company and the Board, the Plan also provides for the issuance of Awards
to
each of the Advisory Directors to replace awards that have or will be terminated
as a result of their resignations from the Board.
2.
Definitions.
For
purposes of this Plan, the following terms shall have the meanings
indicated:
2.1
“Advisory
Director” means a person designated as such by the Board.
2.2
“Award”
means any Option, Restricted Stock Unit or Stock Appreciation Right granted
under this Plan.
2.3
“Award
Notice” means any written or electronic notice of grant, evidencing any
Award.
2.4
“Board”
means the Board of Directors of the Company.
2.5
“Cash
Compensation” means the annual cash retainer paid to an Eligible Director and
any meeting fees, but does not include any expense reimbursement paid to an
Eligible Director.
2.6
“Change
of Control.”
(a)
“Change
of Control” means (capitalized terms not otherwise defined will have the
meanings ascribed to them in paragraph (b) below):
(i)
the
acquisition by any Person together with all Affiliates of such Person, of
Beneficial Ownership of the Threshold Percentage or more; provided, however,
that for purposes of this Section 2.6(a)(i), the following will not constitute
a
Change of Control:
(A)
any
acquisition (other than a “Business Combination,” as defined below, that
constitutes a Change of Control under Section 2.6(a)(iii) hereof) of Common
Stock directly from the Company,
(B)
any
acquisition of Common Stock by the Company or its subsidiaries,
(C)
any
acquisition of Common Stock by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation or other entity
controlled by the Company, or
(D)
any
acquisition of Common Stock pursuant to a Business Combination that does not
constitute a Change of Control under Section 2.6(a)(iii) hereof; or
(ii)
individuals,
excluding the representatives of Rio Tinto (as defined below), who, as of the
Effective Date, constitute the Board (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual, excluding any representative of Rio Tinto, becoming a director
subsequent to the Effective Date whose election, or nomination for election
by
the Company’s stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board will be considered a member of
the
Incumbent Board, unless such individual’s initial assumption of office occurs as
a result of an actual or threatened election contest with respect to the
election or removal of directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Incumbent
Board; or
(iii)
the
consummation of a reorganization, merger or consolidation (including a merger
or
consolidation of the Company or any direct or indirect subsidiary of the
Company), or sale or other disposition of all or substantially all of the assets
of the Company (a “Business Combination”), in each case, unless, immediately
following such Business Combination:
(A)
the
individuals and entities who were the Beneficial Owners of the Company Voting
Stock immediately prior to such Business Combination have direct or indirect
Beneficial Ownership of more than 50% of the then outstanding shares of common
stock, and more than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
of
the Post-Transaction Corporation, and
(B)
no
Person
together with all Affiliates of such Person (excluding the Post-Transaction
Corporation and any employee benefit plan or related trust of either the
Company, the Post Transaction Corporation or any subsidiary of either
corporation) Beneficially Owns 30% or more of the then outstanding shares of
common stock of the Post Transaction Corporation or 30% or more of the combined
voting power of the then outstanding voting securities of the Post Transaction
Corporation; provided, that if that certain Agreement dated as of May 2, 1995
by
and between the Company and Rio Tinto remains in effect as it may be amended
from time to time with respect to the Post Transaction Corporation, then Rio
Tinto and its Affiliates may Beneficially Own any amount less than the number
of
shares of the Post
Transaction
Corporation that could elect a majority of the directors of the Post Transaction
Corporation if all directors were to be elected at a single meeting,
and
(C)
at
least
a majority of the members of the board of directors of the Post-Transaction
Corporation were members of the Incumbent Board at the time of the execution
of
the initial agreement, and of the action of the Board, providing for such
Business Combination; or
(iv)
approval
by the stockholders of the Company of a complete liquidation or dissolution
of
the Company.
(b)
As
used
in this Section 2.6 and elsewhere in this Plan, the following terms have the
meanings indicated:
(i)
“Affiliate”
means a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, another
specified Person.
(ii)
“Beneficial
Owner” (and variants thereof), with respect to a security, means a Person who,
directly or indirectly (through any contract, understanding, relationship or
otherwise), has or shares (A) the power to vote, or direct the voting of, the
security, and/or (B) the power to dispose of, or to direct the disposition
of,
the security.
(iii)
“Company
Voting Stock” means any capital stock of the Company that is then entitled to
vote for the election of directors.
(iv)
“Effective
Date” means the date this Plan is approved by the Company’s
stockholders.
(v)
“Majority
Shares” means the number of shares of Company Voting Stock that could elect a
majority of the directors of the Company if all directors were to be elected
at
a single meeting.
(vi)
“Person”
means a natural person or entity, and will also mean the group or syndicate
created when two or more Persons act as a syndicate or other group (including
without limitation a partnership, limited partnership, joint venture or other
joint undertaking) for the purpose of acquiring, holding, or disposing of a
security, except that “Person” will not include an underwriter temporarily
holding a security pursuant to an offering of the security.
(vii)
“Post-Transaction
Corporation”: Unless a Change of Control includes a Business Combination,
“Post-Transaction Corporation” means the Company after the Change of Control. If
a Change of Control includes a Business Combination, “Post-Transaction
Corporation” will mean the corporation or other entity resulting from the
Business Combination unless, as a result of such Business Combination, an
ultimate parent entity controls the Company or all or substantially all of
the
Company’s assets either directly or indirectly, in which case, “Post Transaction
Corporation” will mean such ultimate parent entity.
(viii)
“Threshold
Percentage”: (A) As long as that certain Agreement dated as of May 2, 1995, by
and between the Company and Rio Tinto Indonesia Limited (“Rio Tinto”) remains in
effect as it may be amended from time to time, “Threshold Percentage” means with
respect to Rio Tinto and its Affiliates, that percentage of Common Stock that
would result in Rio Tinto and its Affiliates having Beneficial Ownership of
shares of Company Voting Stock equal to or greater than the Majority Shares;
provided that, solely for purposes of such calculation, the shares of Company
Voting Stock issuable upon exercise of warrants, options or other rights, or
upon conversion or exchange of convertible or exchangeable securities, owned
by
Rio Tinto and its Affiliates, will be treated as outstanding Company Voting
Stock. (B) With respect to any other Person and its Affiliates, “Threshold
Percentage” means 30% of all then outstanding Common Stock.
2.7
“Committee”
means the Corporate Personnel Committee of the Board or a subcommittee thereof.
The Committee shall consist of not fewer than two members of the Board of
Directors, each of whom shall (a) qualify as a “non-employee director” under
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the “1934
Act”), or any successor rule, and (b) qualify as an “outside director” under
Section 162(m) of the Internal Revenue Code of 1986, as amended from time to
time (the “Code”), and the regulations promulgated thereunder.
2.8
“Common
Stock” means the Class B common stock, $0.10 par value per share, of the
Company.
2.9
“Company”
means Freeport-McMoRan Copper & Gold Inc., a Delaware
corporation.
2.10
“Director”
means each member of the Board who is not employed by the Company or any of
its
subsidiaries.
2.11
“Eligible
Director” means each Director and Advisory Director, and includes, for purposes
of Sections 6.6 and 7.6 hereof only, former Directors and Advisory Directors
who
continue to provide services to the Company or a subsidiary of the Company
pursuant to a consulting or other arrangement.
2.12
“Fair
Market Value.” Except as provided below in connection with a cashless exercise
through a broker, for any purpose relevant under the Plan, the fair market
value
of a share of Common Stock or any other security shall be the closing per share
or security sale price on the Composite Tape for New York Stock Exchange-Listed
Stocks on the date in question or, if there are no reported sales on such date,
on the last preceding date on which any reported sale occurred. If on the date
in question the shares of Common Stock or other securities in question are
not
listed on such Composite Tape, the fair market value shall be the closing sale
price on the New York Stock Exchange on such date or, if no sales occurred
on
such date, on the last previous day on which a sale on the New York Stock
Exchange is reported. In the context of a cashless exercise through a broker,
the fair market value shall be the price at which the shares of Common Stock
are
actually sold.
2.13
“Grant
Date” means June 1, 2004, and each subsequent anniversary thereof throughout the
term of this Plan, provided shares of Common Stock remain available for issuance
hereunder.
2.14
“Participant”
means any individual granted an Award under this Plan.
2.15
“Option”
means a stock option granted under Section 5 of this Plan that does not satisfy
the requirements of Section 422 of the Code.
2.16
“Plan”
means the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation
Plan as set forth herein and as amended, restated, supplemented or otherwise
modified from time to time.
2.17
“Restricted
Stock Unit” or “RSU” means an award of restricted stock units granted under
Section 5 of this Plan.
2.18
“Stock
Appreciation Right” or “SAR” means an award of stock appreciation rights granted
under Section 5 of this Plan.
3.
Shares
of Common Stock Subject to the Plan.
3.1
Subject
to the adjustment provisions of Section 11, the aggregate number of shares
of
Common Stock that may be issued pursuant to the terms of the Plan shall be
1,000,000. Shares issued or delivered upon the exercise of Options or the
vesting of RSUs may be either authorized but unissued shares or shares issued
and thereafter acquired by the Company.
3.2
To
the
extent any shares of Common Stock subject to an Award are not issued because
the
Award is forfeited or cancelled or the Award is paid in cash, such shares shall
again be available for grant pursuant to Awards granted under the Plan. If
the
exercise price of any Option granted under this Plan is satisfied by tendering
shares of Common Stock to the Company (by either actual delivery or by
attestation), only the number of shares of Common Stock issued net of the shares
of Common Stock tendered shall be deemed delivered for purposes of determining
the maximum number of shares of Common Stock available for delivery under the
Plan.
4.
Administration
of the Plan.
4.1
The
Plan
shall be administered by the Committee, which shall have the power to interpret
the Plan and, subject to its provisions, to prescribe, amend and rescind Plan
rules and to make all other determinations necessary for the Plan’s
administration.
4.2
All
action taken by the Committee in the administration and interpretation of the
Plan shall be final and binding upon all parties. No member of the Committee
will be liable for any action or determination made in good faith by the
Committee with respect to the Plan or any Award.
4.3
The
Committee does not have the authority to make discretionary grants of Awards
under the Plan. Grants may be made only as provided in Section 5
hereof.
5.
Grant
of
Options,
Restricted Stock Units and Stock Appreciation Rights.
5.1
On
each
Grant Date, each Eligible Director shall be automatically granted
(a)
an
Option
to acquire 10,000 shares of Common Stock; and
(b)
2,000
Restricted Stock Units.
5.2
While
the
Plan remains in effect and shares of Common Stock remain available for issuance
hereunder, upon any person’s initial election or appointment as an Eligible
Director, otherwise than at an annual meeting of stockholders, such person
shall
be granted an Option and RSUs as follows:
(a)
If
less
than six full calendar months have elapsed since the most recent Grant Date,
then the Eligible Director shall receive an Option to acquire 10,000 shares
of
Common Stock and 2,000 Restricted Stock Units; or
(b)
If
six or
more full calendar months have elapsed since the most recent Grant Date, then
the Eligible Director shall receive an Option to acquire 5,000 shares of Common
Stock and 1,000 Restricted Stock Units.
5.3
On
February 9, 2004, two Directors resigned from the Board and were appointed
Advisory Directors. All outstanding incentive awards previously granted to
such
directors under the Company’s 1995 Stock Option Plan for Non-Employee Directors
and the Company’s Stock Appreciation Rights Plan were or will be terminated
under the terms of those plans as a result of such individuals’ resignations
from the Board. Accordingly, on May 9, 2004, the following Advisory Directors
will receive a one-time grant of Options and SARs as described below to replace
the previously granted awards that have or will terminate.
(a)
Gabrielle
K. McDonald shall receive Options to acquire 79,517 shares of Common Stock
and
52,131 SARs related to an equal number of shares of Common Stock, which Options
and SARs shall have the specific terms described on Annex A hereto.
(b)
J.
Stapleton Roy shall receive Options to acquire 22,500 shares of Common Stock
and
14,751 SARs related to an equal number of shares of Common Stock, which Options
and SARs shall have the specific terms described on Annex A hereto.
6.
Terms
and Conditions of Options
and Stock Appreciation Rights.
6.1
Unless
exercisability is accelerated as provided in Section 12.1 hereof and except
for
grants described in Section 5.3 hereof, the Options shall become exercisable
in
one-quarter increments on the first, second, third and fourth anniversaries
of
the applicable Grant Date.
6.2
Unless
terminated earlier as provided in Sections 5.3, 6.6 or 12.2, the Options shall
expire ten years following the applicable Grant Date.
6.3
Except
for grants described in Section 5.3, the exercise price of the Options granted
to Eligible Directors shall be equal to the Fair Market Value, as defined
herein, of a share of Common Stock on the applicable Grant Date.
6.4
Options
must be exercised by delivering written notice to the Company or any person
or
entity designated by the Company on forms approved by the Company and payment
of
the purchase price thereof in full. Any such exercise shall be effective upon
receipt by the Company or its designee of such notice and such payment. Unless
the Committee shall determine otherwise in any particular case, such payment
may
be made by (a) cash, (b) cash equivalent (which may be the personal check of
the
exercising holder of the Option), (c) by tendering shares of Common Stock,
either by actual delivery or by attestation, that are owned by such holder
and
that have been held by the Participant or eligible transferee for at least
six
months, or (d) instructing a broker approved by the Company to sell shares
of
Common Stock acquired upon the exercise of the option and to remit to the
Company a sufficient portion of the cash proceeds to pay the exercise price;
or
(e) a combination thereof, in each case having an aggregate Fair Market Value
equal to the aggregate exercise price of the portion of the Option being
exercised.
6.5
Any
provision of this Plan or any Award Notice to the contrary notwithstanding,
the
Committee may cause any Award granted hereunder to be canceled in consideration
of a cash payment or alternative Award made to the holder of such canceled
Award
equal in value to such canceled Award. Notwithstanding the foregoing, except
for
adjustments permitted under Sections 11 and 12.2 hereof, no action by the
Committee shall cause a reduction in the exercise price of Options granted
under
the Plan without the approval of the stockholders of the Company. The
determinations of value under this subparagraph shall be made by the Committee
in its sole discretion.
6.6
(a)
For
purposes of this Section 6.6, if a Participant continues to provide services
to
the Company or a subsidiary of the Company pursuant to a consulting or other
arrangement, the Participant will not “cease to be an Eligible Director” until
such time as the Participant no longer provides such services.
(b)
If
a
Participant ceases to be an Eligible Director for any reason other than death,
retirement from the Board or disability (as defined in Section 6.6(f)), all
of
the Options and SARs granted to such Participant while serving as an Eligible
Director shall be terminated except that any Options and SARs, to the extent
then exercisable, may be exercised by the holder thereof within three months
after such Participant ceases to be an Eligible Director, but not later than
the
termination date of the Award.
(c)
If
a
Participant ceases to be an Eligible Director by reason of the Participant’s
retirement from the Board or disability (as defined in Section 6.6(f)), all
of
the Options and SARs granted to such Participant while serving as an Eligible
Director shall be terminated except that any Options and SARs, to the extent
then exercisable or exercisable within one year thereafter, may be exercised
by
the holder thereof within three years after such Participant ceases to be an
Eligible Director, but not later than the termination date of the
Award.
(d)
If
a
Participant dies while serving as an Eligible Director, all Options and SARs
granted to such Participant shall be terminated, except that any Options and
SARs, to the extent exercisable by the holder thereof at the time of such death
or exercisable within one year thereafter, may be exercised until the third
anniversary of the date of such death, but not later than the termination date
of the Award, by the holder thereof, the Participant’s estate, or the person
designated in the Participant’s last will and testament, as
appropriate.
(e)
If
a
Participant dies after ceasing to be an Eligible Director, all of the Options
and SARs granted to such Participant shall be terminated, except that any
Options and SARs, to the extent still outstanding and exercisable by the holder
thereof at the time of such death, may be exercised until the third anniversary
of the date the Participant ceased to be an Eligible Director, but not later
than the termination date of the Award, by the holder thereof, the Participant’s
estate, or the person designated in the Participant’s last will and testament,
as appropriate.
(f)
For
purposes of this Section 6.6, a “disability” shall occur if (a) a physical or
mental illness renders the Participant incapable of satisfactorily discharging
his or her duties and responsibilities as a Director for a period of 90
consecutive days, and (b) a duly qualified physician chosen by the Company
and
reasonably acceptable to the Participant or his or her legal representative
certifies in writing that the Participant has become disabled.
6.7
A
Stock
Appreciation Right is a right to receive, without payment to the Company, for
each share of Common Stock to which the SAR relates, an amount in cash equal
to
the excess, if any, of the Fair Market Value of a Share on the date of exercise
of the SAR over the grant price. SARs will only be granted under the Plan in
accordance with Section 5.3 hereof.
7.
Terms
and Conditions of Restricted Stock Units.
7.1
Subject
to the terms, conditions, and restrictions set forth herein, each RSU granted
under Section 5.1 hereof represents the right to automatically receive from
the
Company, on the respective scheduled vesting date for such RSU, one share (a
“Share”) of Common Stock, free of any restrictions and all cash, securities and
property credited to or deposited in the Participant’s Dividend Equivalent
Account (as defined in Section 7.4) with respect to such RSU.
7.2
Unless
vesting is accelerated as provided in Section 7.6 or 12.1, the RSUs shall vest
in one-quarter increments on the first, second, third and fourth anniversaries
of the applicable Grant Date. Upon vesting, a Participant shall be issued the
Shares to which the Participant is entitled, unless the Participant has elected
to defer receipt as permitted herein.
7.3
Except
as
provided in Section 7.4, an RSU shall not entitle the Participant to any
incidents of ownership (including, without limitation, dividend and voting
rights) (a) in any Share until the RSU shall vest and the Participant shall
be issued a Share to which such RSU relates nor (b) in any cash, securities
or property credited to or deposited in a Dividend Equivalent Account related
to
such RSU until such RSU vests.
7.4
From
and
after the Grant Date of an RSU until the issuance of the Share payable in
respect of such RSU, the Participant shall be credited, as of the payment date
therefor, with (a) the amount of any cash dividends and (b) the amount
equal to the Fair Market Value of any
Shares,
securities, or other property distributed or distributable in respect of one
share of Common Stock to which the Participant would have been entitled had
the
Participant been a record holder of one share of Common Stock at all times
from
the Grant Date to such issuance date (a “Property Distribution”). All such
credits shall be made notionally to a dividend equivalent account (a “Dividend
Equivalent Account”) established for the Participant with respect to all RSUs
granted with the same vesting date. All credits to a Dividend Equivalent Account
for the Participant shall be notionally increased by the Account Rate (as
hereinafter defined), compounded quarterly, from and after the applicable date
of credit until paid in accordance with the terms of the Plan and the applicable
Award Notice. The “Account Rate” shall be the prime commercial lending rate
announced from time to time by JPMorgan Chase Bank or by another major national
bank headquartered in New York, New York designated by the Committee. The
Committee may, in its discretion, deposit in the Participant’s Dividend
Equivalent Account the securities or property comprising any Property
Distribution in lieu of crediting such Dividend Equivalent Account with the
Fair
Market Value thereof.
7.5
No
later
than December 31
st
of the
year prior to the applicable Grant Date of any RSUs, a Participant may elect,
in
accordance with procedures established by the Committee, that all or a portion
of the Shares issuable to the Participant upon the vesting of such RSUs and
all
or a portion of the amounts notionally credited in the Dividend Equivalent
Account related to such RSUs shall not be distributed on the vesting date but
shall be deferred and paid in one or more periodic installments not in excess
of
ten, beginning at such time or times elected by the Participant; provided,
however, that the deferral period shall end no later than 10 years after the
date that the Participant ceases to be an Eligible Director (“Termination”) for
any reason. In the event of any Termination, a distribution of all amounts
due
hereunder shall be made in full to the Participant or his or her designated
beneficiary as soon as administratively possible following the date the
Participant is scheduled to receive a distribution hereunder. All securities
or
property comprising Property Distributions deposited in such Dividend Equivalent
Account related to such RSUs shall, however, be distributed to the Participant
as soon as practicable after the vesting date for such RSUs, irrespective of
such deferral election.
7.6
(a)
Except
as
otherwise set forth in Section 7.6(b), all unvested RSUs, all amounts credited
to the Participant’s Dividend Equivalent Accounts with respect to such RSUs, and
all securities and property comprising Property Distributions deposited in
such
Dividend Equivalent Accounts with respect to such RSUs shall immediately be
forfeited on the date the Participant ceases to be an Eligible Director, unless
the Participant continues providing services to the Company pursuant to a
consulting or other arrangement.
(b)
If
a
Participant ceases to be an Eligible Director by reason of the Participant’s
death, retirement or disability (as defined in Section 7.6(d)), all unvested
RSUs and all amounts credited to or property deposited in the Participant’s
Dividend Equivalent Accounts with respect to such RSUs shall vest as of the
date
the Participant ceases to be an Eligible Director.
(c)
For
purposes of this Section 7.6, if a Participant continues to provide services
to
the Company or a subsidiary of the Company pursuant to a consulting or other
arrangement, the Participant will not “cease to be an Eligible Director” until
such time as the Participant no longer provides such services.
(d)
For
purposes of this Section 7.6, a “disability” shall have occurred if the
Participant is (i) unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can
be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, or (ii) by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can
be
expected to last for a continuous period of not less than 12 months, receiving
income replacement benefits for a period of not less than 3 months under an
accident and health plan covering employees of the Participant’s employer.
8.
Election
to Have Annual Retainer Paid in Common Stock.
8.1
Each
Eligible Director may make a stock purchase election on a form approved by
the
Committee (the “Stock Purchase Election Form”) directing that up to one hundred
percent of his or her annual retainer, in twenty-five percent increments, be
allocated to the purchase of Common Stock on his or her behalf.
8.2
A
stock
purchase election will be effective on the first date that the portion of the
annual retainer subject to the election is paid that is at least five business
days after the date the Stock Purchase Election Form is filed with the Company’s
Human Resources Department in the manner required by the Company. Stock purchase
elections may be revoked or modified effective on the first date that the
portion of the annual retainer is paid that is at least five business days
following the date the revocation or modified election is filed with the Company
in the manner required by the Company.
8.3
If
an
Eligible Director has timely submitted a satisfactory Stock Purchase Election
Form, the Eligible Director shall be issued that number of whole shares of
Common Stock, rounded down if necessary, equal to the amount of the Director's
retainer to be allocated to the purchase of Common Stock on that date divided
by
the Fair Market Value of a share of Common Stock as of the trading date
immediately preceding the issue date.
9.
Deferral
of Cash Compensation.
9.1
Each
Eligible Director may elect to defer his or her Cash Compensation that is not
used to purchase Common Stock pursuant to Section 8 hereof, in twenty-five
percent increments, to a deferred compensation account (a “Deferred Compensation
Account”) established for the Eligible Director’s benefit. An election to defer
Cash Compensation hereunder shall be made by means of a form approved by the
Company (the “Deferral Election Form”) and shall be effective only with respect
to Cash Compensation earned on or after January 1
st
of the
fiscal year following the receipt of the Deferral Election Form by the Company’s
Human Resources Department.
9.2
An
Eligible Director may revoke or modify an election made pursuant to Section
9.1
with respect to deferrals of Cash Compensation to be earned in the future and
such revocation or modification shall take effect on the first day of the fiscal
quarter that is more than twelve months after receipt of the written revocation
or modification by the Committee and subject to such other rules as may be
established by the Committee.
10.
Deferred
Compensation Accounts
.
10.1
A
Deferred Compensation Account shall be established for each Eligible Director
who executes a Deferral Election Form.
10.2
An
Eligible Director’s Deferred Compensation Account shall be credited with that
portion of the Eligible Director’s Cash Compensation that the Eligible Director
has elected to defer to his or her Deferred Compensation Account pursuant to
Section 9.1 as of the date such Compensation would otherwise have been paid
to
the Eligible Director.
10.3
All
amounts in an Eligible Director’s Deferred Compensation Account shall accrue
interest at a rate equal to the prime commercial lending rate announced from
time to time by JPMorgan Chase (compounded quarterly) or by another major
national bank headquartered in New York, New York and designated by the
Committee.
10.4
Amounts
credited to an Eligible Director's Deferred Compensation Account shall be
distributed in either a single lump sum or annual installments (not to exceed
ten), as designated by the Eligible Director in his or her applicable Deferral
Election Form. Distribution of a Deferred Compensation Account shall be made
(in
the case of a lump sum payment) or commence (in the case of installment
payments) as follows: (i) as soon as administratively possible following the
date the Eligible Director ceases to be an Eligible Director, or (ii) on such
other date as may be specified by the Eligible Director in his or her Deferral
Election Form, provided such date is at least two years after the date the
Deferral Election Form is received by the Committee. Notwithstanding an Eligible
Director’s election pursuant to his or her applicable Deferral Election Form, a
distribution of all amounts remaining unpaid in the Deferred Compensation
Account shall be made as soon as administratively possible after the tenth
anniversary of the date the Eligible Director ceases to be an Eligible Director.
If an Eligible Director elects to have his or her Deferred Compensation Account
distributed in installments, the amount of the first installment shall be a
fraction of the value of the Eligible Director's Deferred Compensation Account,
the numerator of which is one and denominator of which is the total number
of
installments elected, and the amount of each subsequent installment shall be
a
fraction of the value (including income credited pursuant to Section 10.3)
on
the date preceding each subsequent payment, the numerator of which is one and
the denominator of which is the total number of installments elected minus
the
number of installments previously paid.
10.5
In
the
event of the death of an Eligible Director prior to the distribution of his
or
her Deferred Compensation Account in full, the value of such Deferred
Compensation Account shall be determined as of the date of death and such amount
shall be distributed in a single lump sum payment to the Eligible Director's
estate or designated beneficiary as soon as administratively feasible
thereafter.
10.6
At
least
once per year, each Eligible Director who has executed a Deferral Election
Form
shall be provided with a statement of his or her Deferred Compensation
Account.
10.7
The
right
of any Eligible Director to receive distributions under the provisions of this
Section 10 shall constitute an unsecured claim against the general assets of
the
Company.
11.
Adjustment
Provisions.
In
the
event of any recapitalization, reclassification, stock dividend, stock split,
combination of shares or other change in the Common Stock, all limitations
on
numbers of shares of Common Stock provided in this Plan, and the number of
shares subject to outstanding Options, SARs, RSUs and stock purchase elections,
shall be equitably adjusted in proportion to the change in outstanding shares
of
Common Stock. In addition, in the event of any such change in the Common Stock,
the Committee shall make any other adjustment that it determines to be
equitable, including without limitation adjustments to the exercise price of
any
Option or base price of any SAR in order to provide Participants with the same
relative rights before and after such adjustment.
12.
Change
of Control.
12.1
Upon
a
Change of Control, or immediately prior to the closing of a transaction that
will result in a Change of Control if consummated, all outstanding Options
and
SARs granted pursuant to this Plan shall automatically become fully vested
and
exercisable. If a Change of Control also qualified as a change in the ownership
of the Company, a change in the effective control of the Company or a change
in
the ownership of a substantial portion of the assets of the Company under
Section 409A of the Code and any related implementing regulations or guidance,
then all outstanding RSUs shall become fully vested.
12.2
No
later
than 30 days after a Change of Control, the Committee, acting in its sole
discretion without the consent or approval of any Participant (and
notwithstanding any removal or attempted removal of some or all of the members
thereof as directors or Committee members), may act to effect one or more of
the
alternatives listed below, which may vary among individual Participants and
which may vary among Options, SARs and RSUs held by any individual
Participant:
(a)
require
that all outstanding Options and SARs be exercised on or before a specified
date
(before or after such Change of Control) fixed by the Committee, after which
specified date all unexercised Options and SARs and all rights of Participants
thereunder shall terminate,
(b)
make
such
equitable adjustments to Awards then outstanding as the Committee deems
appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary),
(c)
provide
for mandatory conversion or exchange of some or all of the outstanding Options
and SARs held by some or all Participants as of a date, before or after such
Change of Control, specified by the Committee, in which event such Options
and
SARs shall be deemed automatically cancelled and the Company shall pay, or
cause
to be paid, to each such Participant an amount of cash per share equal to the
excess, if any, of the Change of Control Value of the shares subject to such
Option or SAR, as defined and calculated below, over the per share exercise
price of such Options and SARs or, in lieu of such cash payment, the issuance
of
Common Stock or securities of an acquiring entity having a Fair Market Value
equal to such excess, or
(d)
provide
that thereafter, upon any exercise of an Option that entitles the holder to
receive Common Stock, the holder shall be entitled to purchase or receive under
such Option, in lieu of the number of shares of Common Stock then covered by
such Option, the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the holder would have
been entitled pursuant to the terms of the agreement providing for the
reorganization, share exchange, merger, consolidation or asset sale, if,
immediately prior to such Change of Control, the holder had been the record
owner of the number of shares of Common Stock then covered by such
Option.
12.3
For
the
purposes of any conversions or exchanges under paragraph (c) of Section 12.2,
the “Change of Control Value” shall equal the amount determined by whichever of
the following items is applicable:
(a)
the
per
share price to be paid to holders of Common Stock in any such merger,
consolidation or other reorganization,
(b)
the
price
per share offered to holders of Common Stock in any tender offer or exchange
offer whereby a Change of Control takes place, or
(c)
in
all
other events, the Fair Market Value of a share of Common Stock, as determined
by
the Committee as of the date determined by the Committee to be the date of
conversion or exchange.
12.4
In
the
event that the consideration offered to stockholders of the Company in any
transaction described in this Section 12 consists of anything other than cash,
the Committee shall determine the fair cash equivalent of the portion of the
consideration offered that is other than cash.
13.
General
Provisions.
13.1
Nothing
in the Plan or in any instrument executed pursuant to the Plan will confer
upon
any Eligible Director any right to continue as an Eligible Director
or
affect
the right of the Board to remove any Eligible Director.
13.2
No
shares
of Common Stock will be issued or transferred pursuant to an Award unless and
until all then-applicable requirements imposed by federal and state securities
and other laws, rules and regulations and by any regulatory agencies having
jurisdiction, and by any stock exchanges upon which the Common Stock may be
listed, have been fully met to the Company’s satisfaction. As a condition
precedent to the issuance of shares pursuant to an Award, the Company may
require the Participant to take any reasonable action to meet such requirements.
13.3
No
Participant and no beneficiary or other person claiming under or through such
Participant will have any right, title or interest in or to any shares of Common
Stock allocated or reserved under the Plan or subject to any Award except as
to
such shares of Common Stock, if any, that have been issued or transferred to
such Participant.
13.4
No
Awards
granted hereunder, including amounts notionally credited to the Participant’s
Dividend Equivalent Account, and any Property Distributions deposited in such
Dividend Equivalent Account, may be transferred, pledged, assigned or otherwise
encumbered by a Participant except: (i) by will; (ii) by the laws of descent
and
distribution; (iii) pursuant to a domestic relations order, as defined in the
Code, if permitted by the Committee and so provided in the Award Notice or
an
amendment thereto; or (iv) if permitted by the Committee and so provided in
the
Award Notice or an amendment thereto, Options may be transferred or assigned
(w)
to Immediate Family Members, (x) to a partnership in which Immediate Family
Members, or entities in which Immediate Family Members are the owners, members
or beneficiaries, as appropriate, are the partners, (y) to a limited liability
company in which Immediate Family Members, or entities in which Immediate Family
Members are the owners, members or beneficiaries, as appropriate, are the
members, or (z) to a trust for the benefit of Immediate Family Members;
provided, however, that no more than a
de
minimus
beneficial interest in a partnership, limited liability company or trust
described in (x), (y) or (z) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by
Immediate Family Members. “Immediate Family Members” shall be defined as the
spouse and natural or adopted children or grandchildren of the Participant
and
their spouses. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of Awards, or levy of attachment or similar process upon
Awards not specifically permitted herein, shall be null and void and without
effect. The designation of a designated beneficiary shall not be a violation
of
this Section 13.4.
13.5
Each
Award shall be evidenced by an Award Notice.
14.
Amendment,
Discontinuance or Termination of the Plan.
14.1
The
Board
may amend or discontinue the Plan at any time; provided, however, that no such
amendment may
(a)
without
the approval of the stockholders,
(i)
increase, subject to adjustments permitted herein, the maximum number of shares
of Common Stock that may be issued through the Plan,
(ii)
materially increase the benefits accruing to Participants under the Plan,
(iii)
materially expand the classes of persons eligible to participate in the Plan,
(iv)
expand
the types of awards available under the Plan,
(v)
materially extend the term of the Plan,
(vi)
materially change the method for determining the exercise price of an Award,
or
(vii)
amend
Section 6.5 to permit a reduction in the exercise price of Options;
or
(b)
materially
impair, without the consent of the recipient, an Award previously
granted.
14.2
Term
of the Plan
.
Subject
to Section 14.1, no Awards may be granted under the Plan later than May 6,
2014,
which is ten years after the Effective Date of the Plan; provided, however,
that
Awards granted prior to such date shall remain in effect until all such Awards
have either been satisfied, expired or canceled under the terms of the
Plan.
ANNEX
A to 2004 Director Compensation Plan
Special
Awards to be Granted May 9, 2004
Gabrielle
K. McDonald
,
Advisory Director, shall receive the following Options and SARs:
Number
of
Options/SARs
|
|
Exercise
Price
|
|
Vesting
Schedule
|
|
Termination
Date*
|
7,017
options
|
|
$20.2672
|
|
May
9, 2004
|
|
May
1, 2005
|
10,000
options
|
|
$26.6875
|
|
May
9, 2004
|
|
August
1, 2005
|
10,000
options
|
|
$30.4375
|
|
May
9, 2004
|
|
August
1, 2006
|
10,000
options
|
|
$29.1563
|
|
May
9, 2004
|
|
August
1, 2007
|
10,000
options
|
|
$17.3125
|
|
May
9, 2004
|
|
August
1, 2009
|
5,000
options
|
|
$
9.0938
|
|
50%
on May 9, 2004, and 50% on August 1, 2004
|
|
August
1, 2010
|
7,500
options
|
|
$11.165
|
|
33.3%
on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary
thereof
|
|
August
1, 2011
|
10,000
options
|
|
$15.195
|
|
25%
on May 9, 2004, 25% on August 1, 2004, and on each of the next two
anniversaries thereof
|
|
August
1, 2012
|
10,000
options
|
|
$26.975
|
|
25%
on August 1, 2004, and on each of the next three anniversaries
thereof
|
|
August
1, 2013
|
|
|
|
|
|
|
|
4,600
SARs
|
|
$20.2672
|
|
May
9, 2004
|
|
May
2, 2005
|
6,556
SARs
|
|
$26.6875
|
|
May
9, 2004
|
|
August
1, 2005
|
6,556
SARs
|
|
$30.4375
|
|
May
9, 2004
|
|
August
1, 2006
|
6,556
SARs
|
|
$29.1563
|
|
May
9, 2004
|
|
August
1, 2007
|
6,556
SARs
|
|
$17.3125
|
|
May
9, 2004
|
|
August
1, 2009
|
3,278
SARs
|
|
$9.0938
|
|
50%
on May 9, 2004, and 50% on August 1, 2004
|
|
August
1, 2010
|
4,917
SARs
|
|
$11.165
|
|
33.3%
on May 9, 2004, 33.3% on August 1, 2004, and on the next anniversary
thereof
|
|
August
1, 2011
|
6,556
SARs
|
|
$15.195
|
|
25%
on May 9, 2004, 25% on August 1, 2004, and on each of the next two
anniversaries thereof
|
|
August
1, 2012
|
6,556
SARs
|
|
$26.975
|
|
25%
on August 1, 2004 and on each of the next three anniversaries
thereof
|
|
August
1, 2013
|
J.
Stapleton Roy
,
Advisory Director, shall receive the following Options and SARs:
Number
of
Options/SARs
|
|
Exercise
Price
|
|
Vesting
Schedule
|
|
Termination
Date*
|
5,000
options
|
|
$11.165
|
|
50%
on August 1, 2004, and on the next anniversary thereof
|
|
August
1, 2011
|
7,500
options
|
|
$15.195
|
|
33.3%
on August 1, 2004, and on each of the next two anniversaries
thereof
|
|
August
1, 2012
|
10,000
options
|
|
$26.975
|
|
25%
on August 1, 2004, and on each of the next three anniversaries
thereof
|
|
August
1, 2013
|
|
|
|
|
|
|
|
3,278
SARs
|
|
$11.165
|
|
50%
on August 1, 2004, and on the next anniversary thereof
|
|
August
1, 2011
|
4,917
SARs
|
|
$15.195
|
|
33.3%
on August 1, 2004, and on each of the next two anniversaries
thereof
|
|
August
1, 2012
|
6,556
SARs
|
|
$26.975
|
|
25%
on August 1, 2004, and on each of the next three anniversaries
thereof
|
|
August
1, 2013
|
_______________
*Unless
terminated earlier pursuant to the terms of the Plan.
Exhibit
10.37
FREEPORT-McMoRan
COPPER & GOLD INC.
2006
STOCK INCENTIVE PLAN
SECTION
1
Purpose
.
The
purpose of the Freeport-McMoRan Copper & Gold Inc. 2006 Stock Incentive Plan
(the “Plan”) is to motivate and reward key employees, consultants and advisers
by giving them a proprietary interest in the Company’s success.
SECTION
2
Definitions
.
As used
in the Plan, the following terms shall have the meanings set forth
below:
“Award”
shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit or Other Stock-Based Award.
“Award
Agreement” shall mean any written or electronic notice of grant, agreement,
contract or other instrument or document evidencing any Award, which may, but
need not, be required to be executed, acknowledged or accepted by a
Participant.
“Board”
shall mean the Board of Directors of the Company.
“Class
B
Common Stock” shall mean the Class B Common Stock, $.10 par value per share of
the Company.
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to
time.
“Committee”
shall mean, until otherwise determined by the Board, the Corporate Personnel
Committee of the Board.
“Company”
shall mean Freeport-McMoRan Copper & Gold Inc.
“Designated
Beneficiary” shall mean the beneficiary designated by the Participant, in a
manner determined by the Committee, to receive the benefits due the Participant
under the Plan in the event of the Participant’s death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean
the
Participant’s estate.
“Eligible
Individual” shall mean (i) any person providing services as an officer of the
Company or a Subsidiary, whether or not employed by such entity, including
any
such person who is also a director of the Company, (ii) any employee of the
Company or a Subsidiary, including any director who is also an employee of
the
Company or a Subsidiary, (iii) any officer or employee of an entity with which
the Company has contracted to receive executive, management or legal services
who provides services to the Company or a Subsidiary through
such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or
to
an entity described in clause (iii) hereof who provides services to the Company
or a Subsidiary through such arrangement and (v) any person who has agreed
in
writing to become a person described in clauses (i), (ii), (iii) or (iv) within
not more than 30 days following the date of grant of such person’s first Award
under the Plan.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.
“Incentive
Stock Option” shall mean an option granted under Section 6 of the Plan that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
“Nonqualified
Stock Option” shall mean an option granted under Section 6 of the Plan that is
not intended to be an Incentive Stock Option.
“Option”
shall mean an Incentive Stock Option or a Nonqualified Stock Option granted
under Section 6 of the Plan.
“Other
Stock-Based Award” shall mean any right or award granted under Section
10
of
the
Plan.
“Participant”
shall mean any Eligible Individual granted an Award under the Plan.
“Person”
shall mean any individual, corporation, partnership, limited liability company,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
“Restricted
Stock” shall mean any restricted stock granted under Section 8 of the
Plan.
“Restricted
Stock Unit” shall mean any restricted stock unit granted under Section 9 of the
Plan.
“Section
162(m)” shall mean Section 162(m) of the Code and all regulations promulgated
thereunder as in effect from time to time.
“Section
409A” shall mean Section 409A of the Code and all regulations and guidance
promulgated thereunder as in effect from time to time.
“Shares”
shall mean the shares of Class B Common Stock of the Company and such other
securities of the Company or a Subsidiary as the Committee may from time to
time
designate.
“Stock
Appreciation Right” shall mean any right granted under Section 7 of the
Plan.
“Subsidiary”
shall mean (i) any corporation or other entity in which the Company possesses
directly or indirectly equity interests representing at least 50% of the total
ordinary voting power or at least 50% of the total value of all classes of
equity interests of such corporation or other entity and (ii) any other entity
in which the Company has a direct or indirect economic interest that is
designated as a Subsidiary by the Committee.
SECTION
3
(a)
Administration
.
The
Plan shall be administered by the Committee. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power
and
authority to: (i) designate Participants; (ii) determine the type or types
of
Awards to be granted to an Eligible Individual; (iii) determine the number
of
Shares to be covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, whole
Shares, other whole securities, other Awards, other property or other cash
amounts payable by the Company upon the exercise of that or other Awards, or
canceled, forfeited or suspended and the method or methods by which Awards
may
be settled, exercised, canceled, forfeited or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable by the Company with
respect to an Award shall be deferred either automatically or at the election
of
the holder thereof or of the Committee; (vii) interpret and administer the
Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (ix) make any other determination and take any other action that
the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the
Plan or any Award shall be within the sole discretion of the Committee, may
be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any Eligible
Individual.
(b)
Delegation
.
Subject
to the terms of the Plan and applicable law, the Committee may delegate to
one
or more officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant and set the terms of,
to
cancel, modify or waive rights with respect to, or to alter, discontinue,
suspend, or terminate Awards held by Eligible Individuals who are not officers
or directors of the Company for purposes of Section 16 of the Exchange Act,
or
any successor section thereto, or who are otherwise not subject to such Section;
provided, however, that the per share exercise price of any Option granted
under
this Section 3(b) shall be equal to the fair market value of the underlying
Shares on the date of grant.
SECTION
4
Eligibility
.
Any
Eligible Individual shall be eligible to be granted an Award.
SECTION
5
(a)
Shares
Available for Awards
.
Subject
to adjustment as provided in Section 5(b):
(i)
Calculation
of Number of Shares Available
.
(A)
Subject
to the other provisions of this Section 5(a), the number of Shares with respect
to which Awards payable in Shares may be granted under the Plan shall be
12,000,000
shares of Class B Common Stock. Awards that by their terms may be settled
only in cash shall not be counted against the maximum number of Shares provided
herein.
(B)
The
number of Shares that may be issued pursuant to Incentive Stock Options may
not
exceed 12,000,000 Shares.
(C)
Subject
to the other provisions of this Section 5(a):
(1)
the
maximum number of Shares with respect to which Awards in the form of Restricted
Stock, Restricted Stock Units or Other Stock-Based Awards payable in Shares
for
which a per share purchase price that is less than 100% of the fair market
value
of the securities to which the Award relates shall be 4,000,000 Shares;
and
(2)
no
more
than 600,000 Shares may be issued pursuant to Awards in the form of Restricted
Stock, Restricted Stock Units or Other Stock-Based Awards payable in Shares
without compliance with the minimum vesting periods set forth in Sections 8(b),
9(b) and 10(b), respectively. If (x) Restricted Stock, Restricted Stock Units
or
an Other Stock-Based Award is granted with a minimum vesting period of at least
three years or a minimum vesting period of at least one year, subject to the
attainment of specific performance goals, and (y) the vesting of such Award
is
accelerated in accordance with Section 12(a) hereof as a result of the
Participant’s death, retirement or other termination of employment or cessation
of consulting or advisory services to the Company, or a change in control of
the
Company, such Shares shall not count against the 600,000 limitation described
herein.
(D)
To
the
extent any Shares covered by an Award are not issued because the Award is
forfeited or canceled or the Award is settled in cash, such Shares shall again
be available for grant pursuant to new Awards under the Plan.
(E)
In
the
event that Shares are issued as Restricted Stock or Other Stock-Based Awards
under the Plan and thereafter are forfeited or reacquired by the Company
pursuant to rights reserved upon issuance thereof, such Shares shall again
be
available for grant pursuant to new Awards under the Plan. With respect to
Stock
Appreciation Rights, if the Award is payable in Shares, all Shares to which
the
Award relates shall be counted against the Plan limits, rather than the net
number of Shares delivered upon exercise of the Award.
(ii)
Shares
Deliverable Under Awards
.
Any
Shares delivered pursuant to an Award may consist of authorized and unissued
Shares or of treasury Shares, including Shares held by the Company or a
Subsidiary and Shares acquired in the open market or otherwise obtained by
the
Company or a Subsidiary. The issuance of Shares may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
(iii)
Individual
Limit
.
Any
provision of the Plan to the contrary notwithstanding, no individual may receive
in any year Awards under the Plan, whether payable in cash or Shares, that
relate to more than 3,750,000 Shares.
(iv)
Use
of
Shares
.
Subject
to the terms of the Plan and the overall limitation on the number of Shares
that
may be delivered under the Plan, the Committee may use available
Shares
as
the form of payment for compensation, grants or rights earned or due under
any
other compensation plans or arrangements of the Company or a Subsidiary,
including, but not limited to, the Company’s 2005 Annual Incentive Plan and the
plans or arrangements of the Company or a Subsidiary assumed in business
combinations.
(b)
Adjustments
.
In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, Subsidiary securities, other securities
or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that
an
adjustment is determined by the Committee to be appropriate to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award and, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award and, if deemed appropriate, adjust outstanding
Awards to provide the rights contemplated by Section 11(b) hereof;
provided
,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b)(1) of the Code or any successor provision thereto and,
with respect to all Awards under the Plan, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
requirements for full deductibility under Section 162(m); and
provided
further
that the
number of Shares subject to any Award denominated in Shares shall always be
a
whole number.
(c)
Performance
Goals for Section 162(m) Awards
.
The
Committee shall determine at the time of grant if a grant of Restricted Stock,
Restricted Stock Units or Other Stock-Based Award is intended to qualify as
“performance-based compensation” as that term is used in Section 162(m). Any
such grant shall be conditioned on the achievement of one or more performance
measures. The performance measures pursuant to which the Restricted Stock,
Restricted Stock Units or Other Stock-Based Award shall vest shall be any or
a
combination of the following: earnings per share, return on assets, an economic
value added measure, shareholder return, earnings, return on equity, return
on
investment, cash provided by operating activities, increase in cash flow, return
on cash flow, or increase in production of the Company, a division of the
Company or a Subsidiary. For any performance period, such performance objectives
may be measured on an absolute basis or relative to a group of peer companies
selected by the Committee, relative to internal goals or relative to levels
attained in prior years. For grants of Restricted Stock, Restricted Stock Units
or Other Stock-Based Awards intended to qualify as “performance-based
compensation,” the grants and the establishment of performance measures shall be
made during the period required under Section 162(m).
SECTION
6
(a)
Stock
Options
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Options shall be
granted,
the number of Shares to be covered by each Option, the option price thereof
and
the conditions and limitations applicable to the exercise of the Option and
the
other terms thereof. The Committee shall have the authority to grant Incentive
Stock Options, Nonqualified Stock Options or both. In the case of Incentive
Stock Options, the terms and conditions of such grants shall be subject to
and
comply with such rules as may be required by Section 422 of the Code, as from
time to time amended, and any implementing regulations. Except in the case
of an
Option granted in assumption of or substitution for an outstanding award of
a
company acquired by the Company or with which the Company combines, the exercise
price of any Option granted under this Plan shall not be less than 100% of
the
fair market value of the underlying Shares on the date of grant.
(b)
Exercise
.
Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable Award Agreement or thereafter, provided, however, that in no event
may any Option granted hereunder be exercisable after the expiration of 10
years
after the date of such grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any condition
relating to the application of Federal or state securities laws, as it may
deem
necessary or advisable. An Option may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of Shares to be
purchased. The exercise notice shall be accompanied by the full purchase price
for the Shares.
(c)
Payment
.
The
Option price shall be payable in United States dollars and may be paid by (i)
cash or cash equivalent; (ii) delivery of shares of Class B Common Stock,
subject to any holding periods established by the Committee; (iii) through
a
“cashless” exercise arrangement with a broker approved in advance by the
Committee; (iv) if approved by the Committee, through a “net exercise” procedure
whereby shares of Class B Common Stock equal in value to the aggregate exercise
price or less are withheld from the shares issued upon exercise; or (v) in
such
other manner as may be authorized from time to time by the Committee. In the
event shares of Class B Common Stock are delivered or withheld pursuant to
(ii)
or (iv) above, as applicable, the shares shall be valued at the fair market
value (valued in accordance with procedures established by the Committee) on
the
effective date of the exercise. Prior to the issuance of Shares upon the
exercise of an Option, a Participant shall have no rights as a
shareholder.
SECTION
7
(a)
Stock
Appreciation Rights
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Stock Appreciation
Rights shall be granted, the number of Shares to be covered by each Award of
Stock Appreciation Rights, the grant price thereof and the conditions and
limitations applicable to the exercise of the Stock Appreciation Right and
the
other terms thereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated
to
any other Award. Stock Appreciation Rights granted in tandem with or in addition
to an Option or other Award may be granted either at the same time as the Option
or other Award or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of 10 years after the date of grant. Except
in
the case of a Stock Appreciation Right granted in assumption of or substitution
for an outstanding award of a company acquired
by
the
Company or with which the Company combines, the grant price of any Stock
Appreciation Right granted under this Plan shall not be less than 100% of the
fair market value of the Shares covered by such Stock Appreciation Right on
the
date of grant or, in the case of a Stock Appreciation Right granted in tandem
with a then outstanding Option or other Award, on the date of grant of such
related Option or Award if permitted by Section 409A.
(b)
A
Stock
Appreciation Right shall entitle the holder thereof to receive upon exercise,
for each Share to which the Stock Appreciation Right relates, an amount equal
to
the excess, if any, of the fair market value of a Share on the date of exercise
of the Stock Appreciation Right over the grant price. The Committee shall
determine at the time of grant of a Stock Appreciation Right whether it shall
be
settled in cash, Shares or a combination of cash and Shares.
SECTION
8
(a)
Restricted
Stock
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Restricted Stock shall
be granted, the number of Shares to be covered by each Award of Restricted
Stock
and the terms, conditions, and limitations applicable thereto. An Award of
Restricted Stock may be subject to the attainment of specified performance
goals
or targets, restrictions on transfer, forfeitability provisions and such other
terms and conditions as the Committee may determine, subject to the provisions
of the Plan. An award of Restricted Stock may be made in lieu of the payment
of
cash compensation otherwise due to an Eligible Individual. To the extent that
Restricted Stock is intended to qualify as “performance- based compensation”
under Section 162(m), it must be made subject to the attainment of one or more
of the performance goals specified in Section 5(c) hereof and meet the
additional requirements imposed by Section 162(m).
(b)
The
Restricted Period
.
At the
time that an Award of Restricted Stock is made, the Committee shall establish
a
period of time during which the transfer of the Shares of Restricted Stock
shall
be restricted (the “Restricted Period”). Each Award of Restricted Stock may have
a different Restricted Period. Except for Restricted Stock that vests on the
attainment of performance goals, and except as provided in Section
5(a)(i)(C)(2), a Restricted Period of at least three years is required, with
incremental vesting of the Award over the three-year period permitted. If the
grant or vesting of the Shares is subject to the attainment of specified
performance goals, a Restricted Period of at least one year with incremental
vesting is permitted. The expiration of the Restricted Period shall also occur
as provided in the Award Agreement in accordance with Section 12(a)
hereof.
(c)
Escrow
.
The
Participant receiving Restricted Stock shall enter into an Award Agreement
with
the Company setting forth the conditions of the grant. Certificates representing
Shares of Restricted Stock shall be registered in the name of the Participant
and deposited with the Company, together with a stock power endorsed in blank
by
the Participant. Each such certificate shall bear a legend in substantially
the
following form:
The
transferability of this certificate and the shares of Class B Common Stock
represented by it are subject to the terms and conditions (including conditions
of forfeiture) contained in the Freeport-McMoRan Copper & Gold Inc. 2006
Stock
Incentive
Plan (the “Plan”) and a notice of grant issued thereunder to the registered
owner by Freeport-McMoRan Copper & Gold Inc. Copies of the Plan and the
notice of grant are on file at the principal office of Freeport-McMoRan Copper
& Gold Inc.
(d)
Dividends
on Restricted Stock
.
Any and
all cash and stock dividends paid with respect to the Shares of Restricted
Stock
shall be subject to any restrictions on transfer, forfeitability provisions
or
reinvestment requirements as the Committee may, in its discretion, prescribe
in
the Award Agreement.
(e)
Forfeiture
.
In the
event of the forfeiture of any Shares of Restricted Stock under the terms
provided in the Award Agreement (including any additional Shares of Restricted
Stock that may result from the reinvestment of cash and stock dividends, if
so
provided in the Award Agreement), such forfeited shares shall be surrendered
and
the certificates canceled. The Participants shall have the same rights and
privileges, and be subject to the same forfeiture provisions, with respect
to
any additional Shares received pursuant to Section 5(b) or Section 11(b) due
to
a recapitalization, merger or other change in capitalization.
(f)
Expiration
of Restricted Period
.
Upon
the expiration or termination of the Restricted Period and the satisfaction
of
any other conditions prescribed by the Committee or at such earlier time as
provided in the Award Agreement or an amendment thereto, the restrictions
applicable to the Restricted Stock shall lapse and a stock certificate for
the
number of Shares of Restricted Stock with respect to which the restrictions
have
lapsed shall be delivered, free of all such restrictions and legends, except
any
that may be imposed by law, to the Participant or the Participant’s estate, as
the case may be.
(g)
Rights
as a Stockholder
.
Subject
to the terms and conditions of the Plan and subject to any restrictions on
the
receipt of dividends that may be imposed in the Award Agreement, each
Participant receiving Restricted Stock shall have all the rights of a
stockholder with respect to Shares of stock during any period in which such
Shares are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such Shares.
SECTION
9
(a)
Restricted
Stock Units
.
Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Eligible Individuals to whom Restricted Stock Units
shall be granted, the number of Shares to be covered by each Award of Restricted
Stock Units and the terms, conditions, and limitations applicable thereto.
An
Award of Restricted Stock Units is a right to receive shares of Common Stock
in
the future and may be subject to the attainment of specified performance goals
or targets, restrictions on transfer, forfeitability provisions and such other
terms and conditions as the Committee may determine, subject to the provisions
of the Plan. An award of Restricted Stock Units may be made in lieu of the
payment of cash compensation otherwise due to an Eligible Individual. To the
extent that an Award of Restricted Stock Units is intended to qualify as
“performance-based compensation” under Section 162(m), it must be made subject
to the attainment of one or more of the performance goals specified in Section
5(c) hereof and meet the additional requirements imposed by Section
162(m).
(b)
The
Vesting Period
.
At the
time that an Award of Restricted Stock Units is made, the Committee shall
establish a period of time during which the Restricted Stock Units shall vest
(the “Vesting Period”). Each Award of Restricted Stock may have a different
Vesting Period. Except for Restricted Stock Units that vest based on the
attainment of performance goals, and except as provided in Section
5(a)(i)(C)(2), a Vesting Period of at least three years is required with
incremental vesting of the Award over the three-year period permitted. If the
grant or vesting is subject to the attainment of specified performance goals,
a
Vesting Period of at least one year with incremental vesting is permitted.
The
expiration of the Vesting Period shall also occur as provided in the Award
Agreement in accordance with Section 12(a) hereof.
(c)
Rights
as a Stockholder
.
Subject
to the terms and conditions of the Plan and subject to any restrictions that
may
be imposed in the Award Agreement, each Participant receiving Restricted Stock
Units shall have no rights as a stockholder with respect to such Restricted
Stock Units until such time as Shares are issued to the
Participant.
SECTION
10
(a)
Other
Stock-Based Awards
.
The
Committee is hereby authorized to grant to Eligible Individuals an “Other
Stock-Based Award,” which shall consist of an Award that is not an instrument or
Award specified in Sections 6 through 9 of this Plan, the value of which is
based in whole or in part on the value of Shares. Other Stock-Based Awards
may
be awards of Shares or may be denominated or payable in, valued in whole or
in
part by reference to, or otherwise based on or related to, Shares (including,
without limitation, securities convertible or exchangeable into or exercisable
for Shares), as deemed by the Committee consistent with the purposes of the
Plan. The Committee shall determine the terms and conditions of any such Other
Stock-Based Award and may provide that such awards would be payable in whole
or
in part in cash. To the extent that an Other Stock-Based Award is intended
to
qualify as “performance-based compensation” under Section 162(m), it must be
made subject to the attainment of one or more of the performance goals specified
in Section 5(c) hereof and meet the additional requirements imposed by Section
162(m).
(b)
Limitations
.
Except
for Other Stock-Based Awards that vest based on the attainment of performance
goals, and except as provided in Section 5(a)(i)(C)(2), a vesting period of
at
least three years is required with incremental vesting of the Award over the
three-year period permitted. If the grant or vesting is subject to the
attainment of specified performance goals, a vesting period of at least one
year
with incremental vesting is permitted. The expiration of the vesting period
shall also occur as provided in the Award Agreement in accordance with Section
12(a) hereof.
(c)
Dividend
Equivalents
.
In the
sole and complete discretion of the Committee, an Award, whether made as an
Other Stock-Based Award under this Section 10 or as an Award granted pursuant
to
Sections 6 through 9 hereof, may provide the holder thereof with dividends
or
dividend equivalents, payable in cash, Shares, Subsidiary securities, other
securities or other property on a current or deferred basis.
SECTION
11
(a)
Amendment
or Discontinuance of the Plan
.
The
Board may amend or discontinue the Plan at any time; provided, however, that
no
such amendment may
(i)
without
the approval of the stockholders, (a) increase, subject to adjustments permitted
herein, the maximum number of shares of Class B Common Stock that may be issued
through the Plan, (b) materially increase the benefits accruing to Participants
under the Plan, (c) materially expand the classes of persons eligible to
participate in the Plan, (d) expand the types of Awards available for grant
under the Plan, (e) materially extend the term of the Plan, (f) materially
change the method of determining the exercise price of Options or the grant
price of Stock Appreciation Rights, and (g) amend Section 11(c) to permit a
reduction in the exercise price of Options; or
(ii)
materially
impair, without the consent of the recipient, an Award previously
granted.
(b)
Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
.
The
Committee is hereby authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 5(b) hereof) affecting the Company, or the financial statements of
the
Company or any Subsidiary, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
(c)
Cancellation
.
Any
provision of this Plan or any Award Agreement to the contrary notwithstanding,
the Committee may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the holder of
such
canceled Award equal in value to such canceled Award. Notwithstanding the
foregoing, except for adjustments permitted under Sections 5(b) and 11(b),
no
action by the Committee shall, unless approved by the stockholders of the
Company, (i) cause a reduction in the exercise price of Options granted under
the Plan or (ii) permit an outstanding Option with an exercise price greater
than the current fair market value of a Share to be surrendered as consideration
for a new Option with a lower exercise price, shares of Restricted Stock,
Restricted Stock Units, and Other Stock-Based Awards, a cash payment or Common
Stock. The determinations of value under this subparagraph shall be made by
the
Committee in its sole discretion.
SECTION
12
(a)
Award
Agreements
.
Each
Award hereunder shall be evidenced by an agreement or notice delivered to the
Participant (by paper copy or electronically) that shall specify the terms
and
conditions thereof and any rules applicable thereto, including but not limited
to the effect on such Award of the death, retirement or other termination of
employment or cessation of consulting or advisory services of the Participant
and the effect thereon, if any, of a change in control of the
Company.
(b)
Withholding
.
(i)
A
Participant shall be required to pay to the Company, and the Company shall
have
the right to deduct from all amounts paid to a Participant (whether under the
Plan or otherwise), any taxes required by law to be paid or withheld in respect
of Awards hereunder to such Participant. The Committee may provide for
additional cash payments to holders of Awards to defray or offset any tax
arising from the grant, vesting, exercise or payment of any Award.
(ii)
At
any
time that a Participant is required to pay to the Company an amount required
to
be withheld under the applicable tax laws in connection with the issuance of
Shares under the Plan, the Participant may, if permitted by the Committee,
satisfy this obligation in whole or in part by delivering currently owned Shares
or by electing (the “Election”) to have the Company withhold from the issuance
Shares, which Shares shall have a value equal to the minimum amount required
to
be withheld. The value of the Shares delivered or withheld shall be based on
the
fair market value of the Shares on the date as of which the amount of tax to
be
withheld shall be determined in accordance with applicable tax laws (the “Tax
Date”).
(iii)
Each
Election to have Shares withheld must be made prior to the Tax Date. If a
Participant wishes to deliver Shares in payment of taxes, the Participant must
so notify the Company prior to the Tax Date.
(c)
Transferability
.
No
Awards granted hereunder may be sold, transferred, pledged, assigned or
otherwise encumbered by a Participant except: (i) by will; (ii) by the laws
of
descent and distribution; (iii) pursuant to a domestic relations order, as
defined in the Code, if permitted by the Committee and so provided in the Award
Agreement or an amendment thereto; or (iv) if permitted by the Committee and
so
provided in the Award Agreement or an amendment thereto, Options may be
transferred or assigned (w) to Immediate Family Members, (x) to a partnership
in
which Immediate Family Members, or entities in which Immediate Family Members
are the owners, members or beneficiaries, as appropriate, are the partners,
(y)
to a limited liability company in which Immediate Family Members, or entities
in
which Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (z) to a trust for the benefit of Immediate
Family Members; provided, however, that no more than a
de
minimus
beneficial interest in a partnership, limited liability company or trust
described in (x), (y) or (z) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by
Immediate Family Members. “Immediate Family Members” shall be defined as the
spouse and natural or adopted children or grandchildren of the Participant
and
their spouses. To the extent that an Incentive Stock Option is permitted to
be
transferred during the lifetime of the Participant, it shall be treated
thereafter as a Nonqualified Stock Option. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of Awards, or levy of attachment
or
similar process upon Awards not specifically permitted herein, shall be null
and
void and without effect. The designation of a Designated Beneficiary shall
not
be a violation of this Section 12(c).
(d)
Share
Certificates
.
All
certificates for Shares or other securities delivered under the Plan pursuant
to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable federal
or
state
laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(e)
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company from adopting or continuing
in
effect other compensation arrangements, which may, but need not, provide for
the
grant of options, stock appreciation rights, restricted stock, and other types
of Awards provided for hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.
(f)
No
Right to Employment
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ of or as a consultant or adviser to the Company or any
Subsidiary or in the employ of or as a consultant or adviser to any other entity
providing services to the Company. The Company or any Subsidiary or any such
entity may at any time dismiss a Participant from employment, or terminate
any
arrangement pursuant to which the Participant provides services to the Company
or a Subsidiary, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. No Eligible
Individual or other person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Eligible Individuals,
Participants or holders or beneficiaries of Awards.
(g)
Governing
Law
.
The
validity, construction, and effect of the Plan, any rules and regulations
relating to the Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(h)
Severability
.
If any
provision of the Plan or any Award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in
the
determination of the Committee, materially altering the intent of the Plan
or
the Award, such provision shall be stricken as to such jurisdiction, Person
or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(i)
No
Trust or Fund Created
.
Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company and
a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company pursuant to an Award, such right shall
be
no greater than the right of any unsecured general creditor of the
Company.
(j)
No
Fractional Shares
.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash, other securities or
other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(k)
Deferral
Permitted
.
Payment
of cash or distribution of any Shares to which a Participant is entitled under
any Award shall be made as provided in the Award Agreement. Payment may be
deferred at the option of the Participant if provided in the Award
Agreement.
(l)
Compliance
with Law
.
The
Company intends that Awards granted under the Plan, or any deferrals thereof,
will comply with the requirements of Section 409A of the Code and all
regulations and guidance promulgated thereunder, to the extent
applicable.
(m)
Headings
.
Headings are given to the subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material
or
relevant to the construction or interpretation of the Plan or any provision
thereof.
SECTION
13
Term
of the Plan
.
Subject
to Section 11(a), no Awards may be granted under the Plan after May 4, 2016,
which is ten years after the date the Plan was approved by the Company’s
stockholders; provided, however, that Awards granted prior to such date shall
remain in effect until such Awards have either been satisfied, expired or
canceled under the terms of the Plan, and any restrictions imposed on Shares
in
connection with their issuance under the Plan have lapsed.
Exhibit
10.73
[letterhead]
Delivered
by Hand
April
4,
2007
Timothy
R. Snider
President
& Chief Operating Officer
Phelps
Dodge Corporation
One
North
Central Avenue
Phoenix,
Arizona 85004
Dear
Tim:
This
follows up on and confirms your discussions with Richard C. Adkerson with
respect to your continuing role with Freeport-McMoRan Copper & Gold Inc.
(“Freeport”) after the closing of the transaction with Phelps Dodge Corporation
(the “Transaction”). The special terms and conditions of your employment with
Freeport are set forth below for your consideration, and are subject to approval
by the Corporate Personnel Committee of Freeport’s board of directors. The
remaining terms and conditions of your employment will be consistent with the
current terms of your Phelps Dodge employment subject to any changes in those
terms and conditions adopted by
Freeport
and generally applicable to all similarly situated employees.
·
Title
:
Effective as of the date of the Transaction, you will continue your current
position as President & Chief Operating Officer of Phelps Dodge Corporation
and you will be President & Chief Operating Officer of Freeport reporting to
Richard C. Adkerson.
·
Base
Salary.
Effective as of April 1, 2007 your base salary will be $62,500.00 per month
($750,000 annualized).
·
Incentive
Payment.
You will
be entitled to participate in our executive incentive programs consistent with
your position in the company.
·
Special
Payment.
Within
five days of the later of the approval of the terms of this letter by the
Corporate Personnel Committee of Freeport’s board of directors and your
acceptance of the terms of this letter, you will be paid the lump sum gross
amount of $3,007,470.00, which will be subject to all applicable tax and other
withholdings. This payment is in lieu of any cash severance payment that would
otherwise have been available to you upon a “Qualifying Termination” (as that
term is defined in your Change of Control Agreement (Amended and Restated
Effective January 1, 2005) (“Agreement”)) on the date of the closing of the
Transaction.
·
Supplemental
Retirement Plan Benefits.
The
supplemental retirement plans sponsored by Phelps Dodge and Freeport will be
amended such that you will receive a lump sum payment of your supplemental
retirement benefits pursuant to the terms of the Phelps Dodge Corporation
Supplemental Retirement Plan (or any successor plan) (“PD SERP”) or from a
Freeport sponsored supplemental retirement plan (“FCX SERP”) on the date which
is six months following the date on which your employment terminates for any
reason; provided, however, that in no event shall such lump amount be paid
earlier than January 1, 2008. This lump sum payment will be paid, regardless
of
when your termination of employment actually occurs, in accordance with the
terms and conditions that would currently apply under the PD SERP in the event
that your employment were to terminate in a Qualifying Termination as defined
in
the Agreement within two years of the Transaction and will be subject to all
applicable tax and other withholdings. The amount of this lump sum payment
will
consist of the following components (i) the lump sum value of the accrued
benefit to which you would have been entitled under the PD SERP had you
experienced a “Qualifying Termination” (as defined in your Agreement) on the
date of the closing of the Transaction without regard to the “COC Incremental
Benefit” (as such term is defined in the PD SERP); and (ii) the lump sum value
of any accrued benefit earned under the PD SERP and/or the FCX SERP based on
your continued service with FCX after the closing of the Transaction plus the
COC Incremental Benefit.
·
Executive
Life Insurance Policy.
For
purposes of determining your right to receive the transfer of any life insurance
policies on your life pursuant to the Phelps Dodge Executive Life Insurance
Plan, your termination of employment with Freeport, regardless of when or the
reason why it occurs, shall be treated as a termination on account of or after
a
Change of Control.
·
Miscellaneous
Benefits.
To the
extent that pursuant to your Agreement you would have been entitled to any
benefits (including, without limitation, any “gross-up” payment in respect any
excise taxes on “parachute payments”) in addition to those described above had
you experienced a Qualifying Termination on the closing date of the Transaction,
then those benefits will be paid or otherwise made available to you on the
date
of your termination of employment with Freeport for any reason or, in the case
of any such gross-up payment, as and when the applicable excise taxes are due
and payable.
·
Additional
Terms.
○ The
benefits provided for in this letter are not intended to duplicate any benefits
that would otherwise be due to you under your Agreement. Any benefits provided
for in your Agreement that are not specifically addressed in this letter will
be
paid upon your
termination
of employment from Freeport at any time and for any reason, and otherwise
in
accordance with the terms and conditions of your Agreement. To the extent the
benefits of your Agreement are provided in accordance with the terms of this
letter then the applicable provisions of your Agreement will be superseded
by
this letter.
○ Except
as otherwise expressly provided above, all payments set forth above shall be
paid in accordance with and subject to the provisions of Internal Revenue Code
Section 409A. For the avoidance of doubt, this means that, unless at the date
of
such termination you are not a specified employee of Freeport and its affiliated
companies, within the meaning of such Section 409A, any payment or other
distribution of compensation that is due upon
your
termination of employment and that pertains, in whole or in part, to services
rendered
in any year prior to the year in which occurs the date of payment shall be
made
six months following the date of your termination of employment. Freeport agrees
that it will indemnify and hold you harmless for any additional taxes and any
penalties and interest that you incur pursuant to such Section 409A with regard
to payments made to you in accordance with the terms of this
letter.
We
believe that you will contribute significantly to the new Freeport as we seek
to
create value for our shareholders. We look forward to you being a valued member
of our team.
If
these
terms are acceptable to you, please acknowledge your agreement
below.
Sincerely,
Michael
J. Arnold
Executive
Vice President
Phelps
Dodge Corporation
Acknowledged
and agreed to:
By:
/s/
Timothy R. Snider
Timothy
R. Snider
Date
4/4/2007
Acknowledged
and agreed to Freeport-McMoRan Copper & Gold Inc.:
By: /s/
Michael J. Arnold
Michael
J. Arnold
Chief
Administrative Officer
Freeport-McMoRan
Copper and Gold Inc.
Date
4/4/2007
Exhibit
10.76
AMENDMENT
TO THE
ELIP
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
(ENDORSEMENT
METHOD
AMENDMENT
(the “
Amendment
”)
to
Executive Life Insurance Plan Split Dollar Life Insurance Agreement (Endorsement
Method) (the “
Agreement
”),
dated
as of July 14, 2003 by and between Phelps Dodge Corporation, a New York
corporation (the “
Corporation
”),
and
certain individuals as designated by the Corporation, in its sole discretion,
for participation in the Executive Life Insurance Plan (the “
Participants
”),
dated
as of March 5, 2007. Terms used without definition herein shall have the
respective meanings set forth in the Agreement.
WHEREAS,
the Corporation adopted a revised Executive Life Insurance Plan, effective
January 1, 2003 (the “
Plan
”),
which
is the current version of the Plan;
WHEREAS,
some Participants in the Plan have life insurance policies issued pursuant
to
the Plan;
WHEREAS,
Section 409A of the U.S. Internal Revenue Code (“
Section
409A
”)
became
effective as of January 1, 2005;
WHEREAS,
guidance issued by the U.S. Internal Revenue Service permits service providers
to amend their employee benefit plans (such as the Plan and the Agreement)
to
bring them into documentary compliance with Section 409A, including amendments
which avoid the application of Section 409A;
WHEREAS,
the Corporation has been performing its obligations under the Agreement in
good
faith compliance with Section 409A;
WHEREAS,
the Corporation’s board of directors, by resolution dated November 18, 2006 (the
“Resolution”), authorized certain officers of the Corporation, in the name and
on behalf of the Corporation, to amend the Corporation’s employee benefit plans
or similar arrangements as are necessary and appropriate to comply with Section
409A; and
WHEREAS,
an authorized officer, in the name and on behalf of the Corporation, has
determined that it is necessary or desirable to amend the Agreement to bring
it
into documentary compliance with Section 409A and related Internal Revenue
Service guidance and proposed regulations.
AMENDMENT
NOW,
THEREFORE, the Agreement is hereby amended as follows:
1.
|
This
Amendment shall be effective as of January 1, 2005.
|
2.
|
Subsection
(a) of Section 9 of the Agreement is hereby amended by inserting
the
following language at the end of such subsection:
|
“Any
transfer of the Policy to the Participant pursuant to this Section 9(a) shall
be
made ten business days after the Participant’s termination date, except that if
(i) the Participant is a “specified employee” within the meaning of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) such
Participant’s employment is terminated other than on account of his death and
(iii) such termination occurs on or after March 1 of the calendar year following
the calendar year in which first of the following events shall have occurred:
(x) a Change of Control, (y) the Participant has qualified for Retirement and
(z) the Participant has incurred a Disability then such transfer of the Policy
shall be made on the first business day after the six month anniversary of
the
Participant’s termination date.”
3.
|
The
Agreement is hereby amended to add as new Section 17 (and existing
Section
17 of the Agreement is hereby renumbered as Section 18 accordingly):
|
“SECTION
409A: The Corporation and the Participants acknowledge and agree that any and
all payments and transfers made under this Agreement are intended to comply
with
the applicable requirements of Section 409A of the Code and the regulations
and
guidance of the Department of the Treasury interpreting and implementing Section
409A.”
4.
|
The
remaining provisions of the Agreement shall remain in full force
and
effect.
|
[Remainder
of page is intentionally left blank]
IN
WITNESS WHEREOF, the Corporation has duly executed this Amendment by its
authorized representative and the Participant has hereunto set
«Gender»
hand, in
each case as of the date of this Amendment.
PHELPS
DODGE CORPORATION
By:__/s/
Nancy F. Mailhot_________________________
Name:
Nancy F. Mailhot
Title: Senior Vice President-
Human
Resources
PARTICIPANT:
_________________________
Exhibit
10.77
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
RETIREMENT
PLAN
Amended
and Restated effective January 1, 2005
TABLE
OF CONTENTS
ARTICLE
I PREAMBLE
|
1
|
ARTICLE
II DEFINITIONS
|
1
|
2.1
DEFINITIONS
2.2
CONSTRUCTION
2.3
REFERENCES TO RETIREMENT PLAN
|
1
5
5
|
ARTICLE
III ELIGIBILITY
3.1
SELECTION OF PARTICIPANTS
3.2
DISCONTINUANCE OF PARTICIPATION
3.3
ADOPTION BY AFFILIATES
3.4
CHANGE IN AFFILIATE STATUS
ARTICLE
IV ELIGIBILITY FOR BENEFITS
4.1
NORMAL RETIREMENT
4.2
EARLY RETIREMENT
4.3
LATE RETIREMENT
4.4
SPECIAL EARLY RETIREMENT
4.5
DISABILITY
4.6
TERMINATION OF EMPLOYMENT
4.7
DEATH BEFORE RETIREMENT
4.8
CYPRUS DEATH BENEFIT
4.9
DEATH AFTER RETIREMENT
4.10
SPECIAL VESTING PROVISION APPLICABLE ON SALE OF ACCURIDE
ARTICLE
V DETERMINATION OF BENEFITS
5.1
NORMAL RETIREMENT BENEFIT
5.2
EARLY RETIREMENT BENEFIT
5.3
LATE RETIREMENT BENEFIT
5.4
SPECIAL EARLY RETIREMENT BENEFIT
5.5
DISABLED EMPLOYEE BENEFIT
5.6
DEFERRED VESTED RETIREMENT BENEFIT
5.7
SURVIVING SPOUSE BENEFIT - DEATH BEFORE RETIREMENT
5.8
TIMING ADJUSTMENTS
ARTICLE
VI PAYMENT OF BENEFITS
6.1
TIME OF DISTRIBUTION OF BENEFITS
6.2
PARTICIPANT ELECTIONS
|
6
6
6
7
7
7
7
7
8
8
8
8
9
9
9
9
10
10
11
12
12
12
12
13
13
13
13
14
|
6.3
FORMS OF BENEFIT PAYMENTS
6.4
SPOUSAL CONSENT
6.5
BENEFICIARY DESIGNATIONS
6.6
IN-SERVICE PAYMENT OF BENEFITS
6.7
SPECIAL PAYMENT PROVISION APPLICABLE ON SALE OF AFFILIATE
ARTICLE
VII ADMINISTRATION OF THE PLAN
7.1
ADOPTION OF TRUST
7.2
POWERS OF THE PLA ADMINISTRATOR
7.3
BENEFITS ADMINISTRATION COMMITTEE
7.4
APPOINTMENT OF AGENTS
7.5
CONFLICT OF INTEREST
7.6
ACTION TAKEN BY COMPANY
7.7
DELEGATIONS OF AUTHORITY
7.8
INDEMNIFICATION
ARTICLE
VIII CLAIMS REVIEW PROCEDURE
8.1
APPLICATION FOR BENEFITS NOT REQUIRED
8.2
CLAIMS PROCEDURES
ARTICLE
IX LIMITATION ON ASSIGNMENT; PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE;
CORRECTIONS
9.1
ANTI-ALIENATION CLAUSE
9.2
PERMITTED ARRANGEMENTS
9.3
PAYMENT TO MINOR OR INCOMPETENT
9.4
UNDERPAYMENT OR OVERPAYMENT OF BENEFITS
ARTICLE
X AMENDMENT, MERGER AND TERMINATION
10.1
AMENDMENT
10.2
MERGER OR CONSOLIDATION OF COMPANY
10.3
TERMINATION OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS
ARTICLE
XI CHANGE OF CONTROL PROVISIONS
11.1
ADDITIONAL SERVICE CREDIT
11.2
70/80 RETIREMENT BENEFIT
11.3
PLAN ADMINISTRATOR DISCRETION
11.4
SPECIAL LUMP SUM OPTION
ARTICLE
XII GENERAL PROVISIONS
|
15
16
17
17
17
18
18
18
19
19
19
19
19
19
20
20
20
23
23
24
24
24
24
24
24
25
25
25
25
26
26
27
|
12.1
LIMITATION ON PARTICIPANTS’ RIGHTS
12.2
STATUS OF PARTICIPANTS AS UNSECURED CREDITORS
12.3
STATUS OF TRUST FUND
12.4
CANCELLATION OR REDUCTION OF BENEFITS
12.5
UNIFORM ADMINISTRATION
12.6
HEIRS AND SUCCESSORS
12.7
NO
LIABILITY FOR ACCELERATION OF PAYMENTS
12.8
SECTION
409A
|
27
27
27
27
27
28
28
28
|
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
RETIREMENT PLAN
ARTICLE
I
PREAMBLE
Phelps
Dodge Corporation (the “Company”), a corporation organized and existing under
the laws of the State of New York, previously adopted the Comprehensive
Executive Non-qualified Retirement and Savings Plan of Phelps Dodge Corporation
(the “Comprehensive Plan”). The Comprehensive Plan consisted, primarily, of
supplemental executive retirement provisions and supplemental executive savings
provisions. In 1997, the Company split the Comprehensive Plan into two separate
plans, the Phelps Dodge Corporation Supplemental Savings Plan (the “SSP”) and
the Phelps Dodge Corporation Supplemental Retirement Plan. The Company amended
and restated the Phelps Dodge Corporation Supplemental Retirement Plan (the
“Plan”) in its entirety, effective, generally, as of January 1, 2001.
By
the
adoption of this document, the Company amends and restates the Phelps Dodge
Corporation Supplemental Retirement Plan (the “Plan”) in its entirety. This
amended and restated Plan document is effective, generally, as of January 1,
2005 (the “Effective Date”), but special effective dates may apply to particular
provisions, as noted below.
By
action
taken on November 15, 2000, the Cyprus Amax Minerals Company Supplemental
Executive Retirement Plan was merged into the Plan, effective as of January
1,
2001. Effective as of the same date, Cyprus Amax Minerals Company (“Cyprus”)
became a participating employer under this Plan. As of the Effective Date,
all
benefits previously accrued under either the Plan or the Cyprus Amax Minerals
Company Supplemental Executive Retirement Plan shall be governed by the terms
and provisions of this Plan document, which also serves as a complete amendment
and restatement of the Cyprus Amax Minerals Company Supplemental Executive
Retirement Plan.
The
purpose of this Plan is to provide a select group of management or highly
compensated employees of the Company and certain of its affiliates with
supplemental retirement benefits. As a result, the Plan shall be considered
to
be a “top hat plan”, exempt from many of the requirements of the Employee
Retirement Income Security Act of 1974 (“ERISA”). This Plan is not intended to
“qualify” for favorable tax treatment pursuant to Section 401(a) of the
Internal Revenue Code of 1986 (the “Code”) or any successor section or
statute.
ARTICLE
II
DEFINITIONS
When
a
word or phrase appears in this Plan with the initial letter capitalized, and
the
word or phrase does not begin a sentence, the word or phrase shall generally
be
a term defined in this Section 2.1 or in the Preamble. The following words
and phrases used in the Plan with the initial letter capitalized shall have
the
meanings set forth in this Section 2.1, unless a clearly different meaning
is required by the context in which the word or phrase is used:
(a)
“
Act
”
means
the Employee Retirement Income Security Act of 1974, as amended.
(b)
“
Actuarial
Equivalent
”
means
a
benefit of equal value when computed using an indicated mortality table,
interest rate and annuity conversion factors. Except as otherwise noted below,
the mortality tables, and interest rates specified in Section 1.1(c)
(
Definitions
- Actuarial Equivalent
)
of the
Retirement Plan and the annuity conversion factors set forth in Article V
(
Payment
of Benefits
)
of the
Retirement Plan shall be utilized in making Actuarial Equivalency determinations
for purposes of this Plan. For purposes of calculating any lump sum payments
attributable to the Cyprus Minimum Benefit, the Plan Administrator shall use
the
interest rates and mortality table set forth in Section 1.2(a)
(
Definitions
- Actuarial Equivalent
)
of the
Phelps Dodge Retirement Plan Supplement No. 14 - Cyprus Salaried
Employees.
(c)
“
Affiliate
”
means
(1) a corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as is the Company,
(2) any other trade of business (whether or not incorporated) controlling,
controlled by, or under common control with the Company (within the meaning
of
Section 414(c) of the Code), (3) any other corporation, partnership,
or other organization which is a member of an affiliated service group (within
the meaning of Section 414(m) of the Code) with the Company, and
(4) any other corporation, partnership, or other organization which is
otherwise required to be aggregated with the Company pursuant to
Section 414(o) of the Code.
(d)
“
AICP
”
means
the
Phelps Dodge Annual Incentive Compensation Plan, as in effect and as amended
from time to time or any plan or program that specifically replaces the
AICP.
(e)
“
Benefits
Administration Committee
”
or
“
Committee
”
means
the
committee appointed by the Board of Directors in accordance with
Section 7.1 (
Benefits
Administration Committee
)
of the
Retirement Plan.
(f)
“
Board
of Directors
”
means
the
Board of Directors of the Company.
(g)
“
Change
of Control
”
For
purposes of this Plan, the phrase “Change of Control” shall have the same
meaning as given to that phrase in the Company’s Change of Control Agreements as
may be in effect from time to time.
(h)
“
Change
of Control Agreement
”
means
the
agreement entered into by and between the Participant and the Company which
provides the Participant with certain termination benefits in the event that
the
Participant’s employment with the Company or any subsidiary of the Company is
terminated under certain limited circumstances as a result of a Change of
Control.
(i)
“
COC
Incremental Benefit
”
means
the benefit defined in Section 11.4 herein.
(j)
“
Code
”
means
the
Internal Revenue Code of 1986, as amended.
(k)
“
Cyprus
Minimum Benefit
”
means
the
“Supplemental Benefit” a Cyprus SERP Participant would have been entitled to
receive pursuant to Article V (
Computation
of Supplemental Benefit
)
of the
Cyprus SERP if the Cyprus SERP Participant had terminated
employment
as of December 31, 2000 after taking into account any amounts previously paid
pursuant to Section 6.6 (
Change
in Control
)
of the
Cyprus SERP.
(l)
“
Cyprus
SERP
”
means
the
Cyprus Amax Minerals Company Supplemental Executive Retirement Plan, as amended
and restated by a document dated January 29, 1998, and as further amended by
Amendment Number 1 dated November 12, 1998 and Amendment Number 2 dated June
4,
1999.
(m)
“
Cyprus
SERP Participant
”
means
any
individual who, as of December 31, 2000, was a participant in the Cyprus
SERP and who, as of January 1, 2001, became a Participant in this Plan
pursuant to Section 3.1(d) (
Selection
of Participants - Cyprus SERP Participants
).
(n)
“
Deferred
Vested Retirement Benefit
”
means
the
benefit payable pursuant to Section 5.6 (
Deferred
Vested Retirement Benefit
)
to a
Participant who terminates employment and is entitled to receive a benefit
pursuant to Section 4.6 (
Termination
of Employment
).
(o)
“
Disability
”
means
a
mental or physical condition that results in a Participant’s receipt, without
considering any offsets, of long-term disability payments under the LTD Plan.
For purposes of this Plan, a Participant shall be conclusively presumed to
be
under Disability only during the period of time that the Participant qualifies
to receive such benefits under the applicable LTD Plan.
(p)
“
Early
Retirement Benefit
”
means
the
benefit payable pursuant to Section 5.2 (
Early
Retirement Benefit
).
(q)
“
Early
Retirement Date
”
means
the
first day of the calendar month next following the later of a Participant’s
attainment of age 55 or completion of ten years of Service.
(r)
“
Employee
”
means
any
individual classified by his Employer as a common law employee of the Employer.
For this purpose, the classification that is relevant is the classification
in
which such individual is placed by the Employer for purposes of this Plan and
the classification of such individual for any other purpose (e.g., employment
tax or withholding purposes) shall be irrelevant. If an individual is
characterized as a common law employee of the Employer by a governmental agency
or court but not by the Employer, such individual shall be treated as an
employee who has not been designated for participation in this Plan pursuant
to
Section 3.1 (
Selection
of Participants
).
(s)
“
Employer
”
means
the
Company and any Affiliate which has elected to participate in the Plan with
the
approval of the Plan Administrator, as provided in Section 3.3
(
Adoption
by Affiliates
).
(t)
“
Late
Retirement Benefit
”
means
the
benefit payable pursuant to Section 5.3 (
Late
Retirement Benefit
).
(u)
“
Late
Retirement Date
”
means
the
first day of any calendar month following a Participant’s Normal Retirement Date
as of which the Participant retires.
(v)
“
LTD
Plan
”
means
the
Company’s Long Term Disability Insurance Plan (or any other similar plan
sponsored by an Employer to provide long term disability benefits) as in effect
from time to time.
(w)
“
Normal
Retirement Age
”
means
the
day on which occurs the later of (1) the Participant’s 65th birthday or (2) the
earlier of (A) the 5th anniversary of the date on which the Participant’s
participation in the Retirement Plan (or any predecessor plan) commenced or
(B)
the date on which the Participant is credited with five years of
Service.
(x)
“
Normal
Retirement Benefit
”
means
the
benefit payable pursuant to Section 5.1 (
Normal
Retirement Benefit
).
(y)
“
Normal
Retirement Date
”
means
the
first day of the month coinciding with or next following a Participant’s Normal
Retirement Age.
(z)
“
Par
ticipant
”
means
any Employee of the Company or any of its Affiliates who is entitled to
participate and who is chosen for participation pursuant to Section 3.1
(
Selection
of Participants
).
(aa)
“
Plan
Administrator
”
means
the
Benefits Administration Committee.
(bb)
“
Plan
Year
”
means
the
12-month period beginning on each January 1 and ending on each December
31.
(cc)
“
Retirement
Plan
”
means
the
Phelps Dodge Retirement Plan.
(dd)
“
Service
”
means,
generally, a Participant’s periods of employment with the Employers calculated
in accordance with the provisions of the Retirement Plan that are applicable
to
the Participant and subject to the following special rules:
(1)
For
Participants terminating employment prior to September 1, 1997, notwithstanding
any provision of the Retirement Plan to the contrary, a Participant’s period of
employment with an Affiliate (including particularly Accuride Corporation,
Columbian Chemicals Company and Hudson International Conductors) during the
period prior to the date such Affiliate became a member of the Company’s
controlled group for purposes of Section 414 of the Code shall be
disregarded for purposes of benefit accrual (e.g., the calculation of the amount
of the Participant’s benefit) but shall be considered for purposes of
determining the Participant’s eligibility for a particular type of
benefit.
(2)
Effective
for Participants terminating employment on or after September 1, 1997 who were
not on or after such date employed by Accuride Corporation, a Participant’s
periods of employment with an Affiliate other than Nesor Alloy Corporation
during the period prior to the date such Affiliate became a member of the
Company’s controlled group for purposes of Section 414 of the Code shall be
considered for all purposes under the Plan, including for purposes of benefit
accrual (e.g., the calculation of the amount of the Participant’s benefit). The
preceding sentence does not apply to individuals employed by Accuride
Corporation on or after September 1, 1997.
(3)
The
Service of a Participant who is classified as a “Cyprus Participant” in
accordance with Section 1.1(v) (
Definitions
- Cyprus Participant
)
of the
Retirement Plan shall be determined in accordance with all of the special
provisions that apply to a “Cyprus Participant” pursuant to the Retirement
Plan.
(4)
The
Service of a Participant who is classified as a “Columbian Participant” pursuant
to Section 1.1(s) (
Definitions
- Columbian Participant
)
of the
Retirement Plan shall be determined in accordance with all of the special
provisions that apply to a “Columbian Participant” pursuant to the Retirement
Plan.
(ee)
“
Special
Early Retirement Benefit
”
means
the
benefit to which a Participant is entitled pursuant to Section 5.4
(
Special
Early Retirement Benefit
).
(ff)
“
Spouse
”
means
the
spouse of a Participant who is legally married to the Participant (under the
laws of the jurisdiction in which the Participant resides) on the date on which
a benefit under the Plan becomes payable to or on behalf of the
Participant.
(gg)
“
Trust
Agreement
”
means
that certain trust agreement established pursuant to the Plan between the
Company and the Trustee or any trust agreement hereafter established, the
provisions of which are incorporated herein by reference.
(hh)
“
Trustee
”
means
the
Trustee under the Trust Agreement.
(ii)
“
Trust
Fund
”
means
all
assets of whatsoever kind or nature held from time to time by the Trustee
pursuant to the Trust Agreement, without distinction as to income and principal
and without regard to source (i.e., contributions, earnings or
forfeitures).
The
masculine gender, where appearing in the Plan, shall include the feminine gender
(and vice versa), and the singular shall include the plural, unless the context
clearly indicates to the contrary. Headings and subheadings are for the purpose
of reference only and are not to be considered in the construction of this
Plan.
If any provision of this Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
All of the provisions of this Plan shall be construed and enforced in accordance
with the laws of the State of Arizona, to the extent that such laws are not
preempted by the Act.
2.3
|
REFERENCES
TO RETIREMENT PLAN
.
|
Any
references to particular sections of the Retirement Plan shall be deemed to
be
references to any amended or substituted provisions if the referenced section
is
amended or replaced.
ARTICLE
III
ELIGIBILITY
3.1
|
SELECTION
OF PARTICIPANTS
.
|
(a)
General
.
Any
Employee who was participating in the Plan prior to January 1, 2000 shall
continue to be eligible to participate in the Plan, subject to the provisions
of
paragraph (c) or Section 3.2 (
Discontinuance
of Participation
).
Effective as of January 1, 2000, all Employees who are eligible to participate
in the AICP are eligible to participate in the Plan, regardless of the
individual Employee’s AICP Grade classification, subject to the provisions of
paragraph (c) or Section 3.2 (
Discontinuance
of Participation
).
From
such group, the Plan Administrator shall select Employees for participation
in
the Plan. The Plan Administrator’s selections shall be made in its sole
discretion and shall be final and binding for all purposes under this
Plan.
(b)
Limitation
on Participation
.
For
purposes of Title I of ERISA, the Plan is intended to be an unfunded plan of
deferred compensation covering a select group of management or highly
compensated employees. As a result, participation in the Plan shall be limited
to Employees who are properly included in one or both of these categories.
The
Plan Administrator, in the exercise of its discretion, may exclude an Employee
who otherwise meets the requirements of paragraph (a) from participation in
the
Plan if it concludes that the exclusion of that Employee is necessary to satisfy
these requirements. The Plan Administrator also may exclude an Employee who
otherwise meets the requirements of paragraph (a) for any other reason, or
for
no reason, as the Plan Administrator deems to be appropriate in its sole
discretion.
(c)
Termination
of
Participation
.
A
Participant shall cease to participate in the Plan upon his termination of
employment with the sponsoring Employers or under the circumstances described
in
Section 3.2 (
Discontinuation
of Participation
),
except
that if he has met the eligibility conditions for an immediate or deferred
vested retirement benefit, he shall remain a Participant for purposes of
receiving his benefit at the appropriate time.
(d)
Cyprus
SERP Participants
.
Any
Employee who was participating in the Cyprus SERP on December 31, 2000, became
eligible to participate in this Plan effective as of January 1, 2001, subject
to
the Plan Administrator’s right to exclude a Participant pursuant to paragraph
(b) or terminate a Participant’s participation pursuant to Section 3.2
(
Discontinuance
of Participation
).
3.2
|
DISCONTINUANCE
OF PARTICIPATION
.
|
Once
an
individual is designated as a Participant, he will continue as such for all
future Plan Years until his participation is discontinued pursuant to this
Section. A Participant’s participation in the Plan is discontinued (a) if he
terminates employment under circumstances that do not entitle him to receive
an
immediate or deferred benefit; (b) if he is transferred to employment with
an
Affiliate or other employer that is not an adopting Employer of this Plan;
(c)
if the Plan Administrator specifically acts to discontinue his participation;
or
(d) effective as of January 1, 2003, immediately when a Participant is no longer
eligible to be a participant in the AICP for whatever reason. The Plan
Administrator may discontinue a Participant’s participation
in
the
Plan at any time for any or no reason. If a Participant’s participation is
discontinued, he will no longer be eligible to accrue additional benefits,
the
amount of his benefit, if any, and his eligibility to receive a particular
type
of benefit, will be determined as of the date of his discontinuance, and he
shall remain a Participant in the Plan solely for the purpose of receiving
his
benefit at the appropriate time. If the Participant is entitled to receive
a
benefit in the future, the benefit payments will be postponed until the
occurrence of one of the events listed in Article IV (
Eligibility
for Benefits
),
unless
the Plan Administrator, in the exercise of its discretion, directs that a
distribution be made as of an earlier date. If the Plan Administrator directs
that a Participant’s benefits be distributed as of an earlier date, the
Participant’s benefits shall be distributed in one lump sum payment that is the
Actuarial Equivalent of the Participant’s accrued benefit, calculated as if the
Participant’s employment had been terminated.
3.3
|
ADOPTION
BY AFFILIATES
.
|
Any
Affiliate of the Company may adopt this Plan with the approval of the Plan
Administrator. An Affiliate will be deemed to have adopted this Plan if any
of
its employees are Participants in the Plan or file an election to participate
with the consent of the Affiliate. At the request of the Plan Administrator,
the
Affiliate also shall evidence its adoption of the Plan by an appropriate
resolution of its board of directors or in such other manner as may be
authorized by the Plan Administrator. By adopting this Plan, the Affiliate
shall
be deemed to have agreed to make the contributions necessary to pay the benefits
accrued by its Participants, agreed to comply with all of the other terms and
provisions of this Plan, delegated to the Plan Administrator the power and
responsibility to administer this Plan with respect to the Affiliate’s
Employees, delegated to the Company the full power to amend or terminate this
Plan with respect to the Affiliate’s Employees and as otherwise permitted by the
Plan.
3.4
|
CHANGE
IN AFFILIATE STATUS
.
|
If
an
Affiliate that has adopted this Plan ceases to be an Affiliate of the Company,
that Affiliate shall no longer be an Employer and all Participants employed
by
that Affiliate on the date the Affiliate ceases to be an Affiliate shall be
deemed to have terminated employment on such date.
ARTICLE
IV
ELIGIBILITY
FOR BENEFITS
A
Pa
rticipant
whose
employment with all Employers terminates on his Normal Retirement Date shall
receive the Normal Retirement Benefit provided by Section 5.1 (
Normal
Retirement
Benefit
).
A
Pa
rticipant
whose
employment with all Employers terminates on or after his Early Retirement Date
shall receive an Early Retirement Benefit as provided in Section 5.2
(
Early
Retirement
Benefit
)
commencing on the first day of any month designated by him, but not later than
his Normal Retirement Date.
A
Pa
rticipant
whose
employment with all Employers terminates after his Normal Retirement Date shall
be entitled to receive a Late Retirement Benefit calculated in accordance with
Section 5.3 (
Late
Retirement Benefit
).
4.4
|
SPECIAL
EARLY RETIREMENT
.
|
A
Pa
rticipant
shall be
entitled to receive a Special Early Retirement Benefit as provided in
Section 5.4 (
Special
Early Retirement Benefit
)
if he
satisfies the special early retirement eligibility criteria set forth in
Section 3.3(a) (
Special
Early Retirement
)
of the
Retirement Plan.
(a)
Continued
Accrual
.
A
Participant who is suffering from a Disability and receives benefits under
the
LTD Plan shall for all purposes of this Plan be deemed to remain in employment
during the period for which he receives such benefits under the same employment
conditions that prevailed prior to his Disability. The special benefit
computation rules applicable to a Participant who is absent from work on account
of a Disability which are set forth in Section 1.1(ee) (
Definitions
- Final Average Monthly Compensation
)
of the
Retirement Plan, shall apply in the computation of the benefit for such a
Participant.
(b)
Recovery
.
In
the
event that the Participant recovers from Disability, or ceases to receive
benefits under the LTD Plan, and returns to the Service of an Employer, he
shall
thereafter become eligible for benefits under the same terms and conditions
as
if he had not been Disabled. If such a Participant who recovers from Disability
or ceases to receive benefits under the LTD Plan does not return to Service
with
the Employer, his employment shall be deemed to have terminated as of the date
of such recovery or cessation of benefits and, if eligible, he shall become
entitled to a Deferred Vested Retirement Benefit, Early Retirement Benefit,
or
Normal Retirement Benefit as the case may be.
(c)
Special
Situations
.
A
Participant who is Disabled but is not covered under the LTD Plan shall be
eligible for the benefits of this Section if, in the judgment of the Plan
Administrator, he would be eligible to receive benefits under the LTD Plan
if he
were so covered.
4.6
|
TERMINATION
OF EMPLOYMENT
.
|
If
a
Participant’s employment with all Employers is terminated, voluntarily or
otherwise, for reasons other than death, Disability, or retirement, after the
Participant has completed at least five years of Service, he will be entitled
to
a Deferred Vested Retirement Benefit. The Deferred Vested Retirement Benefit
shall be determined in accordance with Section 5.6 (
Deferred
Vested
Retirement
Benefit
)
and
will commence on the first day of the month following the Participant’s 65th
birthday. If the Participant has completed at least ten years of Service prior
to his termination of employment, the Deferred Vested Retirement Benefit may
commence on the first day of any month following the Participant’s 55th birthday
if the Participant so elects in
accordance
with Section 6.2 (
Participant
Elections
).
Except
as noted below, if a Participant’s employment is terminated for reasons other
than death, Disability, or retirement and at the time of the termination the
Participant has not completed five years of Service, the benefit accrued by
the
Participant prior to the termination shall be forfeited. For this purpose,
“retirement” means the termination of employment after a Participant has
attained his Early or Normal Retirement Date. A Cyprus SERP Participant shall
have a fully vested interest in his Cyprus Minimum Benefit at all
times.
4.7
|
DEATH
BEFORE RETIREMENT
.
|
If
a
Participant who has been married for at least one year dies (a) while in
employment with an Employer after completing five years of Service or his age
and Service total at least 65 or (b) following termination of employment if
the
Participant was entitled to a benefit under Section 4.6 (
Termination
of Employment
)
and
benefit payments have not yet commenced, the Participant’s Spouse shall receive
an annuity, payable for life, in accordance with Section 5.7 (
Surviving
Spouse Benefit - Death Before Retirement
).
A
Participant shall be deemed to have died while in employment if immediately
before his death he was Disabled for purposes of Section 4.5 (
Disability
).
Except
as otherwise provided in Section 4.8 (
Cyprus
Death Benefit
),
no
death benefits are payable upon the death of an unmarried Participant or a
Participant who has been married for less than one year on the date of
death.
4.8
|
CYPRUS
DEATH BENEFIT
.
|
If
a
Cyprus SERP Participant dies before the commencement of benefits, a special
death benefit will be paid to the beneficiary designated by the Cyprus SERP
Participant in accordance with Section 6.5 (
Beneficiary
Designations
).
The
death benefit will be paid in one lump sum on the later of 15 calendar days
or
the first day of the next month following such death, and will be the Actuarial
Equivalent of the Participant’s Cyprus Minimum Benefit. The Actuarial Equivalent
of the special death benefit shall reduce any benefits payable to the
Participant’s Surviving Spouse pursuant to Section 5.7 (
Surviving
Spouse Benefit - Death Before Retirement
).
4.9
|
DEATH
AFTER RETIREMENT
.
|
If
a
Participant dies after benefit payments have commenced, further payments, if
any, under the Plan will be made in accordance with the method of payment
applicable under ARTICLE VI (
Payment
of Benefits
).
4.10
|
SPECIAL
VESTING PROVISION APPLICABLE ON SALE OF ACCURIDE
.
|
Part
icipants
who were
employed by Accuride Corporation as of the date that Accuride ceased to be
an
Affiliate for purposes of this Plan were fully vested and are eligible to
receive a Deferred Vested Retirement Benefit regardless of whether they have
completed five years of Service.
ARTICLE
V
DETERMINATION
OF BENEFITS
5.1
|
NORMAL
RETIREMENT BENEFIT
.
|
(a)
General
.
Subject
to the provisions of paragraph (b) and the offsets called for by paragraphs
(c),
(d) and (e), the Normal Retirement Benefit to which a Participant will be
entitled if he terminates employment with all Employers on his Normal Retirement
Date shall equal the monthly “Normal Retirement Benefit” (as such term is
defined in the Retirement Plan) to which the Participant would be entitled
under
the Retirement Plan if:
(1)
In
the
case of any Participant other than an Employee of Accuride Corporation, the
Participants were covered by the “Benefit Structure” (as such term is defined in
Section 1.1(w) (
Definitions
- Benefit Structure
)
of the
Retirement Plan) applicable to the Company’s salaried employees and disregarding
any special benefits applicable to “ASWI Salaried Participants” pursuant to
Section 4.1(g) (
Normal
and Late Retirement Benefits -
Termination
after Transfer from a Transition Plan Supplement
)
of the
Retirement Plan, “Cyprus Participants” pursuant to Section 4.1(h)
(
Normal
and Late Retirement Benefits - Termination
After
Cyprus Plan Merger
)
of the
Retirement Plan, “Columbian Participants” pursuant to Section 4.1(i)
(
Normal
and Late Retirement Benefits - Termination after Transfer from Columbian Plan
Supplement
)
of the
Retirement Plan, or Kennecott Participants pursuant to Section 4.1(j)
(
Special
Benefit Formula for Kennecott Participants
)
of the
Retirement Plan.
(2)
In
the
case of any Participant who is an Employee of Accuride Corporation, the
Participants were covered by the Benefit Structure under the Retirement Plan
that is applicable to Accuride Employees;
(3)
The
limitations included in the Retirement Plan to comply with the provisions of
Section 401(a)(17) of the Code (which limits the amount of compensation
that may be taken into account for purposes of the Plan) were not applicable;
and
(4)
The
limitations included in the Retirement Plan to comply with the provisions of
Section 415 of the Code (which limits the amount of a Participant’s
benefit) were not applicable.
(b)
Cyprus
SERP Participants
.
In
the
case of a Cyprus SERP Participant, the Normal Retirement Benefit shall be the
greater of (1) the Normal Retirement Benefit calculated pursuant to paragraph
(a) as of the date on which the Participant terminates employment with all
Employers, or (2) the Cyprus Minimum Benefit.
(c)
Retirement
Plan Offset
.
The
benefit determined pursuant to paragraph (a) or (b) shall be reduced by the
“Retirement Plan Offset.” The “Retirement Plan Offset” is the monthly “Normal
Retirement Benefit” (as such term is defined in Section 1.1(ss)
(
Definitions
- Normal Retirement Benefit
)
of the
Retirement Plan) to which the Participant is actually entitled under the
Retirement Plan. For purposes of calculating the Retirement Plan Offset, the
Participant’s gross “Normal Retirement Benefit” under the Retirement Plan,
before the reduction
called
for by Section 4.7 (
Reduction
for Other Plans
)
of the
Retirement Plan or any similar reduction or offset, will be used.
(d)
Non-Qualified
Plan Offset
.
The
benefit determined pursuant to paragraph (a) or (b) also shall be reduced by
the
“Non-Qualified Plan Offset.” The “Non-Qualified Plan Offset” is the monthly
benefit to which the Participant is entitled as of his Normal Retirement Date
under any other defined benefit plan or arrangement sponsored by an Employer
(a
“Non-Qualified Plan”) other than the Cyprus SERP or a plan or arrangement that
expressly provides that its purpose is to supplement the benefits provided
by
this Plan and the Retirement Plan.
(e)
Cyprus
SERP Offset
.
The
Normal Retirement Benefit determined pursuant to paragraphs (a) or (b) also
shall be reduced by the “Cyprus SERP Offset.” The Cyprus SERP Offset is equal to
the “Supplemental Benefit” calculated pursuant to Article V (
Computation
of
Supplemental
Benefit
)
of the
Cyprus SERP that was distributed to the Participant in the form of an
actuarially equivalent lump sum pursuant to Section 6.6 (
Change
in Control
)
of the
Cyprus SERP or otherwise. The Cyprus SERP Offset will be expressed as a single
life annuity beginning on a Participant’s Normal Retirement Date. If a Cyprus
SERP Participant’s Normal Retirement Benefit is equal to the Cyprus Minimum
Benefit, the Cyprus SERP offset will not apply since the Cyprus Minimum Benefit
has been adjusted to reflect the earlier payment from the Cyprus
SERP.
(f)
Adjustments
.
If
the
Participant is covered by a Benefit Structure of the Retirement Plan or by
a
Non-Qualified Plan pursuant to which the Normal Retirement Benefit is expressed
in a normal form other than a single life annuity for the life of the
Participant, the Participant’s benefit shall be converted to an Actuarially
Equivalent single life annuity for purposes of calculating the Retirement Plan
Offset and the Non-Qualified Plan Offset.
(g)
Effective
Date
.
The
provisions of paragraph (a) only apply to a Participant who terminates
employment on or after September 1, 1997. The Normal Retirement Benefits of
a
Participant who terminated employment prior to September 1, 1997 shall be
determined in accordance with the provisions of the Comprehensive Plan as in
effect prior to the adoption of the Plan.
5.2
|
EARLY
RETIREMENT BENEFIT
.
|
A
Pa
rticipant’s
Early
Retirement Benefit will be calculated in the same fashion as his Normal
Retirement Benefit but on the basis of the Service and compensation earned
by
the Participant as of his actual date of retirement. The Early Retirement
Benefit so calculated shall be reduced in the same fashion as “Early Retirement
Benefits” (as such term is defined in Section 1.1(z) (
Definitions
- Early Retirement Benefit
)
of the
Retirement Plan) are reduced (if at all) for individuals covered by the
Retirement Plan Benefit Structure applicable to salaried employees of the
Company. Since the Early Retirement Benefit reductions for individuals covered
by the Retirement Plan Benefit Structure applicable to salaried employees of
the
Company will be used, the provisions of Section 4.2(d) (
Early
Retirement Benefit - Special
Rules
for All Salaried Work Force Initiative
)
of the
Retirement Plan, Section 4.2(e) (
Early
Retirement Benefit - Special Rule for Cyprus Participants
)
of the
Retirement Plan and Section 4.2(f) (
Early
Retirement Benefit - Special Rules for Columbian Participants
)
of the
Retirement Plan will be disregarded. The Early Retirement Benefit of a Cyprus
SERP Participant will not be less than the
Cyprus
Minimum Benefit, reduced by applying the early retirement reduction provisions
referred to in Section 4.2(b) (
Special
Calculation Rules Applicable to Minimum Benefit
)
of the
Phelps Dodge Retirement Plan Supplement No. 14 - Cyprus Salaried
Employees.
5.3
|
LATE
RETIREMENT BENEFIT
.
|
A
Pa
rticipant’s
Late
Retirement Benefit will be calculated in the same fashion as his Normal
Retirement Benefit but on the basis of the Service and compensation earned
by
the Participant as of his actual date of retirement.
5.4
|
SPECIAL
EARLY RETIREMENT BENEFIT
.
|
(a)
General
Rule
.
The
Special Early Retirement Benefit shall equal the monthly “Special Early
Retirement Benefit” to which the Participant would be entitled under
Section 4.3 (
Special
Early Retirement Benefit
)
of the
Retirement Plan, including any supplements to which the Participant would be
entitled under the Retirement Plan, calculated using all of the assumptions
set
forth in clauses (1) through (5) of the first sentence of Section 5.1 (a)
(
Normal
Retirement
Benefit - General
)
and
disregarding the limitation set forth in Section 3.3 (b) (
Special
Early
Retirement - Exclusions
)
of the
Retirement Plan. The benefit so determined shall be reduced by the “Retirement
Plan Offset,” the “Non-Qualified Plan Offset,” and the “Cyprus SERP Offset”
described in Section 5.1 (
Normal
Retirement Benefit
).
(b)
Special
Rule
for
Cyprus
SERP Participants
.
If
a
Cyprus SERP Participant is entitled to a Special Early Retirement Benefit,
the
benefit will equal the greater of (1) the benefit determined in accordance
with
paragraph (a) or (2) the Cyprus Minimum Benefit reduced for early commencement
by applying the early retirement reduction rules set forth in
Section 4.3(d) (
Special
Early Retirement Benefit - Special Rule for Cyprus Participants
)
of the
Retirement Plan.
5.5
|
DISABLED
EMPLOYEE BENEFIT
.
|
A
Pa
rticipant
who is
suffering from a Disability and meets the requirements of Section 4.5
(
Disability
)
shall
become entitled at his Normal Retirement Date to a benefit determined in
accordance with Section 5.1 (
Normal
Retirement Benefit
).
A
Participant who has recovered from Disability or has ceased to receive benefits
under the LTD Plan, and who does not return to the Service of the Employers,
may
be entitled to a Deferred Vested Retirement Benefit or to an Early Retirement
Benefit, as applicable.
5.6
|
DEFERRED
VESTED RETIREMENT BENEFIT
.
|
A
Pa
rticipant’s
annual
Deferred Vested Retirement Benefit will be calculated as of the date of
termination under Section 3.1(c) (
Selection
of Participants - Termination of Participation
)
Section 3.4 (
Change
in Affiliate Status
)
or
Section 4.6 (
Termination
of Employment
),
the
date of a Change of Control under ARTICLE XI (
Change
of Control Provisions
),
or the
date of discontinuance of participation under Section 3.2 (
Discontinuance
of Participation
),
as
applicable. A Participant’s Deferred Vested Retirement Benefit shall be reduced
for the commencement of payments prior to the Participant’s Normal Retirement
Date in accordance with the provisions of
Section 4.5
(
Deferred
Vested Retirement Benefit
)
of the
Retirement Plan, including the special rules that apply for Cyprus and Columbian
Participants.
5.7
|
SURVIVING
SPOUSE BENEFIT - DEATH BEFORE RETIREMENT
.
|
Subject
to the reductions noted below, the annual amount of the annuity payable to
a
surviving Spouse pursuant to Section 4.7 (
Death
Before Retirement
)
shall
equal the annuity to which the Spouse would be entitled under the Retirement
Plan if the Participant’s “Accrued Benefit” (as that term is used in the
Retirement Plan) under the Retirement Plan was calculated using the assumptions
set forth in clauses (1) through (5) of the first sentence of
Section 5.1(a) (
Normal
Retirement Benefit - General
).
The
amount so determined shall be reduced by the annuity to which the Spouse is
actually entitled under the Retirement Plan or any Non-Qualified Plan (as such
term is defined in Section 5.1(d) (
Normal
Retirement Benefit - Non-Qualified Plan
Offset
)).
The
reductions referred to in the preceding sentence shall be adjusted in the same
fashion as the “Retirement Plan Offset” and “Non-Qualified Plan Offset” are
adjusted pursuant to Section 5.1 (
Normal
Retirement Benefit
).
The
payments to the Spouse shall commence on the later of 15 calendar days or the
first day of the month next following the Participant’s death. If a benefit is
payable to the beneficiary of a Cyprus SERP Participant pursuant to
Section 4.8 (
Cyprus
Death Benefit
),
the
benefits payable to the Participant’s surviving Spouse shall be reduced in
accordance with Section 4.8.
If
benefits under this Plan and benefits under the Retirement Plan (or any
Non-Qualified Plan with respect to which the Non-Qualified Plan Offset
provisions apply pursuant to Section 5.1 (
Normal
Retirement Benefit
))
do not
start on the same day, the Participant’s benefit under this Plan shall be
reduced by the benefit the Participant would have received under the Retirement
Plan (or the Non-Qualified Plan) if benefits under such plan or plans had
commenced on the same day that benefits commence under this Plan.
ARTICLE
VI
PAYMENT
OF BENEFITS
6.1
|
TIME
OF DISTRIBUTION OF BENEFITS
.
|
(a)
Special
Early
,
Normal,
and Late Retirement
.
Distribution
of a Participant’s Special Early, Normal or Late Retirement Benefit shall
commence as of the first day of the month coinciding with or next following
the
Participant’s termination of employment after satisfying the requirements for a
Special Early, Normal or Late Retirement Benefit (as applicable) pursuant to
Article IV (
Eligibility
for Benefits
).
Notwithstanding the foregoing, if the Participant is a ‘specified employee’
within the meaning of the Code, then, except as may otherwise be provided in
Article XI below, distribution of the benefit that the Participant has accrued
after December 31, 2004 shall commence, (including with such first payment,
interest at a rate equal to the rate used to determine the Actuarial Equivalent
value of a lump sum payment under Section 6.3(b)(4)) on the first business
day
after the six-month anniversary of the Participant’s termination of employment.
(b)
Early
Retirement
.
Except
as
provided in Section 6.2 (
Participant
Elections
)
,
distribution of a Participant’s Early Retirement Benefit shall commence as of
the first day of the month coinciding with or next following the Participant’s
termination of employment after satisfying the requirements for an Early
Retirement Benefit pursuant to Section 4.2 (
Early
Retirement
).
Notwithstanding the foregoing, if the Participant is a ‘specified employee’
within the meaning of the Code, then, except as may otherwise be provided in
Article XI below, distribution of the benefit that the Participant has accrued
after December 31, 2004 shall commence (including with such first payment,
interest at a rate equal to the rate used to determine the Actuarial Equivalent
value of a lump sum payment under Section 6.3(b)(4)) on the first business
day
after the six-month anniversary of the Participant’s termination of employment.
(c)
Deferred
Vested
Retirement
.
Except
as
provided in Section 6.2 (
Participant
Elections
),
distribution of a Participant’s Deferred Vested Retirement Benefit shall
commence as of the first day of the month following the Participant’s 65th
birthday.
(d)
Death
and Disability
.
Distribution
of a Participant’s Disability or death benefit shall commence in accordance with
Section 5.5 (
Disabled
Employee Benefit
)
or
Section 5.7 (
Surviving
Spouse Benefit - Death Before Retirement
).
6.2
|
PARTICIPANT
ELECTIONS
.
|
(a)
Initial
Elections
.
Each
Participant shall elect the form in which distributions are to be made to the
Participant. Each Participant also may file an election to postpone the
commencement of Early Retirement Benefits to any date not later than the first
day of the month coinciding with or next following the later of the
Participant’s Normal Retirement Date or five years from the date payment of such
benefits would otherwise have commenced hereunder; provided that the election
to
postpone is made at least 12 months prior to the original payment
date
,
and
such
election postpones the date on which benefits commence to be paid for not less
than 5 years
.
No
election may accelerate the payment of any benefit under this Plan. A Deferred
Vested Retirement Benefit may not commence prior to the Participant’s attainment
of age 65 unless the Participant completes at least ten years of Service prior
to his termination of employment, in which case the Deferred Vested Retirement
Benefit may commence at any time following the later of the Participant’s
termination of employment or attainment of age 55. Each of these elections
shall
be made on a form provided or approved by the Plan Administrator. The election
form also may set forth such other information as the Plan Administrator shall
require. Any election filed within one year of a Participant’s termination of
employment will be disregarded.
(b)
Revised
Elections
.
A
Participant may file a new election form in order to change an election made
in
a previously filed election form. If the new election form changes the method
of
distribution of the Participant’s benefits, or the timing of the commencement of
distributions, the new election will be honored only if the new election form
is
filed at least one year prior to the Participant’s termination of employment,
and if the new election form otherwise complies with the conditions specified
for delaying elections in Section 6.2(a) herein.
(c)
Defaults
.
If
a
Participant fails to file an election specifying the form in which distributions
are to be made to the Participant (or if the only election filed by the
Participant is
disregarded
as untimely), the Participant’s benefit will be distributed in the manner
provided by Section 6.3(c) (
Forms
of Benefit Payments - Default Option
).
If a
Participant fails to file an election specifying the date on which Early
Retirement Benefits are to commence (or if the only election filed by the
Participant is disregarded as untimely), the Early Retirement Benefits to which
the Participant is entitled will commence at the time specified in
Section 6.1(b) (
Time
of
Distribution
of Benefits - Early Retirement
).
If a
Participant fails to file an election to accelerate the commencement of the
Participant’s Deferred Vested Retirement Benefit (or if the only election filed
by the Participant is disregarded as untimely), the Deferred Vested Retirement
Benefits shall commence at the time specified in Section 6.1(c)
(
Time
of Distribution of Benefits - Deferred Vested Retirement
).
(d)
Transitional
Relief
.
Notwithstanding anything in the Plan to the contrary, in accordance with the
transitional relief provided under Section 409A of the Code, any Participant
who
attains Normal Retirement Age during Plan Year 2006 or 2007 may elect to receive
a distribution of his benefits commencing on or after January 1 of the Plan
Year
following the calendar year in which such election is made and regardless of
whether such Participant’s employment shall have terminated as of such
commencement date.
6.3
|
FORMS
OF BENEFIT PAYMENTS
.
|
(a)
General
.
Each
Participant shall select the form in which distributions are to be made to
the
Participant. Unless otherwise provided, the form in which benefit payments
shall
be made will be selected by the Participant in his initial election form filed
in accordance with Section 6.2(a) (
Participant
Elections - Initial Elections
)
or in a
revised election form filed in accordance with Section 6.2(b) (
Participant
Elections - Revised Elections
).
(b)
Available
Options
.
The
forms
of payment that a Participant may select are the following:
(1)
Straight
Life Annuity Option
.
With
this
option, benefits will be payable for the Participant’s life, with no amount
payable after his death.
(2)
Contingent
Annuitant Option
.
With
this
option, a modified amount will be payable during the Participant’s life and
after his death an amount will be payable during the life of, and to, the
Beneficiary named by the Participant when he elected the option. The contingent
annuitant options available are the same as those that are available under
the
Retirement Plan.
(3)
Ten
Year Term Certain Annuity Option
.
With
this
option, a modified amount will be payable during the Participant’s life and for
at least ten years. If the Participant does not receive at least ten years
of
payments, the balance will be paid to the beneficiary named by the Participant
when he elected the option. This option may not be selected by any Participant
on or after January 1, 1998.
(4)
Lump
Sum Option
.
With
this
option, a lump sum payment equal to the Actuarial Equivalent value of the amount
otherwise payable to the Participant as a single life annuity will be paid
to
the Participant. This option is only available to a Participant who
terminates
employment with the Employers on or after his attainment of age 64. All lump
sum
payments are subject to the prior approval of the Plan Administrator. In his
election form, a Participant may condition his election of a lump sum payment
on
the interest rate to be used in determining the Actuarial Equivalent of the
Participant’s benefit. Subject to the provisions of paragraph (f) dealing with
the payment of small amounts, if the interest rate that would be used to
calculate the Actuarial Equivalent lump sum payment is equal to or greater
than
the maximum interest rate specified in the Participant’s election form, the
Participant’s benefit will not be paid in a lump sum.
(5)
Lump
Sum Option for Cyprus Minimum Benefit
.
A
Cyprus
SERP Participant will receive a lump sum payment equal to the Actuarial
Equivalent of his Cyprus Minimum Benefit as soon as possible following the
day
on which the Participant becomes entitled to receive benefits under the Plan.
The Actuarial Equivalent of the lump sum so received shall reduce any other
benefits payable to the Participant. The Cyprus SERP Participant may elect
to
reject the lump sum in an election form that is filed in accordance with the
provisions of Section 6.2 (
Participant
Elections
).
(6)
Other
.
Any
other form of payment approved by the Plan Administrator in writing, including,
but not limited to, the payment of benefits in installments with
interest.
(c)
Default
Option
.
If
a
married Participant does not select an option pursuant to paragraph (a), or
the
Participant’s Spouse does not consent to the option selected by the Participant
if and to the extent required by Section 6.4 (
Spousal
Consent
),
the
Participant’s benefit will be paid in the form of a contingent annuity pursuant
to which 50% of the amount paid to the Participant during the Participant’s life
is continued to the Participant’s Spouse following the Participant’s death. If
an unmarried Participant does not select an option pursuant to paragraph (a),
the Participant’s benefit will be paid in the form of a single life
annuity.
(d)
Amount
of Payments
.
The
amount of the payments calculated pursuant to Article V are based on the
assumption that payments are made in the form of a single life annuity for
the
life of the Participant alone. If payments are made in any other form, they
will
be adjusted to their Actuarial Equivalent.
(e)
Payment
of Small Amounts and Cash Outs
.
Notwithstanding
any provision of this Plan to the contrary, if the value of all benefits payable
pursuant to this Plan to a Participant, surviving Spouse or any beneficiary
are
Actuarially Equivalent to a lump sum of $10,000 or less, the Plan Administrator,
regardless of any elections made by the Participant, shall direct the Trustee
to
pay the benefits in the form of a single lump sum distribution.
If
a
Participant is married at the time an election form, or a revised election
form,
is filed, an election to receive payments in any form other than a 50% or
greater contingent annuitant option with the Spouse as the sole contingent
annuitant shall be ineffective unless the Participant’s Spouse consents to the
election on a form prescribed by or acceptable to the Plan Administrator for
that purpose.
6.5
|
BENEFICIARY
DESIGNATIONS
.
|
(a)
General
Rule
.
Each
Participant who elects a method of payment under Section 6.3 (
Forms
of Benefit Payments
)
pursuant to which amounts may be payable following the Participant’s death and
each Cyprus SERP Participant entitled to a special death benefit pursuant to
Section 4.8 (
Cyprus
Death Benefit
)
shall
have the right to designate, on forms supplied by and delivered to the Plan
Administrator, a beneficiary or beneficiaries.
(b)
Spouse
as Beneficiary
.
The
beneficiary of a married Participant shall be the Participant’s Spouse unless
the Participant has made an effective election under this Section to name a
person other than his Spouse as beneficiary. The designation of a person other
than his Spouse as beneficiary by a married Participant shall not be effective
unless consented to in writing by the Participant’s Spouse in accordance with
Section 6.4 (
Spousal
Consent
).
(c)
Changes
in Designation
.
Subject
to the Spousal consent requirements noted in the preceding paragraph, each
Participant may change his beneficiary designation from time to time by
execution and delivery of a new beneficiary designation form. Upon receipt
of
such designation by the Benefits Administration Committee, such designation
or
change of designation shall become effective as of the date of the notice,
whether or not the Participant is living at the time the notice is
received.
(d)
No
Living Beneficiary
.
If
no
designated beneficiary is living when benefits become payable, or if there
is no
designated beneficiary, the beneficiary shall be the Participant’s Spouse; or if
no Spouse is then living, such Participant’s issue, including any legally
adopted child or children, in equal shares by right of representation; or if
no
such designated beneficiary and no such Spouse or issue, including any legally
adopted child or children, is living upon the death of a Participant, or if
all
such persons die prior to the full distribution of such Participant’s benefits,
then the beneficiary shall be the estate of the Participant.
(e)
Reliance
.
There
shall be no liability on the part of the Company, the Benefits Administration
Committee, the Plan Administrator, or the Trustee with respect to any payment
authorized by the Benefits Administration Committee in accordance with the
most
recent valid beneficiary designation of the Participant in its possession before
receipt of a more recent and valid beneficiary designation.
6.6
|
IN-SERVICE
PAYMENT OF BENEFITS
.
|
No
payments will be made before a Participant terminates employment with all
Employers.
6.7
|
SPECIAL
PAYMENT PROVISION APPLICABLE ON SALE OF AFFILIATE
.
|
Part
icipants
who are
employed by an Affiliate as of the date that the Affiliate ceases to be an
Affiliate for purposes of this Plan shall be treated as though they terminated
employment as of the date the Affiliate ceases to be an Affiliate.
ARTICLE
VII
ADMINISTRATION
OF THE PLAN
The
Company shall enter into a Trust Agreement with the Trustee, which Trust
Agreement shall form a part of this Plan and is hereby incorporated herein
by
reference.
7.2
|
POWERS
OF THE PLAN ADMINISTRATOR
.
|
(a)
General
Powers of Plan Administrator
.
The
Plan
Administrator shall have the power and discretion to perform the administrative
duties described in this Plan or required for proper administration of the
Plan
and shall have all powers necessary to enable it to properly carry out such
duties. Without limiting the generality of the foregoing, the Plan Administrator
shall have the power and discretion to construe and interpret this Plan, to
hear
and resolve claims relating to the Plan and to decide all questions and disputes
arising under the Plan. The Plan Administrator shall determine, in its
discretion, the Service credited to the Participants, the status and rights
of a
Participant, and the identity of the Beneficiary or Beneficiaries entitled
to
receive any benefits payable on account of the death of a
Participant.
(b)
Part
icipation
.
The Plan
Administrator also shall have the discretion to exclude Employees from
participation in the Plan and to discontinue a Participant’s participation in
the Plan.
(c)
Distributions
.
All
benefit disbursements by the Trustee shall be made upon the instructions of
the
Plan Administrator.
(d)
Decisions
Conclusive
.
The
decisions of the Plan Administrator upon all matters within the scope of its
authority shall be binding and conclusive upon all persons.
(e)
Reporting
.
The
Plan
Administrator shall file all reports and forms lawfully required to be filed
by
the Plan Administrator and shall distribute any forms, reports or statements
to
be distributed to Participants and others.
(f)
Investments
.
The
Plan
Administrator shall keep itself advised with respect to the investment of the
Trust Fund and shall report to the Company regarding the investment and
reinvestment of the Trust Fund not less frequently than annually.
(g)
Electronic
Administration
.
The
Plan
Administrator shall have the authority to employ alternative means (including,
but not limited to, electronic, internet, intranet, voice response, or
telephonic) by which Participants may submit elections, directions, and forms
required for participation in, and the administration of, this Plan. If the
Plan
Administrator chooses to use these alternative means, any elections, directions
or forms submitted in accordance with the rules and procedures promulgated
by
the Plan Administrator will be deemed to satisfy any provision of this Plan
calling for the submission of a written document, direction or
form.
7.3
|
BENEFITS
ADMINISTRATION COMMITTEE
.
|
The
Benefits Administration Committee shall be the Plan Administrator unless
otherwise designated by the Company. The Committee shall carry out its duties,
responsibilities, and powers under the Plan in accordance with its charter,
by-laws, or other rules of governance adopted by the Benefits Administration
Committee and by which it carries out its duties, responsibilities, and powers
with respect to administering the other employee benefit plans sponsored by
the
Company and for which it has been designated the plan
administrator.
7.4
|
APPOINTMENT
OF AGENTS
.
|
The
Committee may appoint such other agents, who need not be members of the
Committee, as it may deem necessary for the effective performance of its duties,
whether ministerial or discretionary, as the Committee may deem expedient or
appropriate. The compensation of any agents who are not employees of the Company
shall be fixed by the Committee within any limitations set by the Board of
Directors.
7.5
|
CONFLICT
OF INTEREST
.
|
No
member
of the Committee who is a Participant shall take any part in any action in
connection with his participation as an individual. Such action shall be voted
or decided by the remaining members of the Committee.
7.6
|
ACTION
TAKEN BY COMPANY
.
|
Any
action to be taken by the Company shall be taken by resolution adopted by the
Board of Directors; provided, however, that by resolution the Board of Directors
may delegate to any committee of the Board of Directors, any committee of
officers or other employees of the Company or an Affiliate of the Company,
or
any officer of the Company the authority to take any actions
hereunder.
7.7
|
DELEGATIONS
OF AUTHORITY
.
|
All
delegations of responsibility set forth in this document regarding the
determination of benefits and the interpretation of the terms of the Plan confer
discretionary authority upon the Plan Administrator.
To
the
extent permitted by law, the Company shall and does hereby jointly and severally
indemnify and agree to hold harmless the employees, officers and directors
of it
and its Affiliates who serve in any capacity with respect to the Plan from
any
and all loss, damage, or liability, joint or several, including payment of
expenses in connection with defense against any such claim, for their acts,
omissions and conduct, and for the acts, omissions or conduct of their duly
appointed agents, which acts, omissions or conduct constitute or are alleged
to
constitute a breach of such individual’s fiduciary or other responsibilities
under the Act or any other law, except for those acts, omissions, or conduct
resulting from his own willful misconduct, willful failure to act, or gross
negligence; provided, however, that if any party would otherwise be entitled
to
indemnification
hereunder in respect of any liability and such party shall be insured against
loss as a result of such liability by any insurance contract or contracts,
such
party shall be entitled to indemnification hereunder only to the extent by
which
the amount of such liability shall exceed the amount thereof payable under
such
insurance contract or contracts.
ARTICLE
VIII
CLAIMS
REVIEW PROCEDURE
8.1
|
APPLICATION
FOR BENEFITS NOT REQUIRED
.
|
A
Pa
rticipant,
a
surviving Spouse, a contingent annuitant or a beneficiary (all of whom are
referred to in this Article as a “Claimant”) need not file a written claim
to receive benefits.
(a)
Review
by the Retirement Manager
.
If
a
Claimant is dissatisfied with the determination of his benefits, eligibility,
participation, or any other right or interest under this Plan, the Claimant
may
file a written request for review with the Company’s “Retirement Manager.” The
“Retirement Manager” is the Company’s Manager of Retirement Plans or the Company
representative occupying a comparable position if the Company does not then
have
a representative with the title “Manager of Retirement Plans.” The Retirement
Manager will notify the Claimant of the disposition of the claim within 90
days
after the request for review is filed with the Retirement Manager. The
Retirement Manager may have an additional period of up to 90 days to decide
the
claim if the Retirement Manager determines that special circumstances require
an
extension of time to decide the claim and the Retirement Manager advises the
Claimant in writing of the need for an extension (including an explanation
of
the special circumstances requiring the extension) and the date on which the
Retirement Manager expects to decide the claim. If, following the review, the
claim is denied, in whole or in part, the notice of disposition shall set
forth:
(1)
The
specific reason(s) for denial of the claim;
(2)
Reference
to the specific Plan provisions upon which the determination is
based;
(3)
A
description of any additional material or information necessary for the Claimant
to perfect the claim and an explanation of why such material or information
is
necessary;
(4)
An
explanation of the Plan’s appeal procedures, including the applicable time
limits; and
(5)
A
specific statement that an appeal to the Claim Appeals Subcommittee is
available.
(b)
Appeal
to Claim Appeals Subcommittee
.
(1)
Appeal
.
Within
60
days after receiving the written notice of the Retirement Manager’s disposition
of the claim, the Claimant, or the Claimant’s authorized representative, may
request in writing that the Claim Appeals Subcommittee appointed by the Benefits
Administration Committee review the denied claim. The Claimant may submit a
written statement of his claim (including any written comments, documents,
records and other information relating to the claim) and the reasons for
granting the claim. The Claim Appeals Subcommittee shall have the right to
request of and receive from a Claimant such additional information, documents
or
other evidence as the Claim Appeals Subcommittee may reasonably require. The
review by the Claim Appeals Subcommittee will take into account all comments,
documents, records and other information submitted by the Claimant relating
to
the claim, without regard to whether such documents, records or other
information was submitted or considered in the initial benefit determination
or
the review by the Retirement Manager. If the Claimant does not request a review
of the denied claim within sixty (60) days after receiving written notice of
the
Retirement Manager’s disposition of the claim, the Claimant shall be deemed to
have accepted the Retirement Manager’s written disposition and the Retirement
Manager’s written disposition will be final and binding on the Claimant and
anyone claiming benefits through the Claimant, unless the Claimant shall have
been physically or mentally incapacitated so as to be unable to request review
within the 60 day period.
(2)
Decision
of the Claim Appeals Subcommittee
.
A
decision on appeal to the Claim Appeals Subcommittee shall be rendered in
writing by the Claim Appeals Subcommittee ordinarily not later than 60 days
after the Claimant requests review of a denied claim. A written copy of such
decision shall be delivered to the Claimant. If special circumstances require
an
extension of the ordinary period, the Claim Appeals Subcommittee shall so notify
the Claimant of the extension with such notice containing an explanation of
the
special circumstances requiring the extension and the date by which the Claim
Appeals Subcommittee expects to render a decision. Any such extension shall
not
extend beyond 60 days after the ordinary period. If the appeal to the Claim
Appeals Subcommittee is denied, in whole or in part, the notice of decision
referred to in the first sentence of this paragraph (2) shall set forth all
of
the information referred to in clauses (1) through (4) of the last sentence
of
paragraph (a). The notice of decision also will include a statement that the
Claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant
to the Claimant’s claim for benefits. The notice of decision also will include
an explanation of the Plan’s appeal procedure, including a specific statement
that an appeal to the Benefits Administration Committee is
available.
(c)
Appeal
to the Benefits Administration Committee
.
(1)
Appeal
.
Within
60 days after receiving the written notice of the Claim Appeals Subcommittee’s
disposition of the claim, the Claimant, or the Claimant’s authorized
representative, may request in writing that the Benefits Administration
Committee review the denied appeal. The Claimant may submit a written statement
of his claim (including any written comments, documents, records and other
information relating to the claim) and the reasons for granting the claim.
The
Benefits Administration Committee shall have the right to request of and receive
from the Claimant such additional information, documents or other evidence
as
the Benefits Administration Committee may reasonably require. If the Claimant
does not request a review of the denied appeal within 60 days after receiving
written notice of the
Claim
Appeals Subcommittee’s disposition of the appeal, the Claimant shall be deemed
to have accepted the Claim Appeals Subcommittee’s written disposition of the
appeal and the Claim Appeals Subcommittee’s written disposition will be final
and binding on the Claimant and anyone claiming benefits through the Claimant,
unless the Claimant shall have been physically or mentally incapacitated so
as
to be unable to request review within the 60 day period. As with an appeal
to
the Claim Appeals Subcommittee, the review shall take into account all comments,
documents, records and other information submitted by the Claimant relating
to
the claim, without regard to whether such documents, records or other
information were submitted or considered in the initial benefit determination
or
by the Retirement Manager or the Claim Appeals Subcommittee.
(2)
Decision
of the Benefits Administration Committee
.
A
decision on appeal to the Benefits Administration Committee shall be rendered
in
writing by the Benefits Administration Committee ordinarily not later than
60
days after the Claimant requests review. A written copy of the decision shall
be
delivered to the Claimant. If special circumstances require an extension of
the
ordinary period, the Benefits Administration Committee shall so notify the
Claimant of the extension with such notice containing an explanation of the
special circumstances requiring the extension and the date by which the Benefits
Administration Committee expects to render a decision. Any such extension shall
not extend beyond 60 days after the ordinary period. If the appeal to the
Benefits Administration Committee is denied, in whole or in part, the notice
of
decision referred to in the first sentence of this paragraph (2) shall set
forth:
(A)
The
specific reason(s) for denial of the claim;
(B)
Reference
to the specific Plan provisions upon which the denial is based;
(C)
A
statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the Claimant’s claim for benefits; and
(d)
A
statement of the Claimant’s right to bring a civil action under
Section 502(a) of the Act.
(d)
Right
to Examine Plan Documents and to Submit Materials
.
In
connection with the determination of a claim, or in connection with review
of a
denied claim or appeal pursuant to this Section 8.2, the Claimant may
examine this Plan and any other pertinent documents generally available to
Participants relating to the claim and may submit written comments, documents,
records and other information relating to the claim for benefits. The Claimant
also will be provided, upon request and free of charge, reasonable access to,
and copies of, all documents, records, and other information relevant to the
claimant’s claim for benefits with such relevance to be determined in accordance
with Section 8.2(e) (
Claims
Procedure —
Relevance
).
(e)
Relevance
.
For
purpose of this Section 8.2, documents, records, or other information shall
be considered “relevant” to a Claimant’s claim for benefits if such documents,
records or other information:
(1)
Were
relied upon in making the benefit determination;
(2)
Were
submitted, considered, or generated in the course of making the benefit
determination, without regard to whether such documents, records or other
information were relied upon in making the benefit determination;
or
(3)
Demonstrate
compliance with the administrative processes and safeguards required pursuant
to
this Section 8.2 regarding the making of the benefit
determination.
(f)
Decisions
Final; Procedures Mandatory
.
To
the
extent permitted by law, a decision on review by the Retirement Manager, Claim
Appeals Subcommittee, or the Benefits Administration Committee shall be binding
and conclusive upon all persons whomsoever. To the extent permitted by law,
completion of the claims procedures described in this Section 8.2 shall be
a mandatory precondition that must be complied with prior to commencement of
a
legal or equitable action in connection with the Plan by a person claiming
rights under the Plan or by another person claiming rights through such a
person. The Benefits Administration Committee may, in its sole discretion,
waive
these procedures as a mandatory precondition to such an action.
(g)
Time
for
Filing Legal or Equitable Action
.
Any
legal
or equitable action filed in connection with this Plan by a person claiming
rights under this Plan or by another person claiming rights through such a
person must be commenced not later than the earlier of: (1) the shortest
applicable statute of limitations provided by law; or (2) two years from
the date the Benefits Administration Committee’s decision on appeal is delivered
to the Claimant in accordance with Section 8.2(c)(2) (
Claims
Procedure - Appeal to the Benefits Administration
Committee
- Decision of the Benefits Administration Committee
).
ARTICLE
IX
LIMITATION
ON ASSIGNMENT; PAYMENTS TO LEGALLY INCOMPETENT
DISTRIBUTEE;
CORRECTIONS
9.1
|
ANTI-ALIENATION
CLAUSE
.
|
No
benefit which shall be payable under the Plan to any person shall be subject
in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, charge or otherwise dispose of the same shall be
void.
No benefit shall in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person, nor shall it be subject to attachment or
legal process for or against any person, except to the extent as may be required
by law.
9.2
|
PERMITTED
ARRANGEMENTS
.
|
Section
9.1
(
Anti-Alienation
Clause
)
shall
not preclude arrangements for the withholding of taxes from benefit payments,
arrangements for the recovery of benefit overpayments, arrangements for direct
deposit of benefit payments to an account in a bank, savings and loan
association or credit union (provided that such arrangement is not part of
an
arrangement constituting an assignment or alienation), or the transfer, incident
to a divorce, of a Participant’s interest in the Plan to a former
spouse.
9.3
|
PAYMENT
TO MINOR OR INCOMPETENT
.
|
Whenever
any benefit which shall be payable under the Plan is to be paid to or for the
benefit of any person who is then a minor or determined by the Plan
Administrator to be incompetent by qualified medical advice, the Plan
Administrator need not require the appointment of a guardian or custodian,
but
shall be authorized to cause the same to be paid over to the person having
custody of the minor or incompetent, or to cause the same to be paid to the
minor or incompetent without the intervention of a guardian or custodian, or
to
cause the same to be paid to a legal guardian or custodian of the minor or
incompetent if one has been appointed or to cause the same to be used for the
benefit of the minor or incompetent.
9.4
|
UNDERPAYMENT
OR OVERPAYMENT OF BENEFITS
.
|
In
the
event that, through mistake or computational error, benefits are underpaid
or
overpaid, there shall be no liability for any more than the correct amount
of
benefits under the Plan. Overpayments may be deducted from future payments
under
the Plan and underpayments may be added to future payments under the Plan.
In
lieu of receiving reduced benefits under the Plan, a Participant or Beneficiary
may elect to make a lump sum repayment of any overpayment.
ARTICLE
X
AMENDMENT,
MERGER AND TERMINATION
The
Company shall have the right at any time, by an instrument in writing duly
executed, acknowledged and delivered to the Plan Administrator, to modify,
alter
or amend this Plan, in whole or in part, prospectively or retroactively;
provided, however, that the duties and liabilities of the Plan Administrator
and
the Trustee hereunder shall not be substantially increased without their written
consent; and provided further that the amendment shall not reduce any
Participant’s interest in the Plan, calculated as of the date on which the
amendment is adopted, and shall not cause any benefit payable under the Plan
to
become subject to additional taxes imposed under Section 409A of the
Code.
10.2
|
MERGER
OR CONSOLIDATION OF COMPANY
.
|
The
Plan
shall not be automatically terminated by the Company’s acquisition by or merger
into any other employer, but the Plan shall be continued after such acquisition
or merger if the successor employer elects and agrees to continue the Plan.
All
rights to amend, modify,
suspend,
or terminate the Plan shall be transferred to the successor employer, effective
as of the date of the merger. If an Employer other than the Company is acquired
by or merged into any organization other than an Affiliate, the Plan shall
be
terminated as to the acquired Employer unless the Company and the acquirer
agree
otherwise in writing.
10.3
|
TERMINATION
OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS
.
|
It
is the
expectation of the Company and each of the Employers that this Plan will be
continued indefinitely. However, continuance of the Plan is not assumed as
a
contractual obligation of the Company or any other Employer, and the right
is
reserved at any time to terminate this Plan or to reduce, temporarily suspend
or
discontinue contributions hereunder. If the Plan is terminated or contributions
are reduced, temporarily suspended, or discontinued with respect to all
Employers or any one or more Employers, the benefits of the affected
Participants will continue to be held pursuant to the Plan until the date or
dates on which such benefits would have become distributable had the Plan not
been terminated or had contributions not been reduced, temporarily suspended,
or
discontinued. In the exercise of its discretion, however, the Plan Administrator
may direct that the benefits of any Participant affected by the termination
of
the Plan as to all Employers or a particular Employer, or the reduction,
temporary suspension, or discontinuance of contributions, be distributed as
of
an earlier date or dates.
ARTICLE
XI
CHANGE
OF CONTROL PROVISIONS
11.1
|
ADDITIONAL
SERVICE
CREDIT.
|
A
Pa
rticipant
whose
employment is terminated under such circumstances that the Participant, because
of a Change of Control, is entitled to receive termination benefits under the
Participant’s Change of Control Agreement will receive an additional 36 months
of Service credit for purposes of this Plan.
11.2
|
70/80
RETIREMENT BENEFIT
.
|
A
Pa
rticipant
whose
employment is terminated under such circumstances that the Participant, because
of a Change of Control, is entitled to receive termination benefits under the
Participant’s Change of Control Agreement and whose age and years of Service, as
of the date of termination of Service, equal or exceed (i) 70 if such
Participant has attained age 55 on or before such date or (ii) 80 if he has
not
attained age 55 on or before such date, may elect (with the same rights of
election as under the Retirement Plan or any other applicable plan) on or before
the date of termination of Service to retire on such date (or on such other
date
as may
be
mutually agreed to between such Participant and the Company) and to receive,
commencing on the first day of the month following or coinciding with his
retirement, a retirement benefit in the amount computed under the provisions
of
Section 5.1 (
Normal
Retirement Benefit
)
and
Section 5.2 (
Early
Retirement
Benefit
)
without
any reduction in such retirement benefit on account of the commencement thereof
prior to attainment of his Normal Retirement Date; provided that the provisions
of Section 5.1 (
Normal
Retirement Benefit
)
and
Section 5.2 (
Early
Retirement Benefit
)
shall
be applicable without regard to whether or not the Participant has attained
age
55. If such a retired Participant shall subsequently become reemployed by the
Company, any retirement
benefit
paid to him hereunder shall cease, his Service completed on and after the date
of his reemployment shall continue to accrue and upon his subsequent retirement
or termination of employment his retirement benefit shall be computed in
accordance with the applicable provisions of the Plan, reduced by the Actuarial
Equivalent of the amount of any retirement benefit previously paid
hereunder.
Each
Participant in this Plan to whom this Section applies shall be fully vested
in his or her benefits under the Plan whether or not he or she meets the Service
requirements for a Deferred Vested Retirement Benefit.
11.3
|
PLAN
ADMINISTRATOR DISCRETION
.
|
The
Plan
Administrator shall determine, in accordance with uniform and nondiscriminatory
rules designed to carry out the purpose of this Article to encourage and
facilitate the retirement of older employees with long Service, whether this
Section shall apply to any Participant whose age or length of Service is in
doubt.
11.4
|
SPECIAL
LUMP SUM OPTION
.
|
Notwithstanding
any other provision of this Plan to the contrary, the benefits of any
Participant whose employment is terminated under such circumstances that the
Participant, because of a Change of Control, is entitled to receive termination
benefits under the Participant’s Change of Control Agreement shall be paid in
the form of an Actuarially Equivalent lump sum. If such a Participant shall
subsequently become reemployed by the Company, his Service completed on and
after the date of his reemployment shall continue to accrue and upon his
subsequent retirement or termination of employment his retirement benefit shall
be computed in accordance with the applicable provisions of this Plan, reduced
by the Actuarial Equivalent of the amount of any retirement benefit previously
paid hereunder. The portion of the lump sum which
|
(i)
|
is
an incremental benefit arising from the foregoing provisions of this
Article XI (the “COC Incremental Benefit”),
or
|
|
(ii)
|
relates
to the Participant’s accrued benefit at December 31, 2004
|
shall
be
paid as of the date of the Participant’s termination of employment; provided
that if the Participant is a ‘specified employee’ within the meaning of Section
409A of the Code, and such Participant is terminated after March 15 in the
calendar year following the year in which the Change of Control occurs then
the
COC Incremental Benefit shall be paid, with interest at a rate equal to the
rate
used to determine the Actuarial Equivalent value of such lump sum, on the first
business day after the six-month anniversary of the Participant’s termination of
employment. The portion of the lump sum which relates to the benefit that the
Participant has accrued after December 31, 2004 which is not part of the COC
Incremental Benefit shall be paid, with interest at a rate equal to the rate
used to determine the Actuarial Equivalent value of such lump sum, on the first
business day after the six-month anniversary of the Participant’s termination of
employment.
ARTICLE
XII
GENERAL
PROVISIONS
12.1
|
LIMITATION
ON PARTICIPANTS’ RIGHTS
.
|
Part
icipation
in the
Plan shall not give any Participant the right to be retained in the employ
of
the Company or any Affiliate or any right or interest in the Trust Fund other
than as herein provided. The Company and each Affiliate reserves the right
to
dismiss any Participant without any liability for any claim either against
the
Trust Fund, except to the extent herein provided, or against the Company, or
Affiliate.
12.2
|
STATUS
OF PARTICIPANTS AS UNSECURED CREDITORS
.
|
Each
Participant is an unsecured creditor of the Company or the Affiliate that
employs the Participant and no Participant has any preferred or secured claim
to
any assets of the Company or any Affiliate for the payment of benefits under
this Plan. If the Company or any Affiliate acquires any insurance policies
or
other investments to assist it in meeting its obligations to Participants,
those
policies or other investments will nonetheless remain part of the general assets
of the Company or Affiliate.
12.3
|
STATUS
OF TRUST FUND
.
|
The
Trust
Fund is being established to assist the Company and the adopting Affiliates
in
meeting their obligations to the Participants and to provide the Participants
with a measure of protection in certain limited instances. In certain
circumstances described in the Trust Agreement, the assets of the Trust Fund
may
be used for the benefit of the Company’s or an Affiliate’s creditors and, as a
result, the Trust Fund is considered to be part of the Company’s and adopting
Affiliate’s general assets. Benefit payments due under this Plan shall either be
paid from the Trust Fund or from the Company’s or Affiliate’s general assets as
directed by the Plan Administrator. Despite the establishment of the Trust
Fund,
it is intended that the Plan be considered to be “unfunded” for purposes of the
Act and the Code.
12.4
|
CANCELLATION
OR REDUCTION OF BENEFITS
.
|
An
Employer and one of its Participants may agree from time to time to reduce
the
amount of the Participant’s benefit under this Plan. Any such agreement must be
in writing, must be signed by the Participant and the Employer, shall relate
only to the benefits to which the Participant is entitled and shall not
circumvent the provisions of Sections 6.2 (
Participant
Elections
),
or 6.3
(
Forms
of Benefit Payments
)
regarding the timing or manner of distributions from this Plan.
12.5
|
UNIFORM
ADMINISTRATION
.
|
Whenever
in the administration of the Plan any action is required by the Plan
Administrator, such action shall be uniform in nature as applied to all persons
similarly situated.
12.6
|
HEIRS
AND SUCCESSORS
.
|
All
of
the provisions of this Plan shall be binding upon all persons who are entitled
to any benefits hereunder and their heirs and legal
representatives.
12.7
|
NO
LIABILITY FOR ACCELERATION OF PAYMENTS
.
|
Under
the
Plan, Participants are allowed, to a certain extent, to designate the dates
on
which distributions are to be made to them. The Plan Administrator, however,
also has the right, in the exercise of its discretion, to accelerate payments.
By accepting the benefits offered by the Plan, each Participant (and each
beneficiary claiming through a Participant) acknowledges that the Plan
Administrator may override the Participant’s elections and agrees that neither
the Participant nor any Beneficiary shall have any claim against the Plan
Administrator, the Trustee, or any Employer if distributions are made earlier
than anticipated by the Participant due to the Plan Administrator’s exercise of
its discretion to accelerate payments. Notwithstanding the foregoing, the Plan
Administrator shall not accelerate any payment if such acceleration would result
in a violation of Section 409A of the Code.
The
Corporation and the Participants acknowledge and agree that any and all payments
and transfers made under this Agreement will be made in compliance with and
subject to the applicable requirements of Section 409A of the Code and the
regulations and guidance of the Department of the Treasury interpreting and
implementing Section 409A.
To
signify its adoption of this Plan document, the Company has caused this Plan
document to be executed by a duly authorized officer of the Company on this
day of
March, 2007.
PHELPS
DODGE CORPORATION
By____________________________
Its_______________________
Appendix
A
The
Company may enter into “Special Benefit Agreements” with individuals who satisfy
the eligibility standards of Section 3.1 (
Selection
of Participants
)
which
provide such individuals with benefits from the Plan on some basis other than
pursuant to the generally applicable provisions of the Plan. All such Special
benefit Agreements shall be set forth in writing and shall be signed by a duly
authorized officer of the Company pursuant to such procedures as may be
established from time to time by the Board or the Plan Administrator. If any
provision of this Plan conflicts with a provision included in a Special Benefit
Agreement, the provision of the Special Benefit Agreement shall
control.
The
following Special Benefit Agreements have been entered into:
1.
|
Letter
agreement between L. William Seidman and the Company dated August
15,
1977.
|
2.
|
Letter
agreement between Edson L. Foster and the Company dated January 27,
1988.
|
3.
|
Letter
agreement between Dr. Patrick J. Ryan and the Company dated January
27,
1988.
|
4.
|
Letter
agreement between G. Robert Durham and the Company dated March 1,
1989.
|
5.
|
Letter
agreement between William C. Tubman and the Company dated November
1,
1989.
|
6.
|
Letter
agreement between A.L. (John) Lawrence and the Company dated November
1,
1989.
|
7.
|
Agreement
and General Release between Julio Bague and Phelps Dodge International
Corporation, made as of September 8,
1993.
|
8.
|
Agreement
and General Release between Herbert Dunham and Phelps Dodge Mining
Company
made as of June 1, 1994.
|
9.
|
Retirement
Agreement and General Release between John C. Replogle and the Company
dated December 4, 1997.
|
10.
|
Retirement
Agreement and General Release between Henry W. Konerko and the Company
dated August 11, 1998.
|
11.
|
Retirement
Agreement and General Release between Richard W. Rice and the Company
dated December 31, 1998 by Mr. Rice and December 28, 1998 by the
Company.
|
12.
|
Agreement,
General Release and Covenant Not to Sue between George M. Meseha
and
Phelps Dodge Copper Products Co. dated December 31, 1998 by Mr. Meseha
and
January 11, 1999 by Phelps Dodge Copper Products
Co.
|
13.
|
Agreement
and General Release between Thomas M. St. Clair and the Company dated
June
15, 1999.
|
14.
|
Agreement
and General Release between Roger Weadock and the Phelps Dodge Magnet
Wire
Company dated December 11, 1998 by Mr. Weadock and November 9, 1998
by
Phelps Dodge Magnet Wire Company.
|
15.
|
Agreement
and General Release between James L. Madson and the Company dated
September 24, 1999.
|
16.
|
Agreement
between Douglas C. Yearley and the Company dated December 9,
1999.
|
17.
|
Agreement
and General Release between A. L. Lawrence and the Company dated
January 28, 2000.
|
18.
|
Letter
agreement between James B. McBiles and the Company dated January
6,
1994.
|
19.
|
Agreement
and General Release between Kirk D. Kemmish and the Company dated
August
31, 2000.
|
20.
|
Agreement
and General Release between Bernard G. Rethore and the Company dated
January 6, 1995.
|
21.
|
Agreement
and General Release between Manuel J. Iraola and the Company dated
March 6, 2002.
|
Exhibit
10.78
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
SAVINGS PLAN
Amended
and Restated effective January 1, 2005
SUPPLEMENTAL
SAVINGS PLAN
TABLE
OF CONTENTS
ARTICLE
I
|
1
|
ARTICLE
II
|
1
|
2.1
DEFINITIONS
2.2
CONSTRUCTION
|
1
5
|
ARTICLE
III
|
5
|
3.1
SELECTION OF PARTICIPANTS
3.2
DISCONTINUANCE OF PARTICIPATION
3.3
ADOPTION BY AFFILIATES
3.4
CHANGE IN AFFILIATE STATUS
3.5
SPECIAL ARRANGEMENTS
|
5
6
7
7
7
|
ARTICLE
IV
|
7
|
4.1
PARTICIPANT CONTRIBUTIONS
4.2
MATCHING CONTRIBUTIONS
4.3
PROFIT SHARING CONTRIBUTIONS
|
7
8
9
|
ARTICLE
V
|
10
|
5.1
SPECIAL PURPOSE DEFERRAL CONTRIBUTIONS
5.2
HARDSHIP
5.3
NO ACCELERATION OF BENEFITS
5.4
LIMITATION ON DISTRIBUTIONS
|
10
10
11
11
|
ARTICLE
VI
|
11
|
6.1
TRANSFER TO TRUSTEE; ALLOCATION OF CONTRIBUTIONS
6.2
INVESTMENT EARNINGS OR LOSSES
6.3
INVESTMENT DIRECTION
6.4
FORFEITURES
|
11
11
12
13
|
ARTICLE
VII
|
13
|
7.1
VESTING
|
13
|
ARTICLE
VIII
|
13
|
8.1
TIME OF PAYMENT
8.2
PARTICIPATION ELECTIONS
8.3
METHOD OF PAYMENT
8.4
BENEFICIARY DESIGNATIONS
8.5
LIMITATION ON DISTRIBUTIONS
|
13
14
16
16
17
|
ARTICLE
IX
|
17
|
9.1
ADOPTION OF TRUST
9.2
POWERS OF THE PLAN ADMINISTRATOR
9.3
CREATION OF COMMITTEE
9.4
APPOINTMENT OF AGENTS
9.5
CONFLICT OF INTEREST
9.6
ACTION TAKEN BY COMPANY
9.7
DELEGATIONS OF AUTHORITY
|
17
17
18
18
18
18
19
|
9.8
INDEMNIFICATION
|
19
|
ARTICLE
X
|
19
|
10.1
APPLICATION FOR BENEFITS NOT REQUIRED
10.2
CLAIMS PROCEDURES
|
19
19
|
ARTICLE
XI
|
23
|
11.1
ANTI-ALIENATION CLAUSE
11.2
PERMITTED ARRANGEMENTS
11.3
PAYMENT TO MINOR OR INCOMPETENT
11.4
UNDERPAYMENT OR OVERPAYMENT OF BENEFITS
|
23
23
23
24
|
ARTICLE
XII
|
24
|
12.1
AMENDMENT
12.2
MERGER OR CONSOLIDATION OF COMPANY
12.3
TERMINATION OF PLAN OR DISCONTINUANCE OF
CONTRIBUTIONS
|
24
24
25
|
ARTICLE
XIII
|
25
|
13.1
LIMITATION ON PARTICIPANTS’ RIGHTS
13.2
STATUS OF PARTICIPANTS AS UNSECURED CREDITORS
13.3
EXCEPTION TO CONTRIBUTION RULE
13.4
STATUS OF TRUST FUND
13.5
FUNDING UPON A CHANGE OF CONTROL
13.6
UNIFORM ADMINISTRATION
13.7
HEIRS AND SUCCESSORS
13.8
NO LIABILITY FOR ACCELERATION OF PAYMENTS
13.9
SECTION 409A
|
25
25
25
26
26
26
26
26
27
|
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
SAVINGS PLAN
ARTICLE
I
.
PREAMBLE
Phelps
Dodge Corporation (the “Company”), a corporation organized and existing under
the laws of the State of New York, previously adopted the Comprehensive
Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation
(the “Comprehensive Plan”). The Comprehensive Plan consisted, primarily, of
supplemental executive retirement provisions and supplemental savings
provisions. The Company previously split the Comprehensive Plan into two
separate plans and replaced the supplemental savings provisions of the
Comprehensive Plan with the Phelps Dodge Corporation Supplemental Savings Plan
(the “Plan”), the terms and provisions of which are set forth in this Plan
document. The Company amended and restated the Plan in its entirety, which
generally became effective as of January 1, 2003.
By
the
adoption of this document, the Company amends and restates the Plan in its
entirety. This amended and restated Plan document is effective, generally as
of
January 1, 2005 (the “Effective Date”), but special effective dates may apply to
particular provisions, as noted below. All amounts previously deferred by
Participants or contributed by the Company or any other Employer pursuant to
the
supplemental savings provisions of the Comprehensive Plan, as well as any
amounts credited or charged to a Participant’s accounts pursuant to the
supplemental savings provisions of the Comprehensive Plan, shall be governed
by
the terms and conditions of this amended and restated Plan
document.
The
purpose of this Plan is to provide a select group of management or highly
compensated employees of the Company and certain of its affiliates with the
opportunity to defer a portion of their compensation and to receive related
contributions from their Employers. As a result, the Plan shall be considered
to
be a “top hat plan”, exempt from many of the requirements of the Employee
Retirement Income Security Act of 1974 (“ERISA”). This Plan is not intended to
“qualify” for favorable tax treatment pursuant to Section 401(a) of the Internal
Revenue Code of 1986 (the “Code”) or any successor section or statute.
ARTICLE
II
.
DEFINITIONS
2.1
DEFINITIONS.
When
a
word or phrase appears in this Plan with the initial letter capitalized, and
the
word or phrase does not begin a sentence, the word or phrase shall generally
be
a term
defined
in this Section 2.1 or in the Preamble. The following words and phrases used
in
the Plan with the initial letter capitalized shall have the meanings set forth
in this Section 2.1, unless a clearly different meaning is required by the
context in which the word or phrase is used:
(a)
“
Account
”
or “
Accounts
”
means
the accounts which may be maintained by the Plan Administrator to reflect the
interest of a Participant under the Plan.
(b)
“
Affiliate
”
means
(1) a corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as is the Company, (2) any
other trade or business (whether or not incorporated) controlling, controlled
by, or under common control with the Company (within the meaning of Section
414(c) of the Code), (3) any other corporation, partnership, or other
organization which is a member of an affiliated service group (within the
meaning of Section 414(m) of the Code) with the Company, and (4) any other
corporations, partnerships, or other organizations which are otherwise required
to be aggregated with the Company pursuant to Section 414(o) of the
Code.
(c)
“
AICP
”
means
the Phelps Dodge Annual Incentive Compensation Plan, as in effect and as may
be
amended from time to time or any plan or program that specifically replaces
the
AICP.
(d)
“
Base
Salary
”
means
the total regular salary paid by an Employer to a Participant during the Plan
Year. “Base Salary” excludes commissions, bonuses, overtime, living or other
allowances, contributions by an Employer under this Plan or any other employee
benefit plan of the Employer (excluding employee salary deferrals under this
Plan or the Savings Plan), or other extra, incentive, premium, contingent,
supplemental, or additional compensation, all as determined and defined by
the
Plan Administrator in the exercise of its discretion. For purposes of Sections
4.2 (Matching Contributions.) and 4.3 (Profit Sharing Contributions.), only
the
Base Salary paid to the Participant during the portion of the Plan Year in
which
the Participant is an “eligible Participant” pursuant to Section 4.2 (Matching
Contributions.) or Section 4.3 (Profit Sharing Contributions), as applicable,
will be considered.
(e)
“
Beneficiary
”
means
the person or trust that a Participant, in his most recent written designation
filed with the Plan Administrator, shall have designated to receive his Accounts
under the Plan in the event of his death.
(f)
“
Board
of Directors
”
means
the Board of Directors of the Company.
(g)
“
Change
of Control
”
For
purposes of this Plan, the phrase “Change of Control” shall have the same
meaning as given to that phrase in the Company’s Change of Control Agreements as
may be in effect from time to time.
(h)
“
Change
of Control Agreement
”
means
the agreement entered into by and between the Participant and the Company,
which
provides the Participant with certain termination benefits in the event that
the
Participant’s employment with the Company or any subsidiary of the Company is
terminated under certain limited circumstances as a result of a Change of
Control.
(i)
“
Compensation
”
means
the sum of a Participant’s Base Salary and Incentive Compensation.
(j)
“
Deferral
Contributions
”
means
the Regular and Special Purpose Deferral Contributions made by a Participant
pursuant to Section 4.1 (Participant Contributions.).
(k)
“
Deferral
Contributions Account
”
means
the Account maintained to record the Deferral Contributions made by a
Participant pursuant to Section 4.1 (Participant Contributions). The Deferral
Contributions Account shall be divided into as many subaccounts as the Plan
Administrator deems necessary to distinguish between the different types of
Deferral Contributions and the dates on which they are to be
distributed.
(l)
“
Disability
”
means a
mental or physical condition that results in a Participant’s receipt, without
considering any offsets, of long-term disability payments under the LTD Plan.
For purposes of this Plan, a Participant shall be conclusively presumed to
be
under Disability only during the period of time that the Participant qualifies
to receive such benefits under the applicable LTD Plan.
(m)
“
Distribution
Date
”
means
the date or dates selected by the Participant and agreed to by the Plan
Administrator on the form prescribed by the Plan Administrator as the date
or
dates on which the Participant’s Special Purpose Deferral Contributions are to
be distributed to the Participant.
(n)
“
Employee
”
means
any individual classified by his Employer as a common law employee of the
Employer. For this purpose, the classification that is relevant is the
classification in which such individual is placed by the Employer for purposes
of this Plan and the classification of such individual for any other purpose
(e.g., employment tax or withholding purposes) shall be irrelevant. If an
individual is characterized as a common law employee of the Employer by a
governmental agency or court but not by the Employer, such individual shall
be
treated as an employee who has not been designated for participation in this
Plan.
(o)
“
Employer
”
means
the Company and any Affiliate that have elected to adopt this Plan pursuant
to
Section 3.5 (Adoption By Affiliates.)
(p)
“
Employer
Contributions Accounts
”
means
the Profit Sharing Contributions Account and the Matching Contributions Account
maintained for a Participant.
(q)
“
Incentive
Compensation
”
means
the amount awarded to any Participant in any year under the AICP.
(r)
“
Investment
Fund
”
means
the investment fund or funds established by the Plan Administrator pursuant
to
Section 6.3 (Investment Direction.)
(s)
“
LTD
Plan
”
means
the Company’s Long Term Disability Insurance Plan (or any other similar plan
sponsored by an Employer to provide long term disability benefits) as in effect
from time to time.
(t)
“
Matching
Contributions
”
means
the contributions made by an Employer on behalf of a Participant or all
Participants pursuant to Section 4.2 (Matching Contributions.).
(u)
“
Matching
Contributions Account
”
means
the Account maintained to record the Matching Contributions, if any, made by
the
Company on a Participant’s behalf pursuant to Section 4.2 (Matching
Contributions.).
(v)
“
Participant
”
means
any Employee selected for participation pursuant to Section 3.1 (Selection
of
Participants.). Depending on the context, the term Participant also may refer
to
a current or former Employee who no longer is making contributions to the Plan
but who has not received a distribution of all amounts to which he is
entitled.
(w)
“
Plan
Administrator
”
means
the Benefits Administration Committee.
(x)
“
Plan
Year
”
means
the 12 month period beginning on each January 1 and ending on the next following
December 31.
(y)
“
Profit
Sharing Contributions
”
means
the contributions made by an Employer on behalf of a Participant pursuant to
Section 4.3 (Profit Sharing Contributions.).
(z)
“
Profit
Sharing Contributions Account
”
means
the Account maintained to record the Profit Sharing Contributions made on behalf
of a Participant pursuant to Section 4.3 (Profit Sharing
Contributions.).
(aa)
“
Regular
Deferral Contribution
”
means a
Deferral Contribution that may only be distributed following a Participant’s
termination of employment.
(bb)
“
Savings
Plan
”
means
the Phelps Dodge Employee Savings Plan, as in effect and as may be amended
and
restated from time to time. Any references to the
particular
sections of the Savings Plan shall be deemed to be references to any amended
and/or substituted provisions if the referenced section is amended or
replaced.
(cc)
“
Special
Purpose Deferral Contribution
”
means a
Deferral Contribution that will become distributable upon a Distribution Date
designated by the Participant on the form prescribed by the Plan
Administrator.
(dd)
“
Trust
Agreement
”
means
that certain trust agreement established pursuant to the Plan between the
Company and the Trustee or any trust agreement hereafter established, the
provisions of which are incorporated herein by reference.
(ee)
“
Trustee
”
means
the Trustee under the Trust Agreement.
(ff)
“
Trust
Fund
”
means
all assets of whatsoever kind or nature held from time to time by the Trustee
pursuant to the Trust Agreement, without distinction as to income and principal
and without regard to source, (i.e., Employer or Participant contributions,
earnings or forfeitures).
(gg)
“
Valuation
Date
”
means
each day on which the New York Stock Exchange is open for trading.
The
masculine gender, where appearing in the Plan, shall include the feminine gender
(and vice versa), and the singular shall include the plural, unless the context
clearly indicates to the contrary. Headings and subheadings are for the purpose
of reference only and are not to be considered in the construction of this
Plan.
If any provision of this Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
All of the provisions of this Plan shall be construed and enforced in accordance
with the laws of the State of Arizona.
ARTICLE
III
.
ELIGIBILITY
3.1
|
SELECTION
OF PARTICIPANTS.
|
(a)
GENERAL
RULE
.
An
Employee who was participating in the Plan prior to January 1, 2000 shall
continue to be eligible to participate in the Plan, subject to the Plan
Administrator’s right to terminate a Participant’s participation pursuant to
Sections 3.1(c) (Selection of Participants. —
Limitation
of Participation
.)
or 3.2
(Discontinuance of Participation.). Effective as of January 1, 2000, all
Employees who are eligible to participate in the AICP are eligible to
participate in the Plan, regardless of the individual’s AICP grade
classification. From such group, the Plan Administrator shall select Employees
for participation in the Plan. The Plan Administrator’s selections shall be made
in its sole discretion and shall be final and binding for all purposes under
this
Plan. Any Employee who was participating in the Plan prior to the Effective
Date
shall continue to be eligible to participate in the Plan, subject to the Plan
Administrator’s right to terminate a Participant’s participation pursuant to
Sections 3.1(c) (Selection of Participants. —
Limitation
of Participation
.)
or 3.2
(Discontinuance of Participation).
(b)
NO
WAITING PERIODS
.
A
Participant need not complete any particular period of service in order to
be
eligible to make Deferral Contributions. In order to receive allocations of
Employer Matching Contributions or Profit Sharing Contributions for a Plan
Year,
however, a Participant must also be eligible to receive matching contributions
under the Savings Plan for that Plan Year, as determined in accordance with
the
provisions of the Savings Plan.
(c)
LIMITATION
OF PARTICIPATION
.
For
purposes of Title I of ERISA, the Plan is intended to be an unfunded plan of
deferred compensation covering a select group of management or highly
compensated employees. As a result, participation in the Plan shall be limited
to Employees who are properly included in one or both of these categories.
The
Plan Administrator, in the exercise of its sole discretion, may exclude an
Employee who otherwise meets the requirements of Section 3.1(a) from
participation in the Plan if it concludes that the exclusion of that Employee
is
necessary in order to satisfy these requirements. The Plan Administrator also
may exclude an Employee who otherwise meets the requirements of Section 3.1(a)
for any other reason, or for no reason, as the Plan Administrator deems to
be
appropriate in its sole discretion.
3.2
|
DISCONTINUANCE
OF PARTICIPATION.
|
Once
an
individual is designated as a Participant, he will continue as such for all
future Plan Years until his participation is discontinued pursuant to this
Section. A Participant’s participation in the Plan is discontinued (a) if the
Participant is no longer eligible to participate in the Plan under Section
3.1(c) (Limitation of Participation.); (b) if the Participant is transferred
to
employment with an Affiliate that has not elected to adopt the Plan; (c) if
the
Participant’s participation is suspended pursuant to Section 5.3(c)
(Acceleration of Benefits. —
Suspension
of Participation
.);
or
(d) effective as of January 1, 2005, as of the next Plan Year commencing after
the date a Participant is no longer eligible to be a participant in the AICP,
for whatever reason. The Plan Administrator may decide to discontinue a
Participant’s participation in the Plan at any time for any or no reason,
provided that any such discontinuance of participation shall become effective
on
January 1 of the following calendar year. If a Participant’s participation is
discontinued, he will no longer be eligible to make Deferral Contributions
or to
receive Matching or Profit Sharing Contributions on or after the date on which
such discontinuance became effective. The Participant will not be entitled
to
receive a distribution, however, until the occurrence of one of the events
listed in Articles V or VIII.
3.3
|
ADOPTION
BY AFFILIATES.
|
Any
Affiliate of the Company may adopt this Plan with the approval of the Plan
Administrator. Any Affiliate that permits an Employee to make Deferral
Contributions pursuant to Section 4.1 (Participant Contributions.), or that
allowed an Employee to defer compensation pursuant to the Comprehensive Plan
in
the past, shall be deemed to have adopted this Plan without any further action.
At the request of the Plan Administrator, however, the Affiliate shall evidence
its adoption of the Plan by an appropriate resolution of its board of directors
or in such other manner as may be authorized by the Plan Administrator. By
adopting this Plan, the Affiliate shall be deemed to have agreed to make the
contributions required by Article IV, agreed to comply with all of the other
terms and provisions of this Plan, delegated to the Plan Administrator the
power
and responsibility to administer this Plan with respect to the Affiliate’s
Employees, and delegated to the Company the full power to amend or terminate
this Plan with respect to the Affiliate’s Employees and as otherwise permitted
by the Plan.
3.4
|
CHANGE
IN AFFILIATE STATUS.
|
If
an
Affiliate that has adopted this Plan ceases to be an Affiliate of the Company,
that Affiliate shall no longer be an Employer and all Participants employed
by
that Affiliate on the date the Affiliate ceases to be an Affiliate shall be
deemed to have terminated employment on such date.
3.5
|
SPECIAL
ARRANGEMENTS.
|
The
Company has the discretion to enter into special arrangements with individuals
which allow such individuals to receive benefits on some basis other than
pursuant to the provision of Articles III, IV and V. All such special
arrangements shall be set forth in writing. The remaining provisions of this
Plan may apply to any such individual if the Company and the individual so
agree; provided, however, that if any provision of this Plan conflicts with
a
provision included in the written document that describes the special
arrangement, the provision of that written document shall control; and provided
further that any such special arrangements shall apply only with respect to
amounts in a Participant’s Account that had accrued and vested on or prior to
December 31, 2004.
ARTICLE
IV
CONTRIBUTIONS
4.1
PARTICIPANT
CONTRIBUTIONS.
(a)
GENERAL
RULE
.
For any
Plan Year, a Participant may elect to defer a portion of the Participant’s Base
Salary or Incentive Compensation otherwise payable to him. Any such deferrals
shall be expressed in whole percentages or as a specific dollar amount, as
specified in the Participant’s election form. Except as otherwise provided in
Section
13.4 (Exception to Contribution Rule.), amounts deferred shall be transferred
by
the Company or the appropriate Affiliate to the Trust.
(b)
REGULAR
OR SPECIAL PURPOSE DEFERRAL CONTRIBUTIONS
.
As
provided in Sections 8.2 (Participation Elections.), in each election form
filed, the Participant shall characterize his Deferral Contributions as Regular
Deferral Contributions or Special Purpose Deferral Contributions. Pursuant
to
Article V, Regular Deferral Contributions are only distributable following
the
Participant’s termination of employment. Special Purpose Deferral Contributions
become distributable upon the Distribution Date specified by the Participant.
Unless the Plan Administrator adopts rules limiting the number of Distribution
Dates that a Participant may specify, the Participant may designate any number
of Distribution Dates.
(c)
LIMITATIONS
ON DEFERRALS
.
The Plan
Administrator may limit the amount of Deferral Contributions that the
Participant designates on his election form in accordance with such uniform
rules as it may adopt from time to time.
(d)
CHANGE
IN CONTRIBUTIONS
.
As
provided in Section 8.2(b) (Participation Elections. — Revised Elections.), a
Participant must file a new election form prior to each new Plan Year to select
the amount or rate of Deferral Contributions for the following Plan Year. If
a
Participant does not file a new election form at such time, no Deferral
Contributions will be withheld from the Participant’s Compensation during the
following Plan Year.
(e)
SUSPENSION
OF DEFERRAL CONTRIBUTIONS
.
A
Participant may suspend the Deferral Contributions being made from his Base
Salary at any time by so notifying the Plan Administrator in writing and in
accordance with such rules of uniform application as the Plan Administrator
may
adopt from time to time, provided that such suspension shall become effective
on
or after January 1 of the following calendar year. If a Participant suspends
his
Deferral Contributions with respect to Base Salary, the Participant may not
file
a new election form electing to make Deferral Contributions with respect to
Base
Salary until the December 1 of the year next following the year in which such
suspension occurred. The Deferral Contributions made pursuant to such new
election form may then commence in accordance with the provisions of Section
8.2(b) (Participation Elections. — Revised Elections.). A Participant may not
suspend the Deferral Contributions being made from his Incentive Compensation.
4.2
MATCHING
CONTRIBUTIONS.
Each
Employer shall make a Matching Contribution on behalf of each of its “eligible
Participants”. For this purpose, a Participant is an “eligible Participant” if
(i) the Participant is eligible to receive a Company Matching Contribution
under
the Savings Plan, and (ii) for the immediately preceding Plan Year the
Participant has made Pre-Tax Deferral Contributions (as such term is defined
in
the Savings Plan) to the Savings Plan in an amount equal to the lesser of the
maximum elective deferrals permitted by Section
402(g)
of
the Code or any other limitation imposed by the Savings Plan, provided that,
for
the first Plan Year in which a Participant is eligible to receive a Company
Matching Contribution under the Savings Plan, such Participant shall be deemed
to be an eligible Participant. Effective January 1, 2001, the Matching
Contribution due for each eligible Participant shall equal the difference
between (i) 100% of the first 3% of a Participant’s Base Salary plus 50% of the
next 2% of a Participant’s Base Salary; and (ii) the Company Matching
Contribution for such eligible Participant under the Savings Plan. Except as
otherwise provided in Section 13.4 (Exception to Contribution Rule.), the
Matching Contributions shall be transmitted to the Trust following the end
of
the Plan Year for which such Matching Contributions are due. The Matching
Contributions shall be allocated to the Matching Contributions Accounts of
the
eligible Participants. If a Participant was eligible to receive a Company
Matching Contribution under the Savings Plan for only a part of a Plan Year,
only the Base Salary paid in such part of the Plan Year will be considered
for
purposes of this Section 4.2.
4.3
PROFIT
SHARING CONTRIBUTIONS.
(a)
ELIGIBILITY
.
For each
Plan Year, but subject to the limitations set forth below, each Employer shall
make a Profit Sharing Contribution on behalf of each of its “eligible
Participants.” For purposes of this Section, a Participant will be considered to
be an “eligible Participant” only if (i) the Participant is also a Participant
in the Savings Plan, and (ii) the Participant is eligible, generally, to receive
a “Company Profit Sharing Contribution” (as such term is defined in the Savings
Plan).
(b)
AMOUNT
.
The
Profit Sharing Contribution to which each eligible Participant is entitled
pursuant to Section 4.3(a) shall be equal to: (i) the Participant’s “eligible
Base Salary” multiplied by the “applicable percentage” for that Plan Year; less
(ii) the maximum Company Profit Sharing Contribution that could be allocated
to
the Participant under the Savings Plan for that Plan Year in accordance with
applicable limitations under Sections 401(a)(17), 402(g) and 415 of the Code.
For this purpose, the “applicable percentage” is the percentage specified by the
Company on or before December 31 of any year to be applicable for the following
Plan Year, provided that, if no percentage is specified by any December 31,
the
applicable percentage shall be the percentage that is to be contributed to
the
accounts of Participants in the Savings Plan as Company Profit Sharing
Contributions for the then-current Plan Year. A Participant’s “eligible Base
Salary” is the Base Salary earned by the Participant for the portion of the Plan
Year during which the Participant is eligible to receive a Company Profit
Sharing Contribution under the Savings Plan.
(c)
SPECIAL
SITUATIONS
.
The Plan
Administrator shall have the discretion to allow a Participant to receive a
Profit Sharing Contribution if the Participant otherwise satisfies all
requirements for receiving a Company Profit Sharing Contribution under the
Savings Plan but does not receive such contribution because the Participant
is
employed by an Employer that does not make profit sharing contributions to
the
Savings Plan.
ARTICLE
V
IN-SERVICE
DISTRIBUTIONS AND WITHDRAWALS
5.1
SPECIAL
PURPOSE DEFERRAL CONTRIBUTIONS.
A
Participant may designate a Distribution Date for Special Purpose Deferral
Contributions in his initial or any subsequent election form. If the Participant
makes such an election, the subaccount in the Participant’s Deferral
Contributions Account that is maintained in order to record the Special Purpose
Deferral Contributions that are to be distributed as of that Distribution Date
will be distributed to the Participant as of the Distribution Date in one lump
sum payment. The Distribution Date election shall apply only to subaccounts
attributable to Special Purpose Deferral Contributions and no amounts
attributable to Regular Deferral Contributions subaccounts or Employer
Contributions Accounts will be distributed pursuant to a Distribution Date
election. As a general rule, the death, Disability, or other termination of
employment of a Participant shall not have any impact on the timing of the
distribution of Special Purpose Deferral Contribution subaccounts, which will
be
distributed to the Participant (or the Participant’s Beneficiary in the case of
death) as of the originally selected Distribution Date even though the
Participant is no longer employed by an Employer.
5.2
HARDSHIP.
In
the
event of an unforeseeable financial emergency, a Participant may make a written
request to the Plan Administrator for a hardship withdrawal from his Deferral
Contributions Account or his Employer Contributions Accounts. The maximum
hardship withdrawal shall be the balance of the Account or Accounts to which
such hardship withdrawal is charged. For purposes of this Plan, an
“unforeseeable financial emergency” is defined as a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident
of
the Participant or a dependent (as such term is defined in Section 152(a) of
the
Code) of the Participant, loss of the Participant’s property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. The granting of a Participant’s
request for a hardship withdrawal shall be left to the absolute, unfettered
discretion of the Plan Administrator and the Plan Administrator may deny such
request even if an unforeseeable financial emergency clearly exists. A request
for a hardship withdrawal must be made in writing at least 30 days in advance
of
the withdrawal date, on a form provided by the Plan Administrator, and must
be
expressed as a specific dollar amount. The amount of a hardship withdrawal
may
not exceed the lesser of the amount required to meet the Participant’s
unforeseeable financial emergency or the maximum withdrawal referred to above.
A
hardship withdrawal will not be permitted to the extent that the hardship is
or
may be relieved through reimbursement or compensation by insurance or otherwise,
liquidation of the Participant’s assets to the extent that such liquidation
would not itself cause a severe financial hardship, by the cessation of Deferral
Contributions, or by a loan from the Savings Plan.
5.3
NO
ACCELERATION OF BENEFITS.
Except
as
otherwise provided in Article V, no accelerated withdrawals shall be permitted
under this Plan.
5.4
LIMITATION
ON DISTRIBUTIONS.
To
the
extent that any payment under this Article, when combined with all other
payments received during the year that are subject to the limitations on
deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall be deferred
to a later calendar year. Such deferred amounts shall be paid in the next
succeeding calendar year, provided that such payment, when combined with any
other payments subject to the Section 162(m) limitations received during the
year, does not exceed the limitations on deductibility under Section 162(m)
of
the Code.
ARTICLE
VI
CREDITING
OF CONTRIBUTIONS AND EARNINGS
6.1
TRANSFER
TO TRUSTEE; ALLOCATION OF CONTRIBUTIONS.
All
Deferral Contributions, Profit Sharing Contributions, and Matching Contributions
shall be transmitted to the Trustee by the Company and the adopting Affiliates
as soon as reasonably practicable. The Deferral Contributions, Profit Sharing
Contributions and Matching Contributions shall be credited to the Deferral
Contributions Account, Profit Sharing Contributions Account, or Matching
Contributions Account maintained for that Participant. The Plan Administrator
shall maintain a separate subaccount within the Deferral Contributions Account
to record the Special Purpose Deferral Contributions (and any investment
earnings or losses attributable to those Special Purpose Deferral Contributions)
that are to be distributed as of each Distribution Date selected by a
Participant. The Plan Administrator also may maintain such other subaccounts
as
it deems necessary or desirable. All payments from an Account between Valuation
Dates shall be charged against the Account as of the preceding Valuation Date.
The Accounts are bookkeeping accounts only and the Plan Administrator is not
in
any way obligated to segregate assets for the benefit of any
Participant.
6.2
INVESTMENT
EARNINGS OR LOSSES.
As
of
each Valuation Date, the Plan Administrator will determine the positive or
negative earnings for each of the Investment Funds available pursuant to Section
6.3(c). The Plan Administrator then will determine the portion of the “adjusted
balance” of each of the Participant’s Accounts that is invested in each of the
Investment Funds and will allocate the positive or negative earnings to
Participant Accounts in proportion to the “adjusted balance” for that Account
and that Investment Fund. For this purpose, the “adjusted balance” of an Account
will be the balance of the Account as of the preceding
Valuation
Date less all withdrawals, distributions and other amounts chargeable against
the Account pursuant to any other provisions of this Plan since the prior
Valuation Date. The earnings adjustments allocated to any Account shall be
allocated among the subaccounts of that Account in the same manner.
6.3
INVESTMENT
DIRECTION.
(a)
INVESTMENT
FUNDS
.
The Plan
Administrator shall designate two or more Investment Funds in which each
Participant shall direct the investment of amounts credited to his Accounts.
The
Investment Funds may be changed from time to time by the Plan
Administrator.
(b)
PARTICIPANT
DIRECTIONS
.
(1)
GENERAL
.
Upon
becoming a Participant in the Plan, each Participant may direct that all of
the
amounts attributable to his Accounts be invested in a single investment fund
or
may direct fractional (percentage) increments of his Accounts to be invested
in
such fund or funds as he shall desire, in accordance with such procedures,
if
any, as may be established by the Plan Administrator. As of each Valuation
Date,
a Participant may change his designations with respect to future contributions
and direct transfers among Investment Funds by making an election in accordance
with such procedures as may be established by the Plan Administrator. The
designation will continue until changed in accordance with such
procedures.
(2)
DEFAULT
SELECTION
.
In the
absence of any designation, a Participant will be deemed to have directed the
investment of his Accounts in the Money Market Fund.
(3)
IMPACT
OF ELECTION
.
The
Participant’s selection of Investment Funds shall serve only as a measurement of
the value of the Accounts of said Participant pursuant to Section 6.2 and
Section 6.3(c) and the Plan Administrator and the Trustee are not required
to
invest a Participant’s Accounts in accordance with the Participant’s
selections.
(c)
RATE
OF RETURN
.
As soon
as possible after each Valuation Date, the Plan Administrator shall determine
the rate of return, positive or negative, experienced on each of the Investment
Funds. The rate of return determined by the Plan Administrator in good faith
and
in its discretion pursuant to this Section shall be binding and conclusive
on
the Participant, the Participant’s Beneficiary and all parties claiming through
them. The Plan Administrator may delegate the responsibility for calculating
the
rate of return and the calculation and allocation of the investment earnings
adjustments to the Accounts to a third party.
(d)
CHARGES
.
In the
exercise of its discretion, the Plan Administrator may charge one or more of
the
Participant’s Accounts for the reasonable
expenses
of carrying out investment instructions directly related to the Accounts, as
the
Plan Administrator deems appropriate.
(e)
COMPANY
STOCK FUND
.
The Plan
Administrator in the exercise of its discretion may direct that one or more
of
the Investment Funds consist, primarily or exclusively, of Company securities.
If such a Fund or Funds is established, a Participant’s ability to direct
investments into or out of such Fund shall be subject to such procedures as
the
Plan Administrator may prescribe from time to time to assure compliance with
Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended, the Sarbanes-Oxley Act of 2002, and any other applicable
requirements. Such procedures also may limit or restrict a Participant’s ability
to make (or modify previously made) elections pursuant to Sections 8.2
(Participation Elections.).
6.4
FORFEITURES.
Any
amounts forfeited pursuant to Section 5.3 (Acceleration of Benefits.) shall
reduce the amounts that the Company would otherwise contribute to the Plan
pursuant to Sections 4.2 (Matching Contributions) and 4.3 (Profit Sharing
Contributions).
ARTICLE
VII
VESTING
7.1
VESTING.
Subject
to Section 13.3 (Cancellation or Reduction of Accounts.), a Participant shall
have a fully vested, nonforfeitable interest in his Accounts at all
times.
ARTICLE
VIII
PAYMENT
OF BENEFITS
8.1
TIME
OF PAYMENT.
(a)
GENERAL
.
With the
exception of the distribution or withdrawal of amounts pursuant to Article
V and
the distribution of amounts pursuant to Section 8.1(b), no distributions will
be
made to a Participant prior to the Participant’s death or termination of
employment with the Company and all Affiliates. Subject to the provisions of
Section 5.1 (Special Purpose Deferred Contributions.), which deals with the
distribution of the Special Purpose Deferral Contributions subaccounts in a
Participant’s Deferral Contributions Account, following the Participant’s death
or termination of employment, distributions will commence on the last business
day of the February in the Plan Year following the end of the Plan Year in
which
the Participant dies or terminates employment, provided that, if the event
giving rise to such payment is a termination of employment and the Participant
is a “specified employee” within the meaning of Section 409A of Code, then the
portion of the amount to be distributed that has accrued and
vested
after December 31, 2004 shall instead be made on the later of (i) the date
specified in the immediately preceding sentence and (ii) the first business
day
after the six-month anniversary of the Participant’s termination date. As
provided in Section 8.2, a Participant may elect in his initial or any revised
election form to defer the receipt of certain distributions until the later
of
termination of employment or a specified date. If such an election has been
made
(and, if the election was made in a revised election form, the election form
has
been in effect for the requisite period of time provided in Section 8.2(b)
(Participation Elections. — Revised Elections.), distributions to the
Participant (or the Participant’s Beneficiary in the case of death) shall be
postponed to the extent necessary to honor such election. Notwithstanding any
other provision of this Section 8.1(a) to the contrary, in the event a
Participant terminates employment with the Company and all Affiliates, and
is
subsequently rehired by the Company or any of its affiliates within the same
Plan Year, then the Participant shall not be eligible, on account of that
termination, for a distribution pursuant to Section 8.1(a) (except for a
distribution or withdrawal of amounts pursuant to Article V and the distribution
of amounts pursuant to Section 8.1(b)). This distribution restriction in the
event of a rehire applies whether or not the Employee is rehired within a
classification eligible for participation in the Plan, or is otherwise excluded
from participation pursuant to Section 3.1 (Selection of Participants.).
(b)
SPECIAL
PAYMENT PROVISIONS APPLICABLE ON SALE OF AFFILIATE
.
A
Participant who is employed by an Affiliate as of the date that the Affiliate
ceases to be an Affiliate for purposes of this Plan due to a “change in the
ownership or effective control” or “in the ownership of a substantial portion of
the assets of” such Affiliate (as such terms are defined in Section 409A of the
Code and the applicable Treasury Regulations thereunder) shall receive a
distribution of his or her accounts thirty (30) business days following such
date, regardless of any prior election made by the Participant to defer the
receipt of benefits pursuant to Section 8.2.
8.2
PARTICIPATION
ELECTIONS.
(a)
Initial
Elections
.
Each
Participant shall make an election to participate in the Plan on such form
or
forms and at such time as the Plan Administrator shall require. In the election,
the Participant shall select the amount or rate of Deferral Contributions to
be
made for the following Plan Year and, effective for Plan Years commencing on
or
after January 1, 1998, shall characterize the Deferral Contributions as either
Regular or Special Purpose Deferral Contributions. If Special Purpose Deferral
Contributions are being made, the Participant also shall select a Distribution
Date or Distribution Dates for such Contributions. If Regular Deferral
Contributions are being made, the Participant shall select the manner in which
distributions are to be made from the Participant’s Accounts and whether
distributions are to commence following the Participant’s termination of
employment or whether they are to be postponed until the later of termination
of
employment or a specified date. If the Participant elects to make any type
of
Deferral Contributions, the Participant shall authorize the reduction of the
Participant’s Compensation in an amount equal to his Deferral Contributions. The
election form or
forms
also may set forth such other information as the Plan Administrator shall
require. If a Participant’s initial election form is executed and delivered
within 30 days of the day on which the Participant first becomes eligible to
participate in the Plan or any other account balance deferred compensation
plan
provided by the Corporation, the Participant’s Deferral Contributions may be
determined with reference to Compensation earned on or after the first day
of
the first full payroll period next following receipt of the election form by
the
Plan Administrator or as of such other uniform date (not earlier than the first
day of the next full payroll period) as may be designated by the Plan
Administrator. If the Participant does not execute and deliver an initial
election form within the initial 30 day period, the Participant’s Deferral
Contributions may be determined with reference to Compensation earned on or
after the first day of the first payroll period in any later Plan Year if the
Participant executes and delivers the appropriate form or forms to the Plan
Administrator at least 30 days (or such other period specified by the Plan
Administrator pursuant to rules of uniform application) prior to the first
day
of such Plan Year.
(b)
Revised
Elections
.
A
Participant must file a new election form prior to the beginning of each Plan
Year which shall set forth the amount or rate of his Deferral Contributions
for
the new Plan Year and also shall characterize the Deferral Contributions as
either Regular or Special Purpose Deferral Contributions. If Special Purpose
Deferral Contributions are being made, the new election form also shall set
forth the Distribution Date or Distribution Dates for such Contributions. The
new amount or rate of Deferral Contributions will only apply to Deferral
Contributions made for the relevant Plan Year and the new form must be filed
at
least 30 days (or such other period specified by the Plan Administrator pursuant
to rules of uniform application) before the first day of such Plan Year.
Effective for Plan Years commencing on or after January 1, 1998, a Participant
may change the method of distributions or postpone the commencement of
distributions of Regular Deferral Contributions at any time by filing the
appropriate form as prescribed by the Plan Administrator. The new election
will
be honored only if the appropriate form is filed at least one (1) year prior
to
the Participant’s termination of employment. A Participant may not change the
Distribution Date for Special Purpose Deferral Contributions that are made
prior
to the date on which a new election form is effective. In a new election form,
however, the Participant may designate a different or additional Distribution
Date for Special Purpose Deferral Contributions to be made in the future,
provided that the different or additional Distribution Date postpones the
commencement of distributions to the Participant. Notwithstanding the foregoing,
any such election pursuant to this Section 8.2(b) to postpone distributions
shall not be effective unless the election (i) is made at least twelve (12)
months prior to the original Distribution Date
and
(ii)
postpones the date on which benefits commence to be paid for not less than
five
(5) years
.
No
election may accelerate any distributions under this Plan.
8.3
METHOD
OF PAYMENT.
Any
payments from a Participant’s Accounts shall be made either in a lump sum in
cash, or in cash payments in substantially equal annual installments over a
period certain not exceeding 10 years, such method of payment to be elected
by
the Participant in his initial election form or in any revised election form
that has been in effect for the requisite period of time specified in Section
8.2(b), provided that any revised election form changing the method of payment
from lump sum to installment payments shall not be effective unless the election
(i) is made at least twelve (12) months prior to the original Distribution
Date
and
(ii)
postpones the date on which benefits commence to be paid for not less than
five
(5) years
.
If
installment payments are made, the provisions of Sections 6.2 (Investment
Earnings or Losses.) and 6.3 (Investment Direction.) shall continue to apply
to
the unpaid balance. Unless a Participant has affirmatively elected to receive
payments in installments over a period of ten (10) years or less, the
Participant’s Accounts shall be distributed in one lump sum. If a Participant is
married at the time an election form or a revised election form is filed, an
election to receive payments in other than a lump sum shall be ineffective
unless the Participant’s spouse consents to such election on a form prescribed
by or acceptable to the Plan Administrator for that purpose. Notwithstanding
any
provision of this Plan to the contrary, if the value of all benefits payable
pursuant to this Plan to a Participant or any Beneficiary, upon the
Participant’s termination of employment or death, amounts to the sum of $10,000
or less, the Plan Administrator, regardless of any elections made by the
Participant, shall direct the Trustee to pay the benefits in the form of a
single lump sum distribution on the last business day of February in the Plan
Year following such termination of employment or death, provided that, if the
event giving rise to such payment is a termination of employment and the
Participant is a “specified employee” within the meaning of Section 409A of
Code, then the portion of the amount to be distributed that has accrued and
vested after December 31, 2004 shall instead be made on the later of (i) the
date specified in the immediately preceding sentence and (ii) the first business
day after the six-month anniversary of the Participant’s termination date.
8.4
BENEFICIARY
DESIGNATIONS.
In
the
event of the death of the Participant, the Participant’s vested interest in his
Accounts shall be paid to the Participant’s Beneficiary. Each Participant shall
have the right to designate, on forms supplied by and delivered to the Plan
Administrator, a Beneficiary or Beneficiaries to receive his benefits hereunder
in the event of the Participant’s death. If the Participant is married at the
time the Beneficiary Designation is filed, the designation will be ineffective
unless the designation names the spouse as the Beneficiary of at least 50%
of
the Participant’s Accounts or the Participant’s spouse consents to the
designation. If a Participant marries after a Beneficiary Designation is filed,
the designation will no longer be effective. Subject to the spousal consent
requirements noted above, each Participant may change his Beneficiary
designation from time to time in the manner described above. Upon receipt of
such designation by the Plan Administrator, such designation or change of
designation shall become effective as
of
the
date of the notice, whether or not the Participant is living at the time the
notice is received. There shall be no liability on the part of the Employer,
the
Plan Administrator or the Trustee with respect to any payment authorized by
the
Plan Administrator in accordance with the most recent valid Beneficiary
designation of the Participant in its possession before receipt of a more recent
and valid Beneficiary Designation. If no designated Beneficiary is living when
benefits become payable, or if there is no validly designated Beneficiary,
the
Beneficiary shall be the Participant’s estate. If the designated Beneficiary
dies after the payment of benefits begin, then the Beneficiary for the remainder
of the benefits payable shall be the estate of the Beneficiary.
8.5
LIMITATION
ON DISTRIBUTIONS.
Distributions
made under this Article shall be subject to the same limitations set forth
in
Section 5.4 (Limitation on Distributions.) of the Plan.
ARTICLE
IX
ADMINISTRATION
OF THE PLAN
9.1
ADOPTION
OF TRUST.
The
Company shall enter into a Trust Agreement with the Trustee, which Trust
Agreement shall form a part of this Plan and is hereby incorporated herein
by
reference.
9.2
POWERS
OF THE PLAN ADMINISTRATOR.
(a)
GENERAL
POWERS OF PLAN ADMINISTRATOR
.
The Plan
Administrator shall have the power and discretion to perform the administrative
duties described in this Plan or required for proper administration of the
Plan
and shall have all powers necessary to enable it to properly carry out such
duties. Without limiting the generality of the foregoing, the Plan Administrator
shall have the power and discretion to construe and interpret this Plan, to
hear
and resolve claims relating to the Plan and to decide all questions and disputes
arising under the Plan. The Plan Administrator shall determine, in its sole
discretion, the service credited to the Participants, the status and rights
of a
Participant, and the identity of the Beneficiary or Beneficiaries entitled
to
receive any benefits payable on account of the death of a
Participant.
(b)
PARTICIPATION
.
The Plan
Administrator also shall have the discretion to exclude employees from
participation in the Plan and to discontinue a Participant’s participation in
the Plan.
(c)
DISTRIBUTIONS
.
All
benefit disbursements by the Trustee shall be made upon the instructions of
the
Plan Administrator.
(d)
DECISIONS
CONCLUSIVE
.
The
decisions of the Plan Administrator upon all matters within the scope of its
authority shall be binding and conclusive upon all persons.
(e)
REPORTING
.
The Plan
Administrator shall file all reports and forms lawfully required to be filed
by
the Plan Administrator and shall distribute any forms, reports or statements
to
be distributed to Participants and others.
(f)
INVESTMENTS
.
The Plan
Administrator shall keep itself advised with respect to the investment of the
Trust Fund.
(g)
ELECTRONIC
AMINISTRATION
.
The Plan
Administrator shall have the authority to employ alternative means (including,
but not limited to, electronic, internet, intranet, voice response, or
telephonic) by which Participants may submit election, directions, and forms
required for participation in, and administration of this Plan. If the Plan
Administrator chooses to use these alternative means, any elections, directions
or forms submitted in accordance with the rules and procedures promulgated
by
the Plan Administrator will be deemed to satisfy any provision of this Plan
calling for the submission of a written document, direction or
form.
9.3
CREATION
OF COMMITTEE.
The
Benefits Administration Committee shall be the Plan Administrator unless
otherwise designated by the Company. The Benefits Administration Committee
shall
carry out its duties, responsibilities, and powers under the Plan in accordance
with its charter, by-laws, or other rules of governance adopted by the Benefits
Administration Committee and by which it carries out its duties,
responsibilities, and powers with respect to administering the other employee
benefit plans sponsored by the Company and for which it has been designated
the
plan administrator.
9.4
APPOINTMENT
OF AGENTS.
The
committee may appoint such other agents, who need not be members of the
committee, as it may deem necessary for the effective performance of its duties,
whether ministerial or discretionary, as the committee may deem expedient or
appropriate. The compensation of any agents who are not employees of the Company
shall be fixed by the committee within any limitations set by the Board of
Directors.
9.5
CONFLICT
OF INTEREST.
No
member
of the committee who is a Participant shall take any part in any action in
connection with his participation as an individual. Such action shall be voted
or decided by the remaining members of the committee.
9.6
ACTION
TAKEN BY COMPANY.
Any
action to be taken by the Company shall be taken by resolution adopted by the
Board of Directors; provided, however, that by resolution the Board of Directors
may delegate to any committee of the Board, any committee of officers or other
employees, or any officer of the Company the authority to take any actions
hereunder.
9.7
DELEGATIONS
OF AUTHORITY.
All
delegations of responsibility set forth in this document regarding the
determination of benefits and the interpretation of the terms of the Plan confer
discretionary authority upon the Plan Administrator; provided, however, that
the
Plan Administrator shall not retain any such discretionary authority after
a
Change of Control occurs.
9.8
INDEMNIFICATION.
To
the
extent permitted by law, the Company shall and does hereby jointly and severally
indemnify and agree to hold harmless the employees, officers and directors
of it
and its Affiliates who serve in fiduciary or other capacities with respect
to
the Plan from any and all loss, damage, or liability, joint or several,
including payment of expenses in connection with defense against any such claim,
for their acts, omissions and conduct, and for the acts, omissions or conduct
of
their duly appointed agents, which acts, omissions or conduct constitute or
are
alleged to constitute a breach of such individual’s fiduciary or other
responsibilities under the Act or any other law, except for those acts,
omissions, or conduct resulting from his own willful misconduct, willful failure
to act, or gross negligence; provided, however, that if any party would
otherwise be entitled to indemnification hereunder in respect of any liability
and such party shall be insured against loss as a result of such liability
by
any insurance contract or contracts, such party shall be entitled to
indemnification hereunder only to the extent by which the amount of such
liability shall exceed the amount thereof payable under such insurance contract
or contracts.
ARTICLE
X
CLAIMS
REVIEW PROCEDURE
10.1
APPLICATION
FOR BENEFITS NOT REQUIRED.
A
Participant, or a Beneficiary (all of whom are referred to in this Article
as a
“Claimant”) need not file a written claim to receive benefits.
10.2
CLAIMS
PROCEDURES.
(a)
REVIEW
BY MANAGER, EXECUTIVE COMPENSATION
.
If a
Claimant is dissatisfied with the determination of his benefits, eligibility,
participation, or any other right or interest under this Plan, the Claimant
may
file a written request for review with the Company’s “Compensation Manager.” The
“Compensation Manager” is
the
Company’s Manager, Executive Compensation or the Company representative
occupying a comparable position if the Company does not then have a
representative with the title “Manager, Executive Compensation.” The
Compensation Manager will notify the Claimant of the disposition of the claim
within 90 days after the request for review is filed with the Compensation
Manager, Executive Compensation. The Compensation Manager may have an additional
period of up to 90 days to decide the claim if the Compensation Manager
determines that special circumstances require an extension of time to decide
the
claim and the Compensation Manager advises the Claimant in writing of the need
for an extension (including an explanation of the special circumstances
requiring the extension) and the date on which the Compensation Manager expects
to decide the claim. If, following the review, the claim is denied, in whole
or
in part, the notice of disposition shall set forth:
(1)
The
specific reason(s) for denial of the claim;
(2)
Reference
to the specific Plan provisions upon which the determination is
based;
(3)
A
description of any additional material or information necessary for the Claimant
to perfect the claim and an explanation of why such material or information
is
necessary;
(4)
An
explanation of the Plan’s appeal procedures, including the applicable time
limits; and
(5)
A
specific statement that an appeal to the Claim Appeals Subcommittee is
available.
(b)
APPEAL
BY CLAIMS APPEAL SUBCOMMITTEE
.
(1)
Appeal
.
Within
60 days after receiving the written notice of the Compensation Manager’s
disposition of the claim, the Claimant, or the Claimant’s authorized
representative, may request in writing that the Claim Appeals Subcommittee
appointed by the Plan Administrator review the denied claim. The Claimant may
submit a written statement of his claim (including any written comments,
documents, records and other information relating to the claim) and the reasons
for granting the claim. The Claim Appeals Subcommittee shall have the right
to
request of and receive from a Claimant such additional information, documents
or
other evidence as the Claim Appeals Subcommittee may reasonably require. The
review by the Claim Appeals Subcommittee will take into account all comments,
documents, records and other information submitted by the Claimant relating
to
the claim, without regard to whether such documents, records or other
information was submitted or considered in the initial benefit determination
or
the review by the Compensation Manager. If the Claimant does not request a
review of the denied claim within sixty (60) days after receiving written notice
of the Compensation Manager’s disposition of the claim, the Claimant shall be
deemed to have
accepted
the Compensation Manager’s written disposition and the Compensation Manager’s
written disposition will be final and binding on the Claimant and anyone
claiming benefits through the Claimant, unless the Claimant shall have been
physically or mentally incapacitated so as to be unable to request review within
the 60 day period.
(2)
Decision
of the Claim Appeals Subcommittee
.
A
decision on appeal to the Claim Appeals Subcommittee shall be rendered in
writing by the Claim Appeals Subcommittee ordinarily not later than 60 days
after the Claimant requests review of a denied claim. A written copy of such
decision shall be delivered to the Claimant. If special circumstances require
an
extension of the ordinary period, the Claim Appeals Subcommittee shall so notify
the Claimant of the extension with such notice containing an explanation of
the
special circumstances requiring the extension and the date by which the Claim
Appeals Subcommittee expects to render a decision. Any such extension shall
not
extend beyond 60 days after the ordinary period. If the appeal to the Claim
Appeals Subcommittee is denied, in whole or in part, the notice of decision
referred to in the first sentence of this paragraph (2) shall set forth all
of
the information referred to in clauses (1) through (4) of the last sentence
of
paragraph (a). The notice of decision also will include a statement that the
Claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant
to the Claimant’s claim for benefits. The notice of decision also will include
an explanation of the Plan’s appeal procedure, including a specific statement
that an appeal to the Plan Administrator is available.
(c)
APPEAL
TO PLAN ADMINISTRATOR
.
(1)
Appeal
.
Within
60 days after receiving the written notice of the Claim Appeals Subcommittee’s
disposition of the claim, the Claimant, or the Claimant’s authorized
representative, may request in writing that the Plan Administrator review the
denied appeal. The Claimant may submit a written statement of his claim
(including any written comments, documents, records and other information
relating to the claim) and the reasons for granting the claim. The Plan
Administrator shall have the right to request of and receive from the Claimant
such additional information, documents or other evidence as the Plan
Administrator may reasonably require. If the Claimant does not request a review
of the denied appeal within 60 days after receiving written notice of the Claim
Appeals Subcommittee’s disposition of the appeal, the Claimant shall be deemed
to have accepted the Claim Appeals Subcommittee’s written disposition of the
appeal and the Claim Appeals Subcommittee’s written disposition will be final
and binding on the Claimant and anyone claiming benefits through the Claimant,
unless the Claimant shall have been physically or mentally incapacitated so
as
to be unable to request review within the 60 day period. As with an appeal
to
the Claim Appeals Subcommittee, the review shall take into account all comments,
documents, records and other information submitted by the Claimant relating
to
the claim, without regard to whether such documents, records or other
information were submitted or considered in the initial benefit determination
or
by the Manager, Executive Compensation or the Claim Appeals
Subcommittee.
(2)
Decision
of the Plan Administrator
.
A
decision on appeal to the Plan Administrator shall be rendered in writing by
the
Plan Administrator ordinarily not later than 60 days after the Claimant requests
review. A written copy of the decision shall be delivered to the Claimant.
If
special circumstances require an extension of the ordinary period, the Plan
Administrator shall so notify the Claimant of the extension with such notice
containing an explanation of the special circumstances requiring the extension
and the date by which the Plan Administrator expects to render a decision.
Any
such extension shall not extend beyond 60 days after the ordinary period. If
the
appeal to the Plan Administrator is denied, in whole or in part, the notice
of
decision referred to in the first sentence of this paragraph (2) shall set
forth:
(A)
The
specific reason(s) for denial of the claim;
(B)
Reference
to the specific Plan provisions upon which the denial is based;
(C)
A
statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the Claimant’s claim for benefits; and
(D)
A
statement of the Claimant’s right to bring a civil action under Section 502(a)
of the Act.
(d)
RIGHT
TO EXAMINE PLAN DOCUMENTS AND TO SUBMIT MATERIALS
.
In
connection with the determination of a claim, or in connection with review
of a
denied claim or appeal pursuant to this Section 10.2, the Claimant may examine
this Plan and any other pertinent documents generally available to Participants
relating to the claim and may submit written comments, documents, records and
other information relating to the claim for benefits. The Claimant also will
be
provided, upon request and free of charge, reasonable access to, and copies
of,
all documents, records, and other information relevant to the claimant’s claim
for benefits with such relevance to be determined in accordance with Section
10.2(e).
(e)
RELEVANCE
.
For
purpose of this Section 10.2, documents, records, or other information shall
be
considered “relevant” to a Claimant’s claim for benefits if such documents,
records or other information:
(1)
Were
relied upon in making the benefit determination;
(2)
Were
submitted, considered, or generated in the course of making the benefit
determination, without regard to whether such documents, records or other
information were relied upon in making the benefit determination;
or
(3)
Demonstrate
compliance with the administrative processes and safeguards required pursuant
to
this Section 10.2 regarding the making of the benefit
determination.
(f)
DECISIONS
FINAL; PROCEDURES MANDATORY
.
To the
extent permitted by law, a decision on review by the Manager, Executive
Compensation, Claim Appeals Subcommittee, or the Plan Administrator shall be
binding and conclusive upon all persons whomsoever. To the extent permitted
by
law, completion of the claims procedures described in this Section 10.2 shall
be
a mandatory precondition that must be complied with prior to commencement of
a
legal or equitable action in connection with the Plan by a person claiming
rights under the Plan or by another person claiming rights through such a
person. The Plan Administrator may, in its sole discretion, waive these
procedures as a mandatory precondition to such an action.
(g)
TIME
FOR FILING LEGAL OR EQUITABLE ACTION
.
Any
legal or equitable action filed in connection with this Plan by a person
claiming rights under this Plan or by another person claiming rights through
such a person must be commenced not later than the earlier of: (1) the shortest
applicable statute of limitations provided by law; or (2) two years from the
date the Plan Administrator’s decision on appeal is delivered to the Claimant in
accordance with Section 10.2(c)(2).
ARTICLE
XI
LIMITATION
ON ASSIGNMENT; PAYMENTS TO LEGALLY
INCOMPETENT
DISTRIBUTEE; CORRECTIONS
11.1
ANTI-ALIENATION
CLAUSE.
No
benefit which shall be payable under the Plan to any person shall be subject
in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, charge or otherwise dispose of the same shall be
void.
No benefit shall in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person, nor shall it be subject to attachment or
legal process for or against any person, except to the extent as may be required
by law.
11.2
PERMITTED
ARRANGEMENTS.
Section
11.1 shall not preclude arrangements for the withholding of taxes from benefit
payments, arrangements for the recovery of benefit overpayments, arrangements
for direct deposit of benefit payments to an account in a bank, savings and
loan
association or credit union (provided that such arrangement is not part of
an
arrangement constituting an assignment or alienation), or the transfer, incident
to divorce, of a Participant’s interests in the Plan to a former
spouse.
11.3
PAYMENT
TO MINOR OR INCOMPETENT.
Whenever
any benefit which shall be payable under the Plan is to be paid to or for the
benefit of any person who is then a minor or determined by the Plan
Administrator to be incompetent by qualified medical advice, the Plan
Administrator need not require the
appointment
of a guardian or custodian, but shall be authorized to cause the same to be
paid
over to the person having custody of the minor or incompetent, or to cause
the
same to be paid to the minor or incompetent without the intervention of a
guardian or custodian, or to cause the same to be paid to a legal guardian
or
custodian of the minor or incompetent if one has been appointed or to cause
the
same to be used for the benefit of the minor or incompetent.
11.4
UNDERPAYMENT
OR OVERPAYMENT OF BENEFITS.
In
the
event that, through mistake or computational error, benefits are underpaid
or
overpaid, there shall be no liability for any more than the correct amount
of
benefits under the Plan. Overpayments may be deducted from future payments
under
the Plan, and underpayment may be added to future payments under the Plan.
In
lieu of receiving reduced benefits under the Plan, a Participant or Beneficiary
may elect to make a lump sum repayment of any overpayment.
ARTICLE
XII
AMENDMENT,
MERGER AND TERMINATION
12.1
AMENDMENT.
The
Company shall have the right at any time, by an instrument in writing duly
executed, acknowledged and delivered to the Plan Administrator, to modify,
alter
or amend this Plan, in whole or in part, prospectively or retroactively;
provided, however, that the duties and liabilities of the Plan Administrator
and
the Trustee hereunder shall not be substantially increased without their written
consent, as the case may be; and provided further that the amendment shall
not
reduce any Participant’s interest in the Plan, calculated as of the date on
which the amendment is adopted. The agreements referred to in Section 13.3(a)
(Cancellation or Reduction of Accounts. — General.) and the offsets referred to
in Section 13.3(b) (Cancellation or Reduction of Accounts. — Offset for
Discretionary Contributions to Savings Plan.) shall not be deemed to violate
the
last clause of the preceding sentence. Notwithstanding the foregoing, no such
amendment shall cause amounts to be paid in violation of Section 409A of the
Code.
12.2
MERGER
OR CONSOLIDATION OF COMPANY.
The
Plan
shall not be terminated automatically by the Company’s acquisition by or merger
into any other employer, but the Plan shall be continued after such acquisition
or merger if the successor employer elects and agrees to continue the Plan.
All
rights to amend, modify, suspend, or terminate the Plan shall be transferred
to
the successor employer, effective as of the date of the merger. If an Employer
other than the Company is acquired by or merged into any organization other
than
an Affiliate, the Plan shall be terminated as to the acquired Employer unless
the Company and the acquiror agree otherwise in writing.
12.3
TERMINATION OF PLAN OR DISCONTINUANCE OF
CONTRIBUTIONS.
It
is the
expectation of the Company and each of the Employers that this Plan and the
payment of contributions hereunder will be continued indefinitely. However,
continuance of the Plan is not assumed as a contractual obligation of the
Company or any other Employer, and the right is reserved at any time to
terminate this Plan or to reduce, temporarily suspend or discontinue
contributions hereunder. If the Plan is terminated or contributions are reduced,
temporarily suspended, or discontinued with respect to all Employers or any
one
or more Employers, the Accounts of the affected Participants will continue
to be
held pursuant to the Plan until the date or dates on which such Accounts would
have become distributable had the Plan not been terminated or had contributions
not been reduced, temporarily suspended, or discontinued. In the exercise of
its
discretion, however, the Plan Administrator may direct that the Accounts of
any
Participant affected by the termination of the Plan as to all Employers or
a
particular Employer, or the reduction, temporary suspension, or discontinuance
of contributions, be distributed as of an earlier date or dates.
ARTICLE
XIII
GENERAL
PROVISIONS
13.1
LIMITATION
ON PARTICIPANTS’ RIGHTS.
Participation
in the Plan shall not give any Participant the right to be retained in the
employ of the Company or any Affiliate or any right or interest in the Trust
Fund other than as herein provided. The Company and each Affiliate reserves
the
right to dismiss any Participant without any liability for any claim either
against the Trust Fund, except to the extent herein provided, or against the
Company, or Affiliate.
13.2
STATUS
OF PARTICIPANTS AS UNSECURED CREDITORS.
Each
Participant is an unsecured creditor of the Company or the Affiliate that
employs the Participant and, except for the Deferral Contributions and the
Profit Sharing Contributions or Matching Contributions placed in the Trust
Fund
as provided in this Plan, no assets of the Company or any Affiliate will be
segregated from the general assets of the Company or any Affiliate for the
payment of benefits under this Plan. If the Company or any Affiliate acquires
any insurance policies or other investments to assist it in meeting its
obligations to Participants, those policies or other investments will
nonetheless remain part of the general assets of the Company or
Affiliate.
13.3
EXCEPTION
TO CONTRIBUTION RULE.
Neither
the Company nor any other Employer shall have any obligation to transfer
Deferral Contributions made by the Participants, Matching or Profit Sharing
Contributions due from the Company or such Employer, or any other amounts to
the
Trust
Fund, if and so long as the assets of the Trust Fund exceed the aggregate
Account Balances of all Participants. The provisions of this Section 13.4
supersede the provisions of Sections 4.1 (Participant Contributions.), 4.2
(Matching Contributions), 4.3 (Profit Sharing Contributions), or any other
provision of this Plan that purports to require the Company or any other
Employer to transfer amounts to the Trust Fund.
13.4
STATUS
OF TRUST FUND.
The
Trust
Fund is being established to assist the Company and the adopting Affiliates
in
meeting their obligations to the Participants and to provide the Participants
with a measure of protection in certain limited instances. In certain
circumstances described in the Trust Agreement, the assets of the Trust Fund
may
be used for the benefit of the Company’s or an Affiliate’s creditors and, as a
result, the Trust Fund is considered to be part of the Company’s and adopting
Affiliate’s general assets. Benefit payments due under this Plan shall either be
paid from the Trust Fund or from the Company’s or Affiliate’s general assets as
directed by the Plan Administrator. Despite the establishment of the Trust
Fund,
it is intended that the Plan be considered to be “unfunded” for purposes of the
Act and the Code.
13.5
FUNDING
UPON A CHANGE OF CONTROL.
Prior
to
the day on which a Change of Control occurs, if for any reason the assets of
the
Trust Fund are less than the aggregate Account Balances of all Participants,
the
Company shall transfer an amount equal to the deficiency to the Trustee of
the
Trust. If it is discovered at any time that the amount initially transferred
is
less than the total amount called for by the preceding sentence, the shortfall
shall be transferred to the Trustee immediately upon the discovery of such
error.
13.6
UNIFORM
ADMINISTRATION.
Whenever
in the administration of the Plan any action is required by the Plan
Administrator, such action shall be uniform in nature as applied to all persons
similarly situated.
13.7
HEIRS
AND SUCCESSORS.
All
of
the provisions of this Plan shall be binding upon all persons who shall be
entitled to any benefits hereunder, and their heirs and legal
representatives.
13.8
NO
LIABILITY FOR ACCELERATION OF PAYMENTS.
Under
the
Plan, Participants are allowed, to a certain extent, to designate the dates
on
which distributions are to be made to them. The Plan Administrator, however,
also has the right, in the exercise of its discretion, to accelerate payments
with respect to benefits that accrued and vested on or before December 31,
2004.
By accepting the benefits offered by the Plan, each Participant (and each
Beneficiary claiming through a
Participant)
acknowledges that the Plan Administrator may override the Participant’s
elections and agrees that neither the Participant nor any Beneficiary shall
have
any claim against the Plan Administrator, the Trustee, or any Employer if
distributions are made earlier than anticipated by the Participant due to the
Plan Administrator’s exercise of its discretion to accelerate payments with
respect to benefits that accrued and vested on or before December 31, 2004.
Notwithstanding the foregoing, the Plan Administrator shall not accelerate
any
payment if such acceleration would result in a violation of Section 409A of
the
Code.
13.9
SECTION
409A.
The
Corporation and the Participants acknowledge and agree that the provisions
of
this Agreement are intended to comply with Section 409A of the Code and the
regulations and guidance of the Department of the Treasury interpreting and
implementing Section 409A.
To
signify its adoption of this Plan document, the Company has caused this Plan
document to be executed by a duly authorized officer of the Company on this
16th
day of March, 2007.
PHELPS
DODGE CORPORATION
By
_/s/
Nancy F. Mailhot___________
Its
_Senior Vice President - Human Resources___
Exhibit
10.79
FIRST
AMENDMENT
TO
THE
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
SAVINGS PLAN
Effective
as of January 1, 1997, Phelps Dodge Corporation (the “Company”) adopted the
Phelps Dodge Corporation Supplemental Savings Plan (the “Plan”) as an amendment
and restatement of the supplemental savings provisions of the Comprehensive
Executive Non-qualified Retirement and Savings Plan of Phelps Dodge Corporation.
The Plan was most recently amended and restated generally effective January
1,
2005. The Plan is being amended by this First Amendment to provide for the
establishment of an Investment Committee, to identify the members of the
Investment Committee, and to reflect an investment trade control policy
implemented by the Plan’s recordkeeper.
1.
The
provisions of this First Amendment shall be effective as of the dates noted
below.
2.
This
First Amendment shall amend only those Sections set forth herein and those
Sections not amended hereby shall remain in full force and effect.
3.
Effective May 17, 2005, Section 2.1 (
DEFINITIONS
)
of the
Plan is amended by adding a new Section (q)-1 to provide as
follows:
(q)-1
Investment
Committee
means
the committee established pursuant to Section 9.3A to designate and monitor
the
investment vehicles available under this Plan.
4.
Effective
May 17, 2005, Section 2.1(r) (
DEFINITIONS
-
Investment
Fund
)
of the
Plan is amended and restated in its entirety to provide as follows:
(r)
“
Investment
Fund
”
means
the investment fund or funds established by the Investment Committee pursuant
to
Section 6.3 (INVESTMENT DIRECTION).
5.
Effective
May 17, 2005, Section 6.3(a) (
INVESTMENT
DIRECTION
-
INVESTMENT
FUNDS
)
of the
Plan is amended by changing all references to “Plan Administrator” therein to
“Investment Committee.”
6.
Effective
October 16, 2006, Section 6.3(b)(1) (
INVESTMENT
DIRECTION
-
PARTICIPANT
DIRECTIONS
-
GENERAL
RULE
)
of the
Plan is amended and restated in its entirety to provide as follows:
(1)
GENERAL
.
Upon
becoming a Participant in the Plan, each Participant may direct that all of
the
amounts attributable to his Account be invested in a single Investment Fund
or
may direct fractional (percentage) increments of his Account to be invested
in
such Fund or Funds as he shall desire, in accordance with such procedures,
if
any, as may be established by the Plan Administrator. Except as otherwise
provided in this Section 6.3(b)(1), as of each Valuation Date, a Participant
may
change his designations of future contributions or existing Account among
Investment Funds by making an election in accordance with such procedures as
may
be established by the Plan Administrator. The designation will continue until
changed in accordance with such procedures.
Notwithstanding
the foregoing, if a Participant has elected to transfer all or part of his
existing Account out of certain Investment Funds which have been deemed to
be
subject to Rule 22c-2 of the U.S. Securities and Exchange Commission and/or
any
trade control or similar policy that might be adopted by the Plan’s recordkeeper
(such as may apply to any mutual funds or other similar form of investments
within the Plan’s Investment Funds), the Participant
shall
not
be permitted to transfer any part of his Account back into such Investment
Fund
or Funds until after thirty (30) calendar days have passed from the date of
the
initial transfer, or such other time as may be required from time to time in
order for the Plan to comply with Rule 22c-2 or any trade control or similar
policy implemented by the Plan’s recordkeeper in furtherance of Rule
22c-2.
7.
Effective
May 17, 2005, Section 6.3(e) (
INVESTMENT
DIRECTION
-
COMPANY
STOCK FUND
)
of the
Plan is amended and restated in its entirety to provide as follows:
(e)
COMPANY
STOCK FUND
.
The
Investment Committee in the exercise of its discretion may direct that one
or
more of the Investment Funds consist, primarily or exclusively, of Company
securities. If such a Fund or Funds is established, a Participant’s ability to
direct investments into or out of such Fund shall be subject to such procedures
as the Plan Administrator or the Investment Committee may prescribe from time
to
time to assure compliance with Rules 16b-3 promulgated under Section 16(b)
of
the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of
2002,
and any other applicable requirements. Such procedures also may limit or
restrict a Participant’s ability to make (or modify previously made) elections
pursuant to Section 8.2 (Participation Elections).
8.
Effective
May 17, 2005, Article IX (
ADMINISTRATION
OF THE PLAN
)
of the
Plan is amended by adding new Sections 9.3A, 9.3B and 9.3C, to provide as
follows:
9.3A
CREATION
OF INVESTMENT COMMITTEE.
The
Investment Committee shall be the Named Fiduciary with respect to investment
oversight and shall be responsible solely for the specific duties assigned
to it
in Article VI and in other sections of this Plan. Unless the context clearly
requires otherwise, any reference to the “Committee” or “committee” shall be
deemed to be a reference to the Benefits Administration Committee and not the
Investment Committee.
9.3B
APPOINTMENT
AND MEMBERSHIP OF THE INVESTMENT COMMITTEE.
Effective
May 17, 2005, the Investment Committee will consist of individuals holding
the
following positions with the Company: Assistant Treasurer; Director, Internal
Audit; Director, Health & Welfare Benefits; Director, Retirement Plans; Vice
President, Global Supply Chain and Information Services; and Vice President,
Morenci, PDMC.
The
Assistant Treasurer shall serve as the chair of the Investment Committee and
the
Investment Committee members shall appoint a secretary. Membership of the
Investment Committee shall automatically change as the individuals holding
the
designated positions change. As individuals are added to or removed from the
Investment Committee due to changes in position, they may be asked to sign
an
acceptance of their fiduciary responsibilities under the Plan or a resignation
from their fiduciary responsibilities under the Plan, but the appointments
and
resignations will be effective automatically without the execution of such
documents.
9.3C
POWERS
OF
THE INVESTMENT COMMITTEE.
The
Investment Committee shall have full and exclusive responsibility and authority
for the performance of the functions assigned to in Article VI, including
particularly, but not limited to, the establishment of an investment policy
and
the selection and monitoring of Investment Funds, including the Phelps Dodge
Common Stock Fund. The Investment Committee shall not have any responsibility
for the performance of the duties and responsibilities assigned to the Benefits
Administration Committee. Similarly, the Benefits Administration Committee
shall
not have any responsibility for the duties and responsibilities assigned to
the
Investment Committee.
The
Investment Committee shall adopt policies, procedures and other administrative
rules as it deems advisable for purposes of administration of matters within
its
scope of responsibility. Any and all policies, procedures, or other
administrative rules, whether written or oral, previously adopted by the
Benefits Administration Committee for purposes of the administration of a
provision of this Article IX that is now the responsibility of the Investment
Committee shall continue in full force and effect unless and until modified
by
the Investment Committee.
9.
Effective
March 2, 2006, Section 9.3B (
APPOINTMENT
AND MEMBERSHIP OF THE INVESTMENT COMMITTEE
)
of the
Plan is amended and restated in its entirety, to provide as
follows:
9.3B
APPOINTMENT
AND MEMBERSHIP OF THE INVESTMENT COMMITTEE.
Effective
March 2, 2006, the Investment Committee will consist of individuals holding
the
following positions with the Company: Assistant Treasurer; Director, Internal
Audit; Director, Global Benefits; Director, Global HR Compliance; Vice
President, Global Supply Chain and Information Services; and Vice President,
Southeastern Arizona, PDMC.
The
Assistant Treasurer shall serve as the chair of the Investment Committee and
the
Investment Committee members shall appoint a secretary. Membership of the
Investment Committee shall automatically change as the individuals holding
the
designated positions change. As individuals are added to or removed from the
Investment Committee due to changes in position, they may be asked to sign
an
acceptance of their fiduciary responsibilities under the Plan or a resignation
from their fiduciary responsibilities under the Plan, but the appointments
and
resignations will be effective automatically without the execution of such
documents.
10.
Any
inconsistent provisions of the Plan shall be read consistent with this First
Amendment.
IN
WITNESS WHEREOF, the undersigned has executed this First Amendment as of
the 16th
day of
March, 2007.
PHELPS
DODGE CORPORATION
By_/s/
Nancy F. Mailhot____________
Nancy
F.
Mailhot
Senior
Vice President, Human Resources
Exhibit
10.80
SECOND
AMENDMENT
TO
THE
PHELPS
DODGE CORPORATION
SUPPLEMENTAL
SAVINGS PLAN
Effective
as of January 1, 1997, Phelps Dodge Corporation (the “Company”) adopted the
Phelps Dodge Corporation Supplemental Savings Plan (the “Plan”) as an amendment
and restatement of the supplemental savings provisions of the Comprehensive
Executive Non-qualified Retirement and Savings Plan of Phelps Dodge Corporation.
The Plan was most recently amended and restated generally effective January
1,
2005, and was subsequently amended on one occasion. The Plan is being amended
by
this Second Amendment to reflect the conversion of Phelps Dodge Corporation
Common Stock to Freeport-McMoRan Copper & Gold Inc. Common Stock as a result
of the acquisition of Phelps Dodge Corporation by Freeport-McMoRan Copper &
Gold Inc., with this Second Amendment being specifically contingent on the
completion of the merger transaction contemplated by that certain Agreement
and
Plan of Merger dated as of November 18, 2006.
1.
The
provisions of this Second Amendment shall be effective as of the date on which
the merger of Phelps Dodge Corporation with Freeport-McMoRan Copper & Gold
Inc. is completed or “closed.” If such transaction does not close, this Second
Amendment shall have no force and effect.
2.
This
Second Amendment shall amend only those Sections set forth herein and those
Sections not amended hereby shall remain in full force and effect.
3.
Section
6.3(e) (
INVESTMENT
DIRECTION
-
COMPANY
STOCK FUND
)
of the
Plan is amended and restated in its entirety to provide as follows:
(e)
COMPANY
STOCK FUND
.
Upon
the closing of the merger transaction between Phelps Dodge Corporation and
Freeport-McMoRan Copper & Gold Inc. (“FCX”), Participants may no longer
either direct future contributions into or transfer an existing Account balance
into Company securities or FCX securities.
4.
Article
6 (
INVESTMENT
DIRECTION
)
of the
Plan is amended by adding a new Section 6.3(f) to read as follows:
(f)
INVESTMENT
ELECTIONS AFTER PDC/FCX TRANSACTION
.
Upon
the closing of the merger transaction between Phelps Dodge Corporation and
FCX,
FCX will acquire all of Phelps Dodge Corporation’s outstanding shares of common
stock in exchange for a combination of cash and FCX Common Stock. Effective
as
of the date of the closing and in accordance with the terms of the merger,
each
Participant holding Phelps Dodge Corporation common stock shall receive $88.00
in cash and 0.67 shares of FCX Common Stock for each share of Phelps Dodge
Corporation common stock. Such FCX Common Stock received shall be held in an
FCX
Common Stock Fund unless and until a Participant elects to liquidate his
investment of shares in the FCX Common Stock Fund and direct the investment
of
those proceeds into one or more of the other Investment Funds. Such cash
received shall be invested in the Money Market Fund until such time that a
Participant directs the investment of the cash proceeds into one or more of
the
other Investment Funds. In addition, any future contributions directed to the
purchase of Phelps Dodge Corporation common stock shall be made to the Money
Market Fund.
5.
Section
9.3C (
POWERS
OF THE INVESTMENT COMMITTEE
)
is
amended by changing the reference to the “Phelps Dodge Common Stock Fund”
therein to the “FCX Common Stock Fund.”
6.
Any
inconsistent provisions of the Plan shall be read consistent with this Second
Amendment.
IN
WITNESS WHEREOF, the undersigned has executed this Second Amendment as of
the 16th
day of
March, 2007.
PHELPS
DODGE CORPORATION
By_/s/
Nancy F. Mailhot___________
Nancy
F.
Mailhot
Senior
Vice President, Human Resources
Exhibit
15.1
To
the
Board of Directors and Stockholders of Freeport-McMoRan Copper & Gold
Inc.:
We
are
aware of the incorporation by reference in the Registration Statements on
Forms
S-3 (File Nos. 333-104564, 333-114430 and 333-140997), Forms S-4 (File Nos.
333-104563, 333-114217 and 333-139252) and Forms S-8 (File Nos. 33-63267,
33-63269, 33-63271, 333-85803, 333-105535, 333-115292, 333-136084 and
333-141358) of Freeport-McMoRan Copper & Gold Inc. of our report dated May
8, 2007 relating to the unaudited condensed consolidated interim financial
statements of Freeport-McMoRan Copper & Gold Inc. that is included in its
Form 10-Q for the quarter ended March 31, 2007.
/s/Ernst
& Young LLP
New
Orleans, Louisiana
May
8,
2007
Exhibit
31.1
CERTIFICATION
I,
Richard C. Adkerson, certify that:
1.
I
have
reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Copper &
Gold Inc.;
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
May
10, 2007
/s/
Richard C. Adkerson
Richard
C. Adkerson
Chief
Executive Officer
Exhibit
31.2
CERTIFICATION
I,
Kathleen L. Quirk, certify that:
1.
|
I
have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan
Copper & Gold Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
May
10, 2007
/s/
Kathleen L. Quirk
Kathleen
L. Quirk
Executive
Vice President,
Chief
Financial Officer and Treasurer
Exhibit
32.1
Certification
Pursuant to 18 U.S.C. Section 1350
(Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In
connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper
& Gold Inc. (the “Company”) for the quarter ending March 31, 2007, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
Richard C. Adkerson, as Chief Executive Officer of the Company, hereby
certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2)
The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May 10, 2007
/s/
Richard C. Adkerson
Richard
C. Adkerson
Chief
Executive Officer
A
signed
original of this written statement required by Section 906 has been provided
to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
This
certification shall not be deemed filed by the Company for purposes of § 18 of
the Securities Exchange Act of 1934, as amended.
Exhibit
32.2
Certification
Pursuant to 18 U.S.C. Section 1350
(Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In
connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Copper
& Gold Inc.(the “Company”) for the quarter ending March 31, 2007, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
Kathleen L. Quirk, as Executive Vice President, Chief Financial Officer and
Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of her knowledge:
(1)
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2)
The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May 10, 2007
/s/
Kathleen L. Quirk
Kathleen
L. Quirk
Executive
Vice President,
Chief
Financial Officer and Treasurer
A
signed
original of this written statement required by Section 906 has been provided
to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
This
certification shall not be deemed filed by the Company for purposes of § 18 of
the Securities Exchange Act of 1934, as amended.