Innovation in a Rocky Market: Freeport-McMoRan
When the global recession sent he price of copper and mo- lybdenum into a tailspin that would quickly translate into
cutting revenue in half for Freeport-McMoRan
Copper & Gold, the company went into action. It implemented a broad-based plan that
included lowering operating costs by 18% by
idling facilities, reducing its U.S. workforce
by one-third, and suspending its common
stock dividend. The goal was to take the pain
upfront, hang onto much of its $1.2 billion in
cash, and protect the company’s prospects in
the recovery.
The company also converted many of its
$1.1 billion, 5.5% preferred shares into common to reduce dividend payouts, and used
funds from certain trust accounts where
there was excess cash that the company
could reclaim.
On top of that, the company issued new
stock, but used an innovative “equity draw-
down program” to dribble the stock out over
10 days and avoid taking the hit to its stock
price that a new issue typically brings. In
fact, the average $28 price for the new shares
was 22% higher than the stock price at the
price in 2009, making it the seventh best
performing stock in the S&P 500, she notes.
The plunging copper price forced the
company to post margin with the COMEX
exchange that went as high as $160 million.
Freeport implemented a plan to pass along
margin costs to copper-rod customers. It
also introduced 15-day payment terms for
customers, with a prime-plus finance charge
after 15 days, which accelerated collections.
The company cancelled the static supplier discount programs it had encouraged and
regularly used, and substituted a dynamic
discounting program, funded by Freeport
but operated on a J.P. Morgan platform, to
extend payables. “The new system allows
the company to separate clearly the negotiation of commercial terms with its vendors
from the discounting terms, providing a
better yardstick to measure the economics
of the discount program,” Quirk notes.
The average $28 price
for the new shares was
22% higher than the
stock price at the time
of the offering filing.
—FreePOr T’S QUIrK
time of the offering filing, reports Kathleen
Quirk, EVP, CFO and treasurer. These steps
together allowed the company to keep its
investment-grade ratings with S&P and Fitch
and to set the stage for a 229% gain in stock
Managing All FX Transactions In House: AT&T
B y bringing the outsourced servicing of its Consolidated State Service in house, AT&T eliminated a significant cost
and improved customer service. The project
reduced foreign currency (FX) transactions
from thousands to a couple dozen a month,
says Tom Clemens, director of financial
analysis. The solution uses a single U.K.
international bank account number (IBAN)
to consolidate FX payments, and a pooling
structure to hold the currencies. A zero-balance account seamlessly drains the
notional U.S. dollar pool daily from London
to New York, Clemens explains.
The CSS has long been popular with
customers, who can pay for global telecommunication services with a single payment
in the currency of their choice. The funds are
received into the IBAN account and redirected
to subaccounts denominated in 12 currencies. The subaccounts are notionally pooled,
with the equivalent U.S. dollar amount swept
into a concentration account to be used by
treasury to pay down commercial paper or
for other corporate purposes. Once a month,
AT&T uses funds from the subaccounts to
pay its local subsidiaries in their respective
currencies to make a single payment ever
month to each of its international subsidi
ies in their operating currency, significant
reducing FX transactions. In addition, fun
are now accessible, Clemens says.
The project allowed AT&T to “manage
and control the receipts and FX risk and
reduce operating costs, while getting ef-
ficient, cost-effective movement of funds
without creating an operating burden on
our FX and cash management teams,” sa
Elaine Lou, director of financial analysis
In taking over the service, AT&T enhanc
billing flexibility by allowing a netting
arrangement that applied a customer’s cre
balance in one country and currency again
an outstanding balance in another country
and currency, something the third party was
unable to do. “Being in control of the process
and the funds makes a real difference,”
Clemens says. “We have a clarity we never
had before.”
broNze WiNNer
Being in control of the
process and the funds
makes a real difference.
—a T&T’S CleMeNS
operating currencies.
Historically, the third party hosting this
service used FX transactions whenever it
passed a customer payment to an AT&T
sub, costs that AT&T ultimately paid. AT&T
cash was also tied up in the third party’s
accounts. Now AT&T uses the aggregated
receipts from all its customers in multiple
