Management’s Discussion and Analysis Our capital expenditures for 2005 are expected to total  approximately $180 million, including approximately $19  million for the DOZ expansion and $17 million for other long- term development projects. We expect to fund our 2005  capital expenditures with operating cash flows and available  cash. Capital expenditures are estimated to average approxi- mately $145 million per year over the next five years. In November 2004, a joint venture in which we own a 50  percent interest completed the sale to a real estate developer  of a parcel of land in Arizona where the joint venture previ- ously was engaged in a copper mining research project. Our  share of net cash proceeds from the sale totaled $21.6 million.  In December 2004, Atlantic Copper completed a sale of its  wire rod and wire assets and received $18.3 million cash. In 2001, we sold $603.8 million of 8  1 /4% Convertible  Senior Notes due 2006. The terms of the notes required that  we use $139.8 million of the proceeds to purchase a portfolio  of U.S. government securities to secure and pay for the first  six semiannual interest payments. We sold $6.7 million of  these restricted investments in 2004, $46.6 million in 2003  and $47.9 million in 2002 to pay interest. Conversions of  these notes allowed us to sell $15.1 million of our restricted  investments during 2004 and $27.0 million during 2003  (see below).  In July 2003, we acquired the 85.7 percent ownership  interest in PT Puncakjaya Power owned by affiliates of Duke  Energy Corporation for $68.1 million cash, net of $9.9 million  of cash acquired. PT Freeport Indonesia purchases power  from Puncakjaya Power under infrastructure asset financing  arrangements. We completed several financing transactions over the last  several years to improve our balance sheet and debt maturity  profile and enhance our financial flexibility. We are continuing  to review opportunities to use a portion of future operating  cash flow to reduce debt in advance of scheduled maturities  and to further improve our debt maturity profile. In January  2004, we completed a tender offer and privately negotiated  transactions for a portion of our remaining 8  1 /4% Convertible  Senior Notes due 2006 resulting in the early conversion  of $226.1 million of notes into 15.8 million shares of FCX  common stock. We recorded a $10.9 million charge to losses  on early extinguishment and conversion of debt in connec- tion with these conversions. The $10.9 million charge  included $6.4 million of previously accrued interest costs,  resulting in an equivalent reduction in interest expense.  In June 2004, we called for redemption on July 31, 2004, all  of the remaining $66.5 million of 8  1 /4% Convertible Senior  Notes. During July, all remaining notes were converted into  4.7 million shares of FCX common stock. As of July 31, 2004,  all of the 8  1 /4% Convertible Senior Notes, which totaled  $603.8 million at issuance in 2001, had been converted into  42.2 million shares of FCX common stock. On February 3, 2004, we sold $350 million of 6  7 /8% Senior  Notes due 2014 for net proceeds of $344.4 million. We used a  portion of the proceeds to repay $162.4 million of Atlantic  Copper borrowings and to refinance other FCX 2004 debt  maturities. Atlantic Copper recorded a $3.7 million charge to  losses on early extinguishment of debt to accelerate amor- tization of deferred financing costs. Interest on the notes  is payable semiannually on February 1 and August 1 of each  year, beginning August 1, 2004. We may redeem some or all  of the notes at our option at a make-whole redemption price  prior to February 1, 2009, and afterwards at stated redemp- tion prices. The indenture governing the notes contains  certain restrictions, including restrictions on incurring debt,  creating liens, selling assets, entering into transactions  with affiliates, paying cash dividends on common stock,  repurchasing or redeeming common or preferred equity,  prepaying subordinated debt and making investments.  During the second quarter of 2004, we purchased in the  open market $9.7 million of the 6  7 /8% Senior Notes for $8.8  million, which resulted in a gain of $0.8 million recorded as  a reduction to losses on early extinguishment and conversion  of debt, including related deferred financing cost. On March 30, 2004, we sold 1.1 million shares of 5  1 /2%  Convertible Perpetual Preferred Stock for $1.1 billion, with  net proceeds totaling $1.067 billion. Each share of preferred  stock was initially convertible into 18.8019 shares of our  common stock, equivalent to a conversion price of approxi- mately $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 common stock dividends discussed  below and a quarterly dividend paid on February 1, 2005, each  share of preferred stock is now convertible into 18.9794  shares of FCX common stock, equivalent to a conversion  price of approximately $52.69 per common share. In February  2005, our Board of Directors authorized a supplemental  dividend of $0.50 per share payable on March 31, 2005,  which will result in another adjustment to the conversion  price in March 2005. Beginning March 30, 2009, we may  redeem shares of the preferred stock by paying cash, our  common stock or any combination thereof for $1,000 per  share plus unpaid dividends, but only if our common stock  price has exceeded 130 percent of the conversion price for  at least 20 trading days within a period of 30 consecutive  trading days immediately preceding the notice of redemption.  We used a portion of the proceeds from the sale to purchase  2004 ANNUAL REPORT  | 35 Financing Activities