Freeport-McMoRan (FCX)

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Don’t be fooled, when do earnings become a liability? Earnings become a liability when there used as collateral. They also become depreciated assets as they are used to support the collateral of the debt. Bank debt is part of the payables. Debt too venders is never collateralized but never the less a debt too share holders and must be accounted for under equity as outstanding shares set at par. This debt to the equity holders is taxable along with all other debt to be payed.

We will not repeat our selfs as to where an investor finds the tax debt owed that is allowed to sit on the books if credit has been issued to the customer.

Credit can come in the way of hedging. Contracts set in place to deliver goods and services under contract for a set price. The breaking of this contract will often result in a penalty to be paid on the set market price of the goods and service relative to the price given under contract.

An example is your selling a tire under contract. The material price of the tire as well the labor costs go up. The vender under contract can increase the price of the tire but the supplier can’t.

How can he protect his interest avoiding a penalty. One would to pay to the workers an incentive based on an equity earning that becomes a payable out of future earnings once the contract is to be renewed. So the workers are in fact offering credit to the company. This can be done with suppliers as well. It is known as convertible debt. It can be used in acquiring or leveraging a buy out. It can be used between new suppliers and old as well new entities and older established owned entities and there shareholders and employees as well management.

This brings us to gifts of deeds where the bank will take over the deed of the contract and have the company gift you the proceed value to date of the contract. There is a administration cost to this process that if done to early will eat up any proceeds that are available to the debt holder.

I throw caution to the wind when ever your breaking a forty year contract that is turned over on a five year bases. Please check with management when ever your excepting gift of deed with your representative.