Freeport-McMoRan 2011 Annual Report Download - page 102

100 | FREEPORT-McMoRan COPPER & GOLD INC.
or marketed many years ago or from asbestos contained in
buildings and facilities located at properties owned or operated by
FMC aliates, or from alleged asbestos in talc products. Many of
these suits involve a large number of codefendants. Based on
litigation results to date and facts currently known, FCX believes
there is a reasonable possibility that losses may have been incurred
related to these matters; however, FCX also believes that the
amounts of any such losses, individually or in the aggregate, are
not material to its consolidated nancial statements. ere can be
no assurance, however, that future developments will not alter
this conclusion.
Columbian Chemicals Company (Columbian) Claims. Columbian,
formerly a subsidiary of FMC, has notied FCX of various
indemnication claims arising out of the 2005 agreement pursuant
to which Columbian was sold. e principal outstanding claims
relate to (1) multiple mass tort suits pending against Columbian in
West Virginia state court for alleged personal injury and property
damage resulting from exposure to carbon black (the Carbon Black
claims) and (2) an investigation being conducted by EPA of potential
Clean Air Act violations during the period Columbian was owned by
FMC (the Clean Air Act matter). Although FMC believes it is
reasonably possible that a loss may be incurred, it believes that its
indemnity obligations, if any, for both of these matters are subject to
an aggregate cap under the 2005 agreement of approximately
$110 million. Columbian disagrees with that position and asserts
that FMC’s liability for the Carbon Black claims is uncapped. FMC
believes Columbian’s exposure, if any, for the Clean Air Act matter is
below that aggregate limit, but FMC cannot estimate Columbian’s
exposure for the Carbon Black claims. Columbian led suit in New
York state court in April 2010 (Columbian Chemicals Company and
Columbian Chemicals Acquisition LLC v. Freeport-McMoRan
Corporation f/k/a Phelps Dodge Corporation, County of New York,
Supreme Court of the State of New York, Index No. 600999/2010),
alleging, among other things, that the Carbon Black claims are the
responsibility of FMC and are not subject to the approximately
$110 million cap. FMC is opposing that assertion. FMC intends to
meet its obligations under the 2005 agreement, but will vigorously
defend against any eort by Columbian to expansively interpret
those obligations.
Cerro Verde Tax Proceeding. SUNAT, the Peruvian national tax
authority, has assessed mining royalties on materials processed by
the Cerro Verde concentrator that commenced operations in late
2006. ese assessments cover the period October 2006 to
December 2007 and the years 2008 and 2009. SUNAT has issued
rulings denying Cerro Verde’s protest of the assessments. Cerro
Verde has appealed these decisions and currently has three cases
pending before the Peruvian Tax Tribunal. Cerro Verde is
challenging these royalties because it believes its stability agreement
provides an exemption for all minerals extracted from its mining
concession, irrespective of the method used for processing those
minerals. Although FCX believes its interpretation of the stability
agreement is correct, if Cerro Verde is ultimately found responsible
for these assessments, it will also be liable for interest, which
accrues at rates that range from approximately 7 to 18 percent based
on the year accrued and the currency in which the amounts would
be payable. At December 31, 2011, the aggregate amount of the
assessments, including interest and penalties, totaled $190 million.
SUNAT may continue to assess mining royalties annually until
this matter is resolved by the Peruvian Tax Tribunal.
Letters of Credit, Bank Guarantees and Surety Bonds. Letters
of credit and bank guarantees totaled $110 million at December31,
2011, primarily for reclamation and environmental obligations,
workers’ compensation insurance programs, tax and customs
obligations, and other commercial obligations. In addition, FCX
had surety bonds totaling $148 million at December31,2011,
associated with reclamation and closure ($127 million — see
discussion above), self-insurance bonds primarily for workers’
compensation ($19 million) and other bonds ($2 million).
Insurance. FCX purchases a variety of insurance products to
mitigate potential losses. e various insurance products typically
have specied deductible amounts or self-insured retentions and
policy limits. FCX generally is self-insured for U.S. workers’
compensation, but purchases excess insurance up to statutory
limits. An actuarial analysis is performed twice a year for various
FCX casualty programs, including workers’ compensation, to
estimate required insurance reserves. Insurance reserves totaled
$58 million at December31,2011, which consisted of a current
portion of $8 million (included in accounts payable and accrued
liabilities) and a long-term portion of $50 million (included in
other liabilities).
Other. In October 2010, PT Freeport Indonesia received an
assessment from the Indonesian tax authorities for additional taxes
of $106 million and interest of $52 million related to various audit
exceptions for 2005. In November 2011, PT Freeport Indonesia
received an assessment from the Indonesian tax authorities for
additional taxes of $22 million and interest of $10 million related to
various audit exceptions in 2006. PT Freeport Indonesia has paid
$109 million (which is included in long-term receivables) for these
disputed tax assessments and led objections to these assessments
because it believes it has properly paid all taxes. PT Freeport
Indonesia is working with the Indonesian tax authorities to resolve
these matters and expects to receive additional assessments from the
Indonesian tax authorities for their audit of its 2007 tax return.
In December 2009, PT Freeport Indonesia was notied by the
Large Taxpayer’s Oce of the Government of Indonesia of its view
that PT Freeport Indonesia is obligated to pay value added taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS