Freeport-McMoRan 2013 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS
42 | FREEPORT-McMoRan
$81 million in 2012 and $109 million in 2011. The increase in 2013,
compared with 2012, primarily reflects the addition of
capitalized interest associated with expenditures for our oil and
gas properties totaling $69 million for the seven-month period
following the acquisition date. Refer to “Capital Resources and
Liquidity — Investing Activities” for further discussion of current
development projects.
Losses on Early Extinguishment of Debt
During 2013, we recorded net losses on early extinguishment of
debt totaling $35 million primarily associated with the termination
of the bridge loan facilities for the PXP and MMR acquisitions,
partly offset by a gain on the redemption of MMR’s remaining
outstanding 11.875% Senior Notes. During 2012, we recorded
losses on early extinguishment of debt totaling $168 million
associated with the redemption of our remaining 8.375% Senior
Notes. During 2011, we recorded losses on early extinguishment of
debt totaling $68 million associated with the redemption of our
8.25% Senior Notes, the revolving credit facilities that were replaced
in March 2011 and open-market purchases of our 9.50% Senior
Notes. Refer to Note 8 for further discussion of these transactions.
Provision for Income Taxes
Following is a summary of the approximate amounts used in the
calculation of our consolidated provision for income taxes for the
years ended December 31 (in millions, except percentages):
Environmental Obligations and Shutdown Costs
Environmental obligation costs (credits) reflect net revisions to
our long-term environmental obligations, which will vary from
period to period because of changes to environmental laws and
regulations, the settlement of environmental matters and/or
circumstances affecting our operations that could result in
significant changes in our estimates (refer to “Critical Accounting
Estimates — Environmental Obligations” for further discussion).
Shutdown costs include care and maintenance costs and
any litigation, remediation or related expenditures associated
with closed facilities or operations. Net charges (credits)
for environmental obligations and shutdown costs totaled
$66 million in 2013, $(22) million in 2012 and $134 million in 2011.
Refer to Note 12 for further discussion of environmental
obligations and litigation matters.
Interest Expense, Net
Consolidated interest expense (excluding capitalized interest)
totaled $692 million in 2013, $267 million in 2012 and $421 million
in 2011. The increase in interest expense in 2013 primarily reflects
additional interest expense associated with acquisition-related
debt (refer to Note 8 for discussion).
Capitalized interest is primarily related to the level of
expenditures for our development projects and average interest
rates on our borrowings, and totaled $174 million in 2013,
2013 2012
Income Tax Income Tax
Effective (Provision) Effective (Provision)
Income
a
Tax Rate Benefit Income
a
Tax Rate Benefit
U.S. $ 1,080 23% $ (243) $ 1,571 23% $ (357)
South America 2,021 36% (720) 2,211 36% (791)
b
Indonesia 1,370 44% (603) 1,287 39% (497)
Africa 425 31% (131) 357 31% (112)
Eliminations and other 17 N/A 23 61 N/A 13
4,913 34% (1,674) 5,487 32% (1,744)
Adjustments — N/A 199
c
— N/A 234
d
Consolidated FCX $ 4,913 30% $ (1,475) $ 5,487 28% $ (1,510)
a. Represents income by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. In 2012, Cerro Verde signed a new 15-year mining stability agreement with the Peruvian government, which became effective January 1, 2014. In connection with the new mining stability
agreement, Cerro Verde
’ s income tax rate increased from 30 percent to 32 percent, and we recognized additional deferred tax expense of $29 million ($25 million net of noncontrolling interests).
c. Reflects net reductions in our deferred tax liabilities and deferred tax asset valuation allowances resulting from the oil and gas acquisitions (see Note 11).
d. Reflects the reversal of a net deferred tax liability totaling $234 million ($123 million net of noncontrolling interests) related to reinvested profits at Cerro Verde that were not expected to be
distributed prior to expiration of its 1998 stability agreement on December 31, 2013.