Freeport-McMoRan 2003 Annual Report Download - page 58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
56 FREEPORT-McMoRan COPPER & GOLD INC. 2003 Annual Report
Effective January 1996, Atlantic Copper changed its
functional currency from the peseta (the Spanish cur-
rency at the time) to the U.S. dollar. This change
resulted from significant changes in Atlantic Copper’s
operations related to a large expansion of its smelting
and refining operations financed with U.S. dollar
borrowings and the sale of its mining operations that
incurred significant peseta operating costs. Accum-
ulated Other Comprehensive Income reported
in the Statements of Stockholders’ Equity before 2001
totaled $10.2 million and consisted solely of the
cumulative foreign currency translation adjustment at
Atlantic Copper prior to changing its functional cur-
rency, for which there is no tax effect. In accordance
with SFAS No. 52, “Foreign Currency Translation,”
the currency translation adjustment recorded up
through the date of the change in functional currency
will only be adjusted in the event of a full or partial
disposition of FCX’s investment in Atlantic Copper.
New Accounting Standard – FIN 46. Effective
December 31, 2003, FCX adopted Financial
Accounting Standards Board Interpretation No. 46
(revised December 2003), “Consolidation of Variable
Interest Entities-an interpretation of ARB No. 51”
(FIN 46). FIN 46 is intended to clarify the application
of Accounting Research Bulletin No. 51 “Consolidated
Financial Statements” (ARB No. 51), to certain
entities in which equity investors do not have charac-
teristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial
support. Adoption of FIN 46 did not result in any
changes to FCX’s consolidated subsidiaries.
NOTE 2. OWNERSHIP IN SUBSIDIARIES AND
JOINT VENTURES WITH RIO TINTO
Ownership in Subsidiaries. FCX’s direct ownership
in PT Freeport Indonesia totaled 81.3 percent at
December 31, 2003 and 2002. PT Indocopper
Investama, an Indonesian company, owns 9.4 percent
of PT Freeport Indonesia. FCX owned 49 percent of
PT Indocopper Investama and acquired the remaining
51 percent ownership in PT Indocopper Investama in
February 2002, as discussed below, bringing FCX’s
total ownership in PT Freeport Indonesia to 90.6 per-
cent. At December 31, 2003, PT Freeport Indonesia’s
net assets totaled $2.0 billion, including $1.8 billion
of retained earnings. As of December 31, 2003, FCX
has two outstanding loans to PT Freeport Indonesia
totaling $204.9 million.
Substantially all of PT Freeport Indonesia’s assets
are located in Indonesia. Indonesia continues to
face political, economic and social uncertainties,
including separatist movements and civil and
religious strife in a number of provinces. In particular,
several separatist groups are opposing Indonesian
rule over the province of Papua, where PT Freeport
Indonesia’s mining operations are located, and have
sought political independence for the province. In
response to demands for political independence, new
Indonesian regional autonomy laws became effective
January 1, 2001. However, the manner in which the
new laws will be implemented and the degree of polit-
ical and economic autonomy that they may bring to
individual provinces, including Papua, is uncertain.
On August 31, 2002, three people were killed and
11 others were wounded in an ambush by a group
of unidentified assailants. The assailants shot at
several vehicles transporting international contract
schoolteachers from PT Freeport Indonesia’s school
in Tembagapura, their family members, and other
contractors to PT Freeport Indonesia on the road
near Tembagapura, the mining town where the major-
ity of PT Freeport Indonesia’s personnel reside.
The identity of the assailants remains uncertain.
Indonesian authorities and the U.S. Federal Bureau
of Investigation continue to investigate the incident
and PT Freeport Indonesia is cooperating fully
with the investigations. PT Freeport Indonesia’s
operations were not interrupted.
In 1997, PT Nusamba Mineral Industri (Nusamba),
an Indonesian company and a subsidiary of PT
Nusantara Ampera Bakti, acquired from a third party
approximately 51 percent of the capital stock of PT
Indocopper Investama. PT Indocopper Investama
owns 9.4 percent of PT Freeport Indonesia and 10
percent of Eastern Minerals. Nusamba paid $61.6
million in cash and financed $253.4 million of the
$315.0 million purchase price with a variable-rate
commercial loan from a syndicate of commercial
banks, including JPMorgan Chase Bank as agent,
which was to mature in March 2002. FCX guaranteed
the Nusamba loan for the purpose of continuing
minority Indonesian ownership of PT Freeport
Indonesia. FCX also agreed to lend to Nusamba any
amounts required to cover any shortfalls between the
interest payments due on the commercial loan and
dividends received by Nusamba from PT Indocopper
Investama. Through February 2002, FCX loaned
Nusamba $68.9 million to cover such shortfalls and
charged to expense $7.3 million of this amount
because the loans exceeded Nusamba’s initial
cash investment.