Freeport-McMoRan 2003 Annual Report Download - page 67

2003 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 65
Differences between income taxes computed at
the contractual Indonesian tax rate and income taxes
recorded follow (dollars in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2003 2002 2001
Amount Percent Amount Percent Amount Percent
Income taxes computed at the
contractual Indonesian tax rate
$204,321 35% $157,382 35% $125,572 35%
Indonesian withholding tax on:
Earnings/dividends
42,632 7 34,955 8 25,652 7
Interest
1,223 — 1,551 — 1,899 1
Increase (decrease) attributable to:
Intercompany interest expense
(4,789) (1) (8,496) (2) (6,153) (2)
Parent company costs
61,923 11 45,279 10 32,083 9
U.S. alternative minimum tax
9,300 2 8,200 2 5,800 2
Atlantic Copper net loss
20,488 3 12,093 3 15,075 4
Other, net 2,955 1 (5,446) (1) 3,051 1
Provision for income taxes per income
statements
338,053 58% 245,518 55% 202,979 57%
Tax effect of cumulative effect adjustments 6,306 (2,352) —
Total provision for income taxes
$344,359 $243,166 $202,979
NOTE 9. INVESTMENT IN PT SMELTING AND
EMPLOYEE BENEFITS
PT Smelting. PT Smelting, an Indonesian company,
operates a smelter/refinery in Gresik, Indonesia, with
a stated production capacity of 200,000 metric tons
of copper metal per year. PT Freeport Indonesia,
Mitsubishi Materials Corporation (Mitsubishi Materials),
Mitsubishi Corporation (Mitsubishi) and Nippon Mining
& Metals Co., Ltd. (Nippon) own 25 percent, 60.5
percent, 9.5 percent and 5 percent, respectively, of the
outstanding PT Smelting common stock. PT Freeport
Indonesia provides nearly all of PT Smelting’s copper
concentrate requirements. For the first 15 years of PT
Smelting’s commercial operations beginning December
1998, the treatment and refining charges on the
majority of the concentrate PT Freeport Indonesia sup-
plies will not fall below a specified minimum rate, cur-
rently $0.23 per pound, which has been the rate since
the commencement of operations in 1998. The rate is
scheduled to decline to a floor of $0.21 per pound in
early 2004. In December 2003, PT Smelting’s share-
holder agreement was amended to eliminate PT
Freeport Indonesia’s assignment of its earnings in PT
Smelting to support a 13 percent cumulative annual
return to Mitsubishi Materials, Mitsubishi and
Nippon for the first 20 years of commercial opera-
tions. No amounts were paid under this assignment.
PT Smelting had project-specific debt, nonrecourse to
PT Freeport Indonesia, totaling $283.1 million at
December 31, 2003, and $314.1 million at December
31, 2002.
Pension Plans. During 2000, FCX and FM Services
Company decided to terminate their defined benefit
pension plans covering substantially all U.S. and certain
overseas expatriate employees and replace these
plans, which have substantially the same provisions,
with defined contribution plans, as further discussed
below. All participants’ account balances in the
defined benefit plans were fully vested on June 30,
2000, and interest credits continue to accrue under
the plans until the assets are finally liquidated. The
final distribution will occur once approved by the
Internal Revenue Service and the Pension Benefit
Guaranty Corporation. The plans’ investment portfolios
were liquidated and invested in primarily short dura-
tion fixed-income securities in the fourth quarter of
2000 to reduce exposure to equity market volatility.
PT Freeport Indonesia has a defined benefit pension
plan denominated in Indonesian rupiahs covering
substantially all of its Indonesian national employees.
PT Freeport Indonesia funds the plan and invests the
assets in accordance with Indonesian pension guide-
lines. The pension obligation was valued at an
exchange rate of 8,437 rupiah to one U.S. dollar on
December 31, 2003, and 8,940 rupiah to one U.S.
dollar on December 31, 2002. Labor laws enacted in
2003, which replace labor laws enacted in 2001, in
Indonesia require that companies provide a minimum
level of benefits to employees upon employment
termination based on the reason for termination and
the employee’s years of service. PT Freeport
Indonesia’s pension benefit disclosures for 2003,
as shown below, include the impact of this law as
a $5.0 million increase in the benefit obligation
and a component of unrecognized prior service cost
being amortized over an approximate 11-year period.
Atlantic Copper has a contractual obligation denomi-
nated in euros to supplement amounts paid to certain
retired Spanish national employees. Amended Spanish