Freeport-McMoRan 2004 Annual Report Download - page 70

Notes To Consolidated Financial Statements
FCX฀has฀provided฀a฀valuation฀allowance฀equal฀to฀its฀tax฀
credit฀carryforwards฀($509.6฀million฀at฀December฀31,฀2004,฀
and฀$466.0฀million฀at฀December฀31,฀2003)฀as฀these฀would฀
only฀be฀used฀should฀FCX฀be฀required฀to฀pay฀regular฀U.S.฀
tax,฀which฀is฀considered฀unlikely฀for฀the฀foreseeable฀future฀
and฀because฀the฀foreign฀tax฀credits฀expire฀after฀ten฀years.฀
Atlantic฀Copper฀is฀subject฀to฀taxation฀in฀Spain฀and฀has฀not฀
generated฀significant฀taxable฀income฀in฀recent฀years.฀FCX฀
has฀provided฀a฀valuation฀allowance฀equal฀to฀the฀future฀tax฀
benefits฀resulting฀from฀Atlantic฀Copper’s฀net฀operating฀
losses฀totaling฀$423.8฀million฀at฀December฀31,฀2004,฀and฀
$282.6฀million฀at฀December฀31,฀2003,฀which฀expire฀through฀฀
the฀year฀2019.
PT฀Freeport฀Indonesia’s฀Indonesian฀income฀tax฀returns฀
prior฀to฀2000฀have฀been฀audited฀or฀are฀no฀longer฀subject฀to฀
review฀by฀the฀Indonesian฀tax฀authorities.฀FCX’s฀provision฀฀฀฀฀฀฀฀฀
for฀income฀taxes฀consists฀of฀the฀following฀(in฀thousands):
฀2004฀ 2003฀ 2002
Current฀income฀taxes:
฀ Indonesian฀ $฀236,836฀ $฀218,017฀ $฀186,418
฀ United฀States฀and฀other฀ ฀ 7,049฀ ฀ 9,383฀ ฀ 7,624
฀ ฀ ฀ ฀ ฀ ฀243,885฀ ฀227,400฀ ฀194,042
Deferred฀Indonesian฀taxes฀ ฀ 86,795฀ ฀110,653฀ ฀ 51,476
Provision฀for฀income฀taxes฀per฀income฀statements฀ ฀330,680฀ ฀338,053฀ ฀245,518
Tax฀effect฀of฀cumulative฀effect฀adjustments฀ ฀ —฀ ฀ 6,306฀ ฀ (2,352)
Total฀provision฀for฀income฀taxes฀ $฀330,680฀ $฀344,359฀ $฀243,166
Differences฀between฀income฀taxes฀computed฀at฀the฀
contractual฀Indonesian฀tax฀rate฀and฀income฀taxes฀recorded฀
follow฀(dollars฀in฀thousands):
฀2004฀ 2003฀ 2002
฀Amount฀ Percent฀ Amount฀ Percent฀ Amount฀ Percent
Income฀taxes฀computed฀at฀the฀contractual฀Indonesian฀tax฀rate฀ $฀201,034฀ ฀ 35%฀ $฀204,321฀ ฀ 35%฀ $฀157,382฀ ฀ 35%
Indonesian฀withholding฀tax฀on:
฀ Earnings/dividends฀ ฀ 47,347฀ ฀ 8฀ ฀ 42,632฀ ฀ 7฀ ฀ 34,955฀ ฀ 8
฀ Interest฀ ฀ 1,120฀ ฀ —฀ ฀ 1,223฀ ฀ —฀ ฀ 1,551฀ ฀ —
Other฀adjustments:
฀ Parent฀company฀costs฀ ฀ 40,435฀ ฀ 7฀ ฀ 61,923฀ ฀ 11฀ ฀ 45,279฀ ฀ 10
฀ Atlantic฀Copper฀net฀loss฀฀ ฀ 36,186฀ ฀ 6฀ ฀ 20,488฀ ฀ 3฀ ฀ 12,093฀ ฀ 3
฀ U.S.฀alternative฀minimum฀tax฀ ฀ 8,200฀ ฀ 2฀ ฀ 9,300฀ ฀ 2฀ ฀ 8,200฀ ฀ 2
฀ Intercompany฀interest฀expense฀ ฀ —฀ ฀ —฀ ฀ (4,789)฀ ฀ (1)฀ ฀ (8,496)฀ ฀ (2)
฀ Other,฀net฀ ฀ (3,642)฀฀ —฀ ฀ 2,955฀ ฀ 1฀ ฀ (5,446)฀ ฀ (1)
Provision฀for฀income฀taxes฀per฀income฀statements฀฀ ฀330,680฀ ฀ 58%฀ ฀338,053฀ ฀ 58%฀ ฀245,518฀ ฀ 55%
Tax฀effect฀of฀cumulative฀effect฀adjustments฀ ฀ —฀ ฀ ฀ ฀ 6,306฀ ฀ ฀ ฀ (2,352)
Total฀provision฀for฀income฀taxes฀ $฀330,680฀ ฀ ฀ $฀344,359฀ ฀ ฀ $฀243,166
Note 9. Investment in PT Smelting and
Employee Benefits
PT Smelting.฀PT฀Smelting,฀an฀Indonesian฀company,฀operates฀
a฀smelter/refinery฀in฀Gresik,฀Indonesia.฀In฀2004,฀PT฀Smelting฀
increased฀its฀stated฀production฀capacity฀of฀200,000฀metric฀
tons฀of฀copper฀metal฀per฀year฀to฀250,000฀metric฀tons.฀
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.฀Under฀the฀PT฀Smelting฀contract,฀
for฀the฀first฀15฀years฀of฀PT฀Smelting’s฀commercial฀opera-
tions฀beginning฀December฀1998,฀the฀treatment฀and฀refining฀
charges฀on฀the฀majority฀of฀the฀concentrate฀PT฀Freeport฀
Indonesia฀provides฀will฀not฀fall฀below฀specified฀minimum฀
rates,฀subject฀to฀renegotiation฀in฀2008.฀The฀rate฀was฀$0.23฀
per฀pound฀during฀the฀period฀from฀the฀commencement฀of฀
PT฀Smelting’s฀operations฀in฀1998฀until฀April฀2004,฀when฀it฀
declined฀to฀a฀minimum฀of฀$0.21฀per฀pound.฀In฀December฀
2003,฀PT฀Smelting’s฀shareholder฀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฀
68฀| FREEPORT-McMoRan COPPER & GOLD INC.