Freeport-McMoRan 2004 Annual Report Download - page 71

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Notes To Consolidated Financial Statements
the฀first฀20฀years฀of฀commercial฀operations.฀No฀amounts฀
were฀paid฀under฀this฀assignment.฀PT฀Smelting฀had฀project-
specific฀debt,฀nonrecourse฀to฀PT฀Freeport฀Indonesia,฀totaling฀
$259.5฀million฀at฀December฀31,฀2004,฀and฀$283.1฀million฀at฀
December฀31,฀2003.
Pension Plans. During฀2000,฀FCX฀and฀FM฀Services฀
Company฀elected฀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฀duration฀fixed-income฀securities฀in฀the฀fourth฀
quarter฀of฀2000฀to฀reduce฀exposure฀to฀equity฀market฀volatility.฀
All฀of฀the฀FCX฀plan฀assets฀shown฀in฀the฀table฀below฀relate฀to฀
these฀plans฀and฀the฀unfunded฀liability฀totaled฀$2.2฀million฀at฀
December฀31,฀2004.
In฀February฀2004,฀FCX฀established฀an฀unfunded฀Supplemental฀
Executive฀Retirement฀Plan฀(SERP)฀for฀its฀two฀most฀senior฀
executive฀officers.฀The฀SERP฀provides฀for฀retirement฀benefits฀
payable฀in฀the฀form฀of฀a฀joint฀and฀survivor฀annuity฀or฀an฀equiva-
lent฀lump฀sum.฀The฀annuity฀will฀equal฀a฀percentage฀of฀the฀
executive’s฀highest฀average฀compensation฀for฀any฀consecutive฀
three-year฀period฀during฀the฀five฀years฀immediately฀preceding฀
the฀earlier฀of฀the฀executive’s฀retirement฀or฀completion฀of฀25฀
years฀of฀credited฀service.฀The฀SERP฀benefit฀will฀be฀reduced฀
by฀the฀value฀of฀all฀benefits฀due฀under฀FCX’s฀cash-balance฀
pension฀plan฀and฀all฀other฀benefit฀plans฀sponsored฀by฀FCX฀or฀
any฀other฀predecessor฀employer.฀Unrecognized฀prior฀service฀
cost฀at฀inception฀of฀the฀SERP฀totaled฀$18.9฀million฀and฀is฀being฀
amortized฀over฀the฀five-year฀term฀of฀the฀executive฀officers’฀
current฀employment฀agreements.฀FCX฀also฀has฀an฀unfunded฀
pension฀plan฀for฀its฀directors.
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฀guidelines.฀The฀pension฀obligation฀was฀
valued฀at฀an฀exchange฀rate฀of฀9,270฀rupiah฀to฀one฀U.S.฀
dollar฀on฀December฀31,฀2004,฀and฀8,437฀rupiah฀to฀one฀U.S.฀
dollar฀on฀December฀31,฀2003.฀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฀disclo-
sures฀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฀denominated฀
in฀euros฀to฀supplement฀amounts฀paid฀to฀certain฀retired฀
Spanish฀national฀employees.฀Amended฀Spanish฀legislation฀
required฀that฀Atlantic฀Copper฀begin฀funding฀its฀contractual฀
obligation฀to฀the฀retired฀employees฀through฀a฀third฀party฀in฀
November฀2002.฀In฀August฀2002,฀Atlantic฀Copper฀complied฀
with฀the฀amended฀Spanish฀legislation฀by฀agreeing฀to฀fund฀7.2฀
million฀euros฀annually฀for฀15฀years฀to฀an฀approved฀insurance฀
company฀for฀its฀estimated฀72฀million฀euro฀contractual฀obliga-
tion฀to฀the฀retired฀employees.฀The฀insurance฀company฀invests฀
the฀plan฀assets฀in฀accordance฀with฀Spanish฀regulations฀and฀
Atlantic฀Copper฀has฀no฀control฀over฀these฀investments.฀
Atlantic฀Copper฀is฀amortizing฀the฀unrecognized฀net฀actuarial฀
loss฀over฀the฀remaining฀12-year฀funding฀period.฀
Information฀as฀of฀December฀31,฀2004฀and฀2003,฀on฀the฀FCX฀
(including฀FM฀Services฀Company’s฀plan฀and฀FCX’s฀SERP฀and฀
director฀plans),฀PT฀Freeport฀Indonesia฀and฀Atlantic฀Copper฀
plans฀follows฀(dollars฀in฀thousands):
2004 ANNUAL REPORT |฀69