Freeport-McMoRan 2004 Annual Report Download - page 76

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Notes To Consolidated Financial Statements
government,฀which฀included฀entering฀into฀the฀Contract฀of฀
Work฀in฀1991฀well฀before฀the฀expiration฀of฀the฀1967฀Contract฀
of฀Work,฀PT฀Freeport฀Indonesia฀fully฀expects฀that฀the฀govern-
ment฀will฀approve฀the฀extensions฀as฀long฀as฀it฀continues฀to฀
comply฀with฀the฀terms฀of฀the฀Contract฀of฀Work.
Social and Economic Development Programs. FCX฀
has฀a฀comprehensive฀social,฀employment฀and฀human฀rights฀
policy฀to฀ensure฀that฀its฀operations฀are฀conducted฀in฀a฀
manner฀respecting฀basic฀human฀rights,฀the฀laws฀and฀regula-
tions฀of฀the฀host฀country,฀and฀the฀culture฀of฀the฀people฀who฀
are฀indigenous฀to฀the฀areas฀in฀which฀FCX฀operates.฀In฀1996,฀
PT฀Freeport฀Indonesia฀established฀the฀Freeport฀Partnership฀
Fund฀for฀Community฀Development,฀which฀was฀previously฀
called฀the฀Freeport฀Fund฀for฀Irian฀Jaya฀Development,฀through฀
which฀PT฀Freeport฀Indonesia฀has฀made฀available฀funding฀and฀
expertise฀to฀support฀the฀economic฀and฀social฀development฀
of฀the฀area.฀PT฀Freeport฀Indonesia฀has฀committed฀to฀provide฀
one฀percent฀of฀its฀annual฀revenue฀for฀the฀development฀of฀
the฀local฀people฀through฀the฀Freeport฀Partnership฀Fund฀for฀
Community฀Development.฀PT฀Freeport฀Indonesia฀charged฀
$17.5฀million฀in฀2004,฀$17.4฀million฀in฀2003฀and฀$15.2฀million฀
in฀2002฀to฀production฀costs฀for฀this฀commitment.
Long-Term Contracts and Operating Leases.฀Atlantic฀
Copper฀has฀firm฀contractual฀commitments฀with฀parties฀other฀
than฀PT฀Freeport฀Indonesia฀to฀purchase฀concentrate฀totaling฀
415,000฀metric฀tons฀in฀2005,฀384,000฀metric฀tons฀in฀2006,฀
275,000฀metric฀tons฀in฀2007฀and฀160,000฀metric฀tons฀in฀2008฀
at฀market฀prices.
As฀of฀December฀31,฀2004,฀FCX’s฀aggregate฀minimum฀annual฀
contractual฀payments,฀including฀Rio฀Tinto’s฀share,฀under฀noncan-
celable฀long-term฀operating฀leases฀which฀extend฀to฀2030฀totaled฀
$7.6฀million฀in฀2005,฀$6.8฀million฀in฀2006,฀$6.7฀million฀in฀2007,฀
$6.6฀million฀in฀2008,฀$6.0฀million฀in฀2009฀and฀$6.2฀million฀
thereafter.฀Minimum฀payments฀under฀operating฀leases฀have฀not฀
been฀reduced฀by฀aggregate฀minimum฀sublease฀rentals฀of฀$1.1฀
million฀due฀under฀noncancelable฀subleases.฀Total฀aggregate฀
rental฀expense฀under฀operating฀leases฀amounted฀to฀$7.9฀million฀
in฀2004,฀$6.6฀million฀in฀2003฀and฀$2.4฀million฀in฀2002.
Share Purchase Program. In฀June฀2000,฀FCX’s฀Board฀of฀
Directors฀authorized฀a฀20-million-share฀increase฀in฀FCX’s฀open฀
market฀share฀purchase฀program,฀bringing฀the฀total฀shares฀
approved฀for฀purchase฀under฀this฀program฀to฀80฀million.฀From฀
inception฀of฀this฀program฀in฀July฀1995฀through฀October฀2003,฀
FCX฀has฀purchased฀a฀total฀of฀70.7฀million฀shares฀for฀$1.24฀
billion฀(an฀average฀of฀$17.53฀per฀share).฀In฀October฀2003,฀
FCX’s฀Board฀of฀Directors฀approved฀a฀new฀open฀market฀share฀
purchase฀program฀for฀up฀to฀20฀million฀shares฀which฀replaced฀
the฀previous฀program.฀The฀timing฀of฀future฀purchases฀of฀
common฀stock฀is฀dependent฀upon฀many฀factors฀including฀the฀
price฀of฀FCX’s฀common฀shares,฀its฀cash฀flow฀and฀financial฀
position,฀and฀general฀economic฀and฀market฀conditions.฀As฀
discussed฀in฀Note฀5,฀two฀of฀FCX’s฀senior฀notes฀and,฀in฀certain฀
circumstances,฀FCX’s฀credit฀facility฀contain฀limitations฀on฀
common฀stock฀purchases.฀In฀2004,฀FCX฀purchased฀3.4฀million฀
shares฀of฀its฀common฀stock฀for฀$99.5฀million฀($29.39฀per฀
share฀average)฀under฀its฀20-million-share฀purchase฀program,฀
of฀which฀16.6฀million฀shares฀remain฀available.
Contingencies For Non-Income Taxes.฀Atlantic฀
Copper฀and฀PT฀Freeport฀Indonesia฀accrue฀and฀pay฀certain฀
non-income฀taxes฀and฀other฀government฀charges,฀such฀as฀
value-added,฀withholding,฀payroll,฀local฀and฀other฀taxes฀
and฀charges.฀For฀certain฀transactions,฀issues฀arise฀as฀to฀the฀
applicability฀of฀these฀other฀taxes฀and฀charges.฀Based฀on฀
management’s฀review฀and฀prior฀experience,฀a฀reserve฀for฀the฀
estimated฀liability฀has฀been฀established฀(see฀Note฀6).
Note 11. Financial Instruments
FCX฀and฀its฀subsidiaries฀have฀entered฀into฀derivative฀
contracts฀in฀limited฀instances฀to฀achieve฀specific฀objectives.฀
Currently,฀these฀objectives฀principally฀relate฀to฀managing฀
risks฀associated฀with฀foreign฀currency฀and฀commodity฀price฀
risks.฀In฀addition,฀in฀response฀to฀volatility฀in฀the฀Indonesian฀
rupiah฀and฀Australian฀dollar฀currencies,฀FCX฀has฀sought฀
to฀manage฀certain฀foreign฀currency฀risks฀with฀PT฀Freeport฀
Indonesia’s฀mining฀operations.฀In฀the฀past,฀FCX฀has฀also฀
entered฀into฀derivative฀contracts฀related฀to฀PT฀Freeport฀
Indonesia’s฀exposure฀to฀copper฀and฀gold฀prices,฀but฀activities฀in฀
this฀regard฀since฀1997฀have฀been฀limited฀to฀establishing฀fixed฀
prices฀for฀open฀copper฀sales฀under฀PT฀Freeport฀Indonesia’s฀
concentrate฀sales฀contracts.฀FCX฀does฀not฀enter฀into฀deriva-
tive฀contracts฀for฀speculative฀purposes.
Summarized฀below฀are฀financial฀instruments฀whose฀carrying฀
amounts฀are฀not฀equal฀to฀their฀fair฀value฀and฀unmatured฀
derivative฀financial฀instruments฀at฀December฀31,฀2004฀and฀
2003฀(in฀thousands).฀Fair฀values฀are฀based฀on฀quoted฀market฀
prices฀and฀other฀available฀market฀information.
74฀| FREEPORT-McMoRan COPPER & GOLD INC.