Freeport-McMoRan 2005 Annual Report Download - page 86

฀83฀|฀2005฀ANNUAL฀REPORT฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION฀83฀|฀2005฀ANNUAL฀REPORT฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION
a฀specified฀annual฀limit฀(currently฀$15,000)฀which฀may฀be฀
increased฀by฀an฀additional฀$5,000฀for฀employees฀who฀are฀at฀least฀
50฀years฀old.฀FCX฀and฀FM฀Services฀Company฀match฀100฀percent฀
of฀the฀first฀5฀percent฀of฀the฀employees’฀contribution.฀New฀฀฀฀฀฀฀฀
plan฀participants฀vest฀100฀percent฀in฀FCX’s฀and฀FM฀Services฀
Company’s฀matching฀contributions฀upon฀three฀years฀of฀service.
฀ During฀2000,฀FCX฀and฀FM฀Services฀Company฀also฀established฀
additional฀defined฀contribution฀plans฀for฀substantially฀all฀
their฀employees฀following฀their฀decision฀to฀terminate฀their฀
defined฀benefit฀pension฀plans.฀Under฀these฀plans,฀FCX฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
and฀FM฀Services฀Company฀contribute฀amounts฀to฀individual฀
accounts฀totaling฀either฀4฀percent฀or฀10฀percent฀of฀each฀
employee’s฀pay,฀depending฀on฀a฀combination฀of฀each฀employee’s฀
age฀and฀years฀of฀service.฀The฀costs฀charged฀to฀operations฀฀฀฀฀฀฀฀฀
for฀FCX’s฀and฀FM฀Services฀Company’s฀employee฀savings฀plans฀
and฀defined฀contribution฀plans฀totaled฀$3.2฀million฀in฀2005,฀
$3.2฀million฀in฀2004฀and฀$2.8฀million฀in฀2003.฀FCX฀and฀FM฀
Services฀Company฀have฀other฀employee฀benefit฀plans,฀
certain฀of฀which฀are฀related฀to฀FCX’s฀performance,฀which฀costs฀
are฀recognized฀currently฀in฀general฀and฀administrative฀
expense.฀Atlantic฀Copper฀has฀a฀defined฀contribution฀plan฀and฀
recorded฀charges฀totaling฀$0.4฀million฀in฀2005,฀$0.5฀million฀in฀
2004฀and฀$0.4฀million฀in฀2003฀for฀annual฀service฀costs฀related฀
to฀this฀plan.
฀ During฀2004,฀Atlantic฀Copper฀undertook฀a฀cost฀reduction฀
and฀operational฀enhancement฀plan฀designed฀to฀reduce฀฀฀฀฀฀฀฀฀
unit฀costs,฀including฀a฀reduction฀in฀workforce,฀and฀enhance฀
operational฀and฀administrative฀efficiencies.฀In฀connection฀
with฀implementing฀this฀cost฀reduction฀and฀operational฀
enhancement฀plan,฀Atlantic฀Copper฀submitted฀a฀workforce฀
reduction฀plan฀to฀the฀Spanish฀Labour฀Authority฀and,฀in฀
December฀2004,฀received฀approval฀for฀this฀workforce฀reduction฀
plan.฀Atlantic฀Copper฀recorded฀a฀$12.0฀million฀charge฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
in฀2004฀related฀to฀the฀workforce฀reduction฀under฀this฀plan.฀
These฀charges฀include฀$8.1฀million฀in฀one-time฀termination฀
benefits฀for฀those฀affected฀employees฀eligible฀for฀early฀
retirement฀benefits,฀$0.8฀million฀in฀severance฀payments฀for฀
those฀affected฀employees฀not฀eligible฀for฀early฀retirement฀฀฀฀฀฀฀
and฀$3.1฀million฀for฀contract฀termination฀costs.฀Atlantic฀Copper฀
paid฀$1.4฀million฀of฀these฀benefits฀in฀December฀2004฀and฀
paid฀the฀balance฀in฀the฀first฀half฀of฀2005.
Note฀10.฀COMMITMENTS฀AND฀CONTINGENCIES
Grasberg฀Open-Pit฀Slippage฀Events.฀On฀October฀9,฀2003,฀a฀
slippage฀of฀material฀occurred฀in฀a฀section฀of฀the฀Grasberg฀
open฀pit,฀resulting฀in฀eight฀fatalities.฀On฀December฀12,฀2003,฀฀฀฀฀฀฀
a฀debris฀flow฀involving฀a฀relatively฀small฀amount฀of฀loose฀
material฀occurred฀in฀the฀same฀section฀of฀the฀open฀pit฀resulting฀
in฀only฀minor฀property฀damage.฀All฀material฀involved฀in฀the฀
affected฀mining฀areas฀has฀been฀removed.฀The฀events฀caused฀
PT฀Freeport฀Indonesia฀to฀alter฀its฀short-term฀mine฀sequencing฀
plans฀and฀to฀focus฀its฀open-pit฀operations฀on฀accelerating฀฀฀฀฀฀฀
the฀removal฀of฀overburden฀from฀the฀south฀wall฀to฀restore฀safe฀
access฀to฀high-grade฀ore฀areas฀in฀the฀pit.฀In฀April฀2004,฀฀฀฀฀฀฀฀฀฀฀฀฀
PT฀Freeport฀Indonesia฀established฀safe฀access฀and฀initiated฀
mining฀in฀higher-grade฀ore฀areas฀while฀continuing฀overburden฀
removal฀activities.฀While฀PT฀Freeport฀Indonesia฀resumed฀
normal฀milling฀rates฀in฀June฀2004,฀no฀assurance฀can฀be฀given฀
that฀similar฀events฀will฀not฀occur฀in฀the฀future.
฀ As฀a฀result฀of฀the฀fourth-quarter฀2003฀slippage฀and฀debris฀flow฀
events,฀PT฀Freeport฀Indonesia฀notified฀its฀copper฀concentrate฀
customers฀that฀it฀was฀declaring฀force฀majeure฀under฀the฀terms฀
of฀its฀contracts฀as฀it฀would฀be฀unable฀to฀satisfy฀its฀annual฀sales฀
and฀delivery฀commitments.฀In฀December฀2004,฀PT฀Freeport฀
Indonesia฀terminated฀the฀force฀majeure฀that฀had฀been฀in฀฀
effect฀since฀December฀2003฀under฀its฀concentrate฀sales฀contracts.
฀ PT฀Freeport฀Indonesia฀maintains฀property฀damage฀and฀
business฀interruption฀insurance฀related฀to฀its฀operations.฀
FCX฀and฀its฀insurers฀entered฀into฀an฀insurance฀settlement฀
agreement฀in฀December฀2004฀(Settlement฀Agreement).฀
Under฀the฀Settlement฀Agreement,฀all฀claims฀that฀arose฀from฀
the฀fourth-quarter฀2003฀slippage฀and฀debris฀flow฀events฀in฀฀฀฀฀฀฀
the฀Grasberg฀open-pit฀mine฀were฀settled.฀The฀insurers฀agreed฀
to฀pay฀an฀aggregate฀of฀$125.0฀million฀in฀connection฀with฀฀฀฀฀฀฀฀฀฀฀
its฀claims.฀In฀2004,฀the฀insurers฀paid฀$94.5฀million฀and฀the฀
remaining฀$30.5฀million฀was฀paid฀in฀January฀2005.฀After฀
considering฀its฀joint฀venture฀partner’s฀interest฀in฀the฀proceeds,฀
PT฀Freeport฀Indonesia’s฀joint฀venture฀share฀of฀proceeds฀
totaled฀$95.0฀million.฀As฀a฀result฀of฀the฀settlement,฀FCX฀
recorded฀an฀$87.0฀million฀gain฀on฀insurance฀settlement฀฀฀฀฀฀฀฀฀฀
for฀the฀business฀interruption฀recovery฀and฀an฀$8.0฀million฀
gain฀to฀production฀costs฀for฀the฀property฀loss฀recovery฀฀฀฀฀฀฀฀฀฀฀฀฀฀
for฀a฀net฀gain฀of฀$48.8฀million,฀after฀taxes฀and฀minority฀
interest฀sharing,฀in฀2004.
฀ Environmental,฀Reclamation฀and฀Mine฀Closure.฀FCX฀has฀฀฀
an฀environmental฀policy฀committing฀it฀not฀only฀to฀compliance฀
with฀federal,฀state฀and฀local฀environmental฀statutes฀and฀
regulations,฀but฀also฀to฀continuous฀improvement฀of฀its฀
environmental฀performance฀at฀every฀operational฀site.฀FCX฀
believes฀that฀its฀operations฀are฀being฀conducted฀pursuant฀฀฀฀฀฀฀฀฀฀
to฀applicable฀permits฀and฀are฀in฀compliance฀in฀all฀material฀
respects฀with฀applicable฀environmental฀laws,฀rules฀and฀
Notes to Consolidated Financial Statements