Freeport-McMoRan 2007 Annual Report Download - page 40

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
38 Financial & Operating Information
Management’s Discussion and Analysis
Provision for Income Taxes
Our 2007 income tax provision from continuing operations resulted from
taxes on international operations ($2.2 billion) and U.S. taxes ($215
million). The difference between FCX’s consolidated effective income tax
rate of approximately 39 percent for 2007 and the U.S. federal statutory
rate of 35 percent primarily was attributable to (i) withholding taxes
related to earnings from Indonesian and South American mining
operations, (ii) a U.S. foreign tax credit limitation and (iii) an adjustment
associated with the reversal of the Phelps Dodge APB Opinion No. 23,
“Accounting for Income Taxes – Special Areas,” indefinite reinvestment
assertion on certain earnings in South America, partly offset by a U.S.
benefit for percentage depletion and an international tax rate differential.
For 2008, we expect a consolidated effective tax rate of approximately
34 percent. The lower projected consolidated effective tax rate for 2008
primarily relates to the expected geographic sources of pre-tax income.
A summary of the approximate amounts in the calculation of our
consolidated provision for income taxes for 2007 follows:
Effective Provision
Tax for Income
Incomea Rate Tax
North America
Income before taxes and minority interests $ 1,875 30% $ 568
Purchase accounting adjustments (895) 39% (353)
Subtotal 980 215
South America
Income before taxes and minority interests 2,623 33% 868
Purchase accounting adjustments (369) 34% (126)
Subtotal 2,254 742
Indonesia
Income before taxes and minority interests 2,878 46% 1,326
Other
Income before taxes and minority interests 21 29% 6
Adjustmentb
N/A N/A 111
Consolidated totals $ 6,133 39% $ 2,400
a. Represents income from continuing operations.
b. Represents an adjustment for a one-time charge associated with the reversal of the Phelps Dodge
APB Opinion No. 23 indefinite reinvestment assertion on certain earnings in South America. This
adjustment was fully offset by a reduction in minority interests’ share of net income.
FCX’s income tax provision for 2006 ($1.2 billion) and for 2005
($915 million) primarily reflected taxes on PT Freeport Indonesia’s
earnings. The difference between FCX’s effective income tax rate
of approximately 43 percent for 2006 and 45 percent for 2005 and
PT Freeport Indonesia’s Contract of Work rate of 35 percent primarily
was attributable to withholding taxes related to earnings from
Indonesian mining operations and income taxes incurred by PT
Indocopper Investama.
A summary of the approximate amounts in the calculation of our
consolidated provision for income taxes for 2006 and 2005 follows:
Years Ended December 31, 2006 2005
Indonesian mining operating incomea $ 2,809 $ 2,321
Indonesian mining interest expense, net (20) (22)
Intercompany operating profit recognized (deferred) 32 (145)
Income before taxes 2,821 2,154
Indonesian mining Contract of Work rate 35% 35%
Indonesian mining income taxes 987 754
Indonesian mining net income 1,834 1,400
Withholding tax on FCX’s equity share 9.064% 9.064%
Withholding taxes 166 127
PT Indocopper Investama corporate income taxes 48 37
Other, net – (3)
FCX consolidated provision for income taxes $ 1,201 $ 915
FCX consolidated effective tax rate 43% 45%
a. Excludes charges for the in-the-money value of FCX stock option exercises, which are eliminated in
consolidation, totaling $88 million in 2006 and $64 million in 2005.
Refer to Note 14 for further discussion of income taxes.
Minority Interests in Net Income of Consolidated Subsidiaries
Minority interests in net income of consolidated subsidiaries totaled $791
million in 2007, $168 million in 2006 and $127 million in 2005. The
increase of $623 million in 2007, compared with 2006, was attributable to
amounts associated with our South American mining operations ($603
million) and an increase related to higher earnings at PT Freeport Indonesia
($20 million). The increase of $41 million in 2006, compared with 2005,
primarily was because of higher earnings at PT Freeport Indonesia.
RESULTS OF OPERATIONS
Following the acquisition of Phelps Dodge, our business consists of three
primary operating divisions – North American mining, South American
mining and Indonesian mining. Refer to “Mining Operations” for further
discussion of the operations associated with these divisions. A summary
of revenues by division for 2007, 2006 and 2005, follows:
Years Ended December 31, 2007a 2006 2005
North American miningb:
Unaffiliated customers $ 8,641c $ – $ –
Intersegment 9 – –
8,650 – –
South American miningd:
Unaffiliated customers 2,265 – –
Intersegment 1,580 – –
3,845 – –
Indonesian mining:
Unaffiliated customers 3,640 3,543 2,810
Intersegment 1,168 852 758
4,808 4,395 3,568
Atlantic Copper smelting & refining:
Unaffiliated customers 2,388 2,242 1,363
2,388 2,242 1,363
Corporate, other & eliminations:
Unaffiliated customers 5 6 6
Intersegment (2,757) (852) (758)
(2,752) (846) (752)
Consolidated revenues $ 16,939 $ 5,791 $ 4,179