Freeport-McMoRan 2007 Annual Report Download - page 93

Download and view the complete annual report

Please find page 93 of the 2007 Freeport-McMoRan annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

Financial & Operating Information 91
Notes to Consolidated Financial Statements
The weighted-average assumptions used to determine net periodic
benefit cost and the components of net periodic benefit cost for PT
Freeport Indonesia’s and Atlantic Copper’s pension plans for the years
ended December 31, 2007, 2006 and 2005, follow:
PT Freeport Indonesia
2007 2006 2005
Weighted-average assumptions:
Discount rate 10.50% 12.00% 12.00%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 9.00% 10.00% 10.00%
Service cost $ 5 $ 4 $ 3
Interest cost 5 5 3
Expected return on plan assets (3) (3) (1)
Amortization of prior service cost 1 1 1
Amortization of net actuarial loss 1 1 1
Net periodic benefit cost $ 9 $ 8 $ 7
Atlantic Copper
2007 2006 2005
Weighted-average assumptions:
Discount rate 6.77% 6.77% 6.77%
Expected return on plan assets – – –
Rate of compensation increase N/A N/A N/A
Interest cost $ 5 $ 5 $ 5
Amortization of net actuarial loss – 1 1
Net periodic benefit cost $ 5 $ 6 $ 6
Included in accumulated other comprehensive income (loss) at
December 31, 2007, are the following amounts that have not been
recognized in net periodic pension cost: unrecognized prior service costs
of $9 million ($7 million net of tax and minority interest share) and
unrecognized actuarial gains of $75 million ($44 million net of tax and
minority interest share). The amounts expected to be recognized in net
periodic pension cost for 2008 are $5 million ($3 million net of tax and
minority interest share) for prior service costs and $2 million ($2 million
net of tax and minority interest share) for actuarial losses.
FCX does not expect to have any plan assets returned to it in 2008.
The pension plan weighted-average asset allocations for the FCX and PT
Freeport Indonesia plans at December 31, 2007 and 2006, follow:
PT Freeport
FCX Indonesia
2007 2006 2007 2006
Equity securities 55% – 19% –
Fixed income 35 100% 74 100%
Real estate 7 – – –
Other 3 – 7 –
Total 100% 100% 100% 100%
The FCX and FM Services Company pension plans were terminated in
2000 as discussed above. Therefore, $13 million of the plan assets at
December 31, 2007, will be liquidated and any unfunded benefits will be
paid after Internal Revenue Service approval. The expected benefit
payments for FCX’s (including Phelps Dodge’s plans, and FCX’s SERP,
director and excess benefits plans) and PT Freeport Indonesia’s pension
plans follow.
PT Freeport
FCX Indonesiaa
2008 $ 79 $ 2
2009 94 10
2010 78 8
2011 80 7
2012 110 8
2013 through 2017 461 50
a. Based on a December 31, 2007, exchange rate of 9,390 Indonesian rupiah to one U.S. dollar.
Atlantic Copper’s plan is administered by a third-party insurance
company, and Atlantic Copper is not provided asset allocations or benefit
payment projections.
Postretirement and Other Benefits. FCX also provides postretirement
medical and life insurance benefits for certain U.S employees and,
in some cases, employees of certain international subsidiaries.
These postretirement benefits vary among plans, and many plans
require contributions from retirees. The expected cost of providing
such postretirement benefits is accrued during the years employees
render service.
As a result of the acquisition of Phelps Dodge, FCX acquired
postretirement obligations with a fair value of $82 million (representing a
benefit obligation of $255 million less the fair value of plan assets of
$173 million). Plan assets for these plans consist of two Voluntary
Employees’ Beneficiary Association (VEBA) trusts. One trust is dedicated
to funding postretirement medical obligations and the other to funding
postretirement life insurance obligations for eligible U.S. retirees of
Phelps Dodge. At December 31, 2007, assets of the VEBA trusts were
invested in U.S. fixed-income securities.
FCX’s funding policy provides that contributions to the VEBA trusts shall
be at least sufficient to pay plan benefits as they come due. Additional
contributions may be made from time to time. For participants not eligible
to receive payments from the VEBA trusts, FCX’s funding policy provides
that contributions shall be at least equal to the cash basis obligations.
The expected rate of return on plan assets for FCX’s postretirement
medical and life insurance benefit plans and the discount rate were
determined on the same basis as FCX’s pension plans.