Freeport-McMoRan 2008 Annual Report Download - page 94

Notes to Consolidated Financial Statements
92 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
FCX paid federal, state, local and foreign income taxes totaling
$2,656 million in 2008, $2,660 million in 2007 and $1,288
million in 2006. FCX received refunds of federal, state, local and
foreign income taxes of $123 million in 2008 and 2007 and
$1 million in 2006.
FCX’s income tax receivables increased by $544 million
primarily as a result of Indonesian estimated tax overpayments in
2008 made in accordance with statutory requirements.
The components of deferred taxes follow:
December 31, 2008 2007
Deferred tax assets:
Foreign tax credits $ 1,260 $ 1,004
Net operating loss carryforwards 128 164
Minimum tax credits 359 323
Accrued expenses 767 812
Intercompany profit elimination 25 65
Deferred compensation 9 45
Postretirement benefits 53 35
Employee benefit plans 183 –
Provisionally priced sales adjustments 112 –
Other 128 77
Deferred tax assets 3,024 2,525
Valuation allowances (1,763) (1,165)
Net deferred tax assets 1,261 1,360
Deferred tax liabilities:
Property, plant, equipment and
development costs (2,956) (7,441)
Undistributed earnings (569) (603)
Inventory (38) (458)
Employee benefit plans – (75)
Other (34) (142)
Total deferred tax liabilities (3,597) (8,719)
Net deferred tax liabilities $ (2,336) $ (7,359)
At December 31, 2008, FCX had U.S. foreign tax credit
carryforwards from continuing operations of $1.3 billion that
will expire between 2009 and 2018. In addition, FCX had U.S.
minimum tax credit carryforwards from continuing operations of
$359 million. These credits can be carried forward indefinitely,
but may be used only to the extent that regular tax exceeds the
alternative minimum tax in any given year.
At December 31, 2008, FCX had Spanish net operating loss
carryforwards from continuing operations of $282 million that
expire between 2012 and 2022. In addition, FCX has U.S. state
net operating loss carryforwards from continuing operations of
$705 million that expire between 2009 and 2028.
On the basis of available information at December 31, 2008,
FCX has provided valuation allowances for certain of its deferred
tax assets where FCX believes it is likely that the related tax
benefits will not be realized. At December 31, 2008, valuation
allowances totaled $1.8 billion and covered all of FCX’s U.S.
foreign tax credit carryforwards, U.S. minimum tax credit
carryforwards, foreign net operating loss carryforwards and U.S.
state net operating loss carryforwards, and also a portion of
its net U.S. deferred tax assets. At December 31, 2007, valuation
allowances totaled $1.2 billion and covered all of FCX’s U.S.
foreign tax credit carryforwards, a portion of its foreign net
operating loss carryforwards and a portion of its U.S. state net
operating loss carryforwards. The $598 million increase in
the valuation allowance during 2008 was primarily a result of
additional valuation allowances recorded against U.S. foreign tax
credit carryforwards, U.S. minimum tax credit carryforwards
and U.S. state net operating loss carryforwards. The establishment
of a valuation allowance against all of the U.S. minimum tax
credit carryforwards was primarily the result of the decline in
copper and molybdenum prices and the long-lived asset
impairment charges recorded in the fourth quarter of 2008.
Income taxes are provided on the earnings of FCX’s material
foreign subsidiaries under the assumption that these earnings
will be distributed. FCX has not provided for other differences
between the book and tax carrying amounts of these investments
as FCX considers its ownership position to be permanent in
duration and quantification of the related deferred tax liability is
not practicable.
2008 2007 2006
Amount Percent Amount Percent Amount Percent
U.S. federal statutory tax rate $ (4,658) 35% $ 2,139 35% $ 987 35%
Foreign withholding tax (55) 1 371 6 168 6
Foreign tax credit limitation 95 (1) 125 2 – –
Reversal of APB Opinion No. 23 assertion – – 111 2 – –
Percentage depletion (336) 3 (284) (5) – –
International tax rate differential 59 (1) (184) (3) 48 2
Valuation allowance on minimum tax credits 359 (3) – – – –
Goodwill impairment 2,095 (16) – – – –
State income taxes (437) 3 – – – –
Other items, net 34 – 122 2 (2) –
(Benefit from) provision for income taxes $ (2,844) 21% $ 2,400 39% $ 1,201 43%
A reconciliation of the U.S. federal statutory tax rate to FCX’s
effective income tax rate for the years ended December 31, 2008,
2007 and 2006, follows: