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MANAGEMENT’S DISCUSSION AND ANALYSIS
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
34
(Provision for) Benefit from Income Taxes
Our income tax provision for 2010 resulted from taxes on international
operations ($2.7 billion) and U.S. operations ($244 million).
As presented in the table below, our consolidated effective income
tax rate was 35 percent for 2010.
Our income tax provision for 2009 resulted from taxes on
international operations ($2.3 billion) and U.S. operations
($35 million). During 2009, our consolidated effective income tax
rate was highly sensitive to changes in commodity prices and the
mix of income between U.S. and international operations. The
difference between our consolidated effective income tax rate of
40 percent in 2009 and the U.S. federal statutory rate of
35 percent primarily was attributable to the high proportion of
income earned in Indonesia, which was taxed at an effective tax rate
of 42 percent.
A summary of the approximate amounts in the calculation of our
consolidated provision for income taxes for 2010 and 2009 follows
(in millions, except percentages):
Year Ended Year Ended
December 31, 2010 December 31, 2009
Income Income
Tax Tax
Income Effective (Provision) Income Effective (Provision)
(Loss)
a
Tax Rate Benefit (Loss)
a
Tax Rate Benefit
U.S.
$ 1,307 19% $ (244)
$ 98 36% $ (35)
b
South America
2,995 33% (999)
2,010 32% (650)
Indonesia
3,873 42% (1,635)
4,000 42% (1,697)
Africa
395 30% (118)
(60) 25% 15
Eliminations and other (58
) N/A
13 (232) N/A 60
Consolidated FCX $ 8,512
35%
$ (2,983
)
$ 5,816 40% $ (2,307)
a. Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. Includes a favorable adjustment totaling $43 million resulting from completion of a review of U.S. deferred income tax accounts.
Our estimated consolidated effective tax rate for 2011 will vary
with commodity price changes and the mix of income from
international and U.S. operations. Assuming average prices of
$4.25 per pound for copper, $1,350 per ounce for gold, $15 per
pound for molybdenum and current sales estimates, we estimate our
annual consolidated effective tax rate will approximate 34 percent.
Our benefit from income taxes in 2008 resulted from U.S.
operations ($3.4 billion), partly offset by taxes on international
operations ($604 million). The difference between our consolidated
effective income tax rate of 21 percent in 2008 and the U.S. federal
statutory rate of 35 percent primarily was attributable to goodwill
impairment charges, which were non-deductible for tax purposes,
and the recognition of a valuation allowance against U.S. federal
alternative minimum tax credits, partly offset by benefits for
percentage depletion and U.S. state income taxes.
A summary of the approximate amounts in the calculation of our
consolidated benefit from income taxes for 2008 follows (in millions,
except percentages):
Year Ended
December 31, 2008
Income
Tax
Income Effective (Provision)
(Loss)
a
Tax Rate Benefit
U.S. $ 1,258 15% $ (191)
South America 1,752 32% (553)
Indonesia 1,432 43% (612)
Africa (187) 35% 66
Asset impairment charges (10,867) 39% 4,212
Goodwill impairment charges (5,987) N/A —
LCM inventory adjustments (782) 38% 299
Eliminations and other 72 N/A (18)
Adjustments N/A N/A (359)
b
Consolidated FCX $ (13,309) 21% $ 2,844
a. Represents income (loss) by geographic location before income taxes and equity in
affiliated companies’ net earnings.
b. Represents an adjustment to establish a valuation allowance against U.S. federal
alternative minimum tax credits.
Refer to Note 12 for further discussion of income taxes.
OPERATIONS
North America Copper Mines
We currently operate seven copper mines in North America —
Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone
and Chino in New Mexico. All of these mining operations are wholly
owned, except for Morenci, an unincorporated joint venture, in which
we own an 85 percent undivided interest.
The North America copper mines include open-pit mining,
sulfide ore concentrating, leaching and solution extraction/
electrowinning (SX/EW) operations. Molybdenum is also produced