## Notes To Consolidated Financial Statements 

government, which included entering into the Contract of Work in 1991 well before the expiration of the 1967 Contract of Work, PT Freeport Indonesia fully expects that the govern- ment will approve the extensions as long as it continues to comply with the terms of the Contract of Work. 

Social and Economic Development Programs. FCX has a comprehensive social, employment and human rights policy to ensure that its operations are conducted in a manner respecting basic human rights, the laws and regula- tions of the host country, and the culture of the people who are indigenous to the areas in which FCX operates. In 1996, PT Freeport Indonesia established the Freeport Partnership Fund for Community Development, which was previously called the Freeport Fund for Irian Jaya Development, through which PT Freeport Indonesia has made available funding and expertise to support the economic and social development of the area. PT Freeport Indonesia has committed to provide one percent of its annual revenue for the development of the local people through the Freeport Partnership Fund for Community Development. PT Freeport Indonesia charged $17.5 million in 2004, $17.4 million in 2003 and $15.2 million in 2002 to production costs for this commitment. 

Long-Term Contracts and Operating Leases.  Atlantic Copper has firm contractual commitments with parties other than PT Freeport Indonesia to purchase concentrate totaling 415,000 metric tons in 2005, 384,000 metric tons in 2006, 275,000 metric tons in 2007 and 160,000 metric tons in 2008 at market prices. 

As of December 31, 2004, FCX’s aggregate minimum annual contractual payments, including Rio Tinto’s share, under noncan- celable long-term operating leases which extend to 2030 totaled $7.6 million in 2005, $6.8 million in 2006, $6.7 million in 2007, $6.6 million in 2008, $6.0 million in 2009 and $6.2 million thereafter. Minimum payments under operating leases have not been reduced by aggregate minimum sublease rentals of $1.1 million due under noncancelable subleases. Total aggregate rental expense under operating leases amounted to $7.9 million in 2004, $6.6 million in 2003 and $2.4 million in 2002. 

Share Purchase Program. In June 2000, FCX’s Board of Directors authorized a 20-million-share increase in FCX’s open market share purchase program, bringing the total shares approved for purchase under this program to 80 million. From inception of this program in July 1995 through October 2003, FCX has purchased a total of 70.7 million shares for $1.24 billion (an average of $17.53 per share). In October 2003, FCX’s Board of Directors approved a new open market share purchase program for up to 20 million shares which replaced the previous program. The timing of future purchases of common stock is dependent upon many factors including the 

price of FCX’s common shares, its cash flow and financial position, and general economic and market conditions. As discussed in Note 5, two of FCX’s senior notes and, in certain circumstances, FCX’s credit facility contain limitations on common stock purchases. In 2004, FCX purchased 3.4 million shares of its common stock for $99.5 million ($29.39 per share average) under its 20-million-share purchase program, of which 16.6 million shares remain available. 

Contingencies For Non-Income Taxes.  Atlantic Copper and PT Freeport Indonesia accrue and pay certain non-income taxes and other government charges, such as value-added, withholding, payroll, local and other taxes and charges. For certain transactions, issues arise as to the applicability of these other taxes and charges. Based on management’s review and prior experience, a reserve for the estimated liability has been established (see Note 6). 

## Note 11.  Financial Instruments 

FCX and its subsidiaries have entered into derivative contracts in limited instances to achieve specific objectives. Currently, these objectives principally relate to managing risks associated with foreign currency and commodity price risks. In addition, in response to volatility in the Indonesian rupiah and Australian dollar currencies, FCX has sought to manage certain foreign currency risks with PT Freeport Indonesia’s mining operations. In the past, FCX has also entered into derivative contracts related to PT Freeport Indonesia’s exposure to copper and gold prices, but activities in this regard since 1997 have been limited to establishing fixed prices for open copper sales under PT Freeport Indonesia’s concentrate sales contracts. FCX does not enter into deriva- tive contracts for speculative purposes. 

Summarized below are financial instruments whose carrying amounts are not equal to their fair value and unmatured derivative financial instruments at December 31, 2004 and 2003 (in thousands). Fair values are based on quoted market prices and other available market information. 

