Management’s Discussion and Analysis we recorded in our Consolidated Statements of Income an  $87.0 million gain on insurance settlement for the business  interruption recovery and an $8.0 million gain to production  costs for the property loss recovery for a net gain of $48.8  million ($0.26 per share), after taxes and minority interest  sharing, in 2004. efforts resulted in additions to our proven and probable  reserves as of December 31, 2004 (see “Exploration and  Reserves”). All approved exploration costs in the joint  venture areas with Rio Tinto are generally shared 60 percent  by us and 40 percent by Rio Tinto. The FCX/Rio Tinto joint  ventures’ 2005 exploration budgets total approximately $21  million ($15 million for our share). Total consolidated interest cost (before capitalization) was  $151.0 million in 2004, $200.0 million in 2003 and $183.4  million in 2002. Interest costs decreased in 2004 primarily  because we reduced average debt levels, including early  conversions in 2003 and 2004 of all of the $603.8 million of  our 8  1 /4% Convertible Senior Notes into 42.2 million shares  of common stock (see Note 5 of “Notes to Consolidated  Financial Statements” and “Capital Resources and Liquidity  – Financing Activities”). Interest cost increased in 2003  compared to 2002, primarily because of higher average  interest rates for our senior notes issued in early 2003 and  higher average annual debt levels. Our interest cost for  2005 is expected to be about the same as 2004 unless we  elect to prepay certain long-term debt. Capitalized interest  totaled $2.9 million in 2004, $3.0 million in 2003 and $12.2  million in 2002. The reduction in capitalized interest in  2003 compared to 2002 reflects the completion of initial  development activities at the Deep Ore Zone underground  mine in early 2003. Consolidated general and administrative expenses increased  to $89.9 million in 2004 from $80.3 million in 2003. General  and administrative expenses for 2004 include a $2.2 million  charge for Atlantic Copper’s workforce reduction plan  (see “Smelting and Refining Operations”). The cost of our  outstanding stock appreciation rights varies with the price  of our common stock price, resulting in increases in general  and administrative expenses totaling $0.5 million in 2004 and  $7.3 million in 2003. Our parent company charges PT Freeport  Indonesia for the in-the-money value of exercised employee  stock options. These charges are eliminated in consolidation;  however, PT Freeport Indonesia shares these charges with Rio  Tinto and Rio Tinto’s reimbursements reduce our consolidated  general and administrative expenses. General and administra- tive expenses are net of Rio Tinto’s share of joint venture  reimbursements for employee stock option exercises, which  reduced general and administrative expenses by $7.0 million  in 2004 and $11.3 million in 2003. In addition, in accordance  with our joint venture agreement, Rio Tinto’s percentage  share of general and administrative expenses in 2004 was  lower because of lower metal sales volumes. Estimated  general and administrative expenses for 2005 are expected to  approximate the 2004 level before consideration of the new  accounting rules for share-based payments discussed in “New  Accounting Standards.”  Losses on early extinguishment and conversion of debt  in 2004 ($14.0 million) and 2003 ($34.6 million) primarily  resulted from the early conversions of our 8  1 /4% Convertible  Senior Notes. Gains on sales of assets totaled $28.8 million  in 2004 as a result of two transactions. In November 2004,  a joint venture in which we own a 50 percent interest  completed the sale to a real estate developer of a parcel  of land in Arizona where the joint venture previously was  engaged in a copper mining research project. Our share of  the net proceeds from the sale resulted in a gain of $21.3  million ($20.4 million to net income or $0.11 per share). In  December 2004, Atlantic Copper completed a sale of its wire  rod and wire assets for $18.3 million cash and recorded a  gain of $7.5 million ($7.5 million to net income or $0.04 per  share). General and administrative expenses increased by $12.0  million to $80.3 million in 2003 from $68.3 million in 2002.  The increase relates to charges for costs associated with  stock appreciation rights caused by an increase in our stock  price, higher compensation and other costs. As a percentage  of revenues, general and administrative expenses were 3.8  percent in 2004 and 3.6 percent in 2003 and 2002. PT Freeport Indonesia maintains property damage and  business interruption insurance related to its operations.  In December 2004, we entered into an insurance settlement  agreement and settled all claims that arose from the fourth- quarter 2003 slippage and debris flow events in the Grasberg  open-pit mine. Our insurers agreed to pay us an aggregate  of $125.0 million, inclusive of interest and the $20.0 million  paid to us in the third quarter of 2004, in connection with  our claims. After considering our joint venture partner’s  interest in the proceeds, PT Freeport Indonesia’s share of  proceeds totaled $95.0 million. As a result of the settlement,  Other income (expense) includes the impact of translating  into U.S. dollars Atlantic Copper’s net euro-denominated  liabilities, primarily its retiree pension obligations. Changes  in the U.S. dollar/euro exchange rate require us to adjust  the dollar value of our net euro-denominated liabilities and  record the adjustment in earnings. Exchange rate effects on  our net income from euro-denominated liabilities were losses  of $1.6 million in 2004, $13.6 million in 2003 and $11.9  million in 2002. The losses reflect a stronger euro in relation  to the U.S. dollar (see “Disclosures About Market Risks”).  Other expenses in 2003 also include a $5.6 million ($3.7 million  26 |  FREEPORT-McMoRan COPPER & GOLD INC.