Consolidated Statements of Cash Flows Years Ended December 31,  2004  2003  2002 (In Thousands) Cash flow from operating activities: Net income  $ 202,267  $ 181,660  $ 164,654 Adjustments to reconcile net income to net cash provided by operating activities:  Depreciation and amortization  206,408  230,803  260,446 Gains on sales of assets  (28,756)  —  — Losses on early extinguishment and conversion of debt  14,011  34,589  Cumulative effect of changes in accounting principles  —  15,593  3,049 Gain on redemption of gold-denominated and silver-denominated preferred stock (23,832)  (830) Deferred income taxes  76,253  110,653  51,476 Equity in PT Smelting losses (earnings)  (2,045)  (5,609)  4,181 Minority interests’ share of net income  41,437  48,469  36,441 Increase in deferred mining costs  (77,780)  (64,400)  (30,645) Amortization of deferred financing costs  8,501  16,196  12,029 Increase in long-term compensation benefits  2,830  13,689  2,198 Currency translation losses  1,628  13,561  11,892 Equipment loss caused by pit slippage  —  8,434  — Elimination (recognition) of profit on PT Freeport Indonesia sales to PT Smelting 13,798  (7,018)  8,393 Provision for inventory obsolescence 4,916  6,000  6,000 Other  8,591  11,084  1,567 (Increases) decreases in working capital:  Accounts receivable   (235,756)  8,304  (70,389) Inventories  (91,744)  (30,607)  (23,793) Prepaid expenses and other  34,304  (5,428)  671 Accounts payable and accrued liabilities  97,781  60,878  (33) Rio Tinto share of joint venture cash flows  17,793  (9,806)  9,894 Accrued income taxes  46,918  (41,141)  65,531 Increase in working capital   (130,704)  (17,800)  (18,119) Net cash provided by operating activities  341,355  572,072  512,732 Cash flow from investing activities:  PT Freeport Indonesia capital expenditures   (119,207)   (129,245)   (182,896) Atlantic Copper capital expenditures  (21,792)  (9,941)  (5,108) Sale of assets  39,885  2,020  2,835 Sale of restricted investments  21,804  73,629  47,938 Decrease (increase) in Atlantic Copper restricted cash  11,000  —  (11,000) Proceeds from insurance settlement  6,261  — Investment in PT Smelting  (1,375)  (932)  Other  (548)  (222)  (62) Investment in PT Puncakjaya Power, net of cash acquired  —  (68,127)  — Net cash used in investing activities  (63,972)   (132,818)   (148,293) Cash flow from financing activities: Net proceeds from sales of senior notes  344,354   1,046,437  — Proceeds from other debt  96,122  56,698  295,498 Repayments of debt  (457,971)  (844,374)  (617,123) Redemption of mandatorily redeemable preferred stock  (13,673)  (227,081)  (11,671) Net proceeds from sale of convertible perpetual preferred stock   1,067,000  —  — Purchase of FCX common shares from Rio Tinto  (881,868)  Purchases of other FCX common shares  (99,477)  —  — Cash dividends paid: Common stock  (198,782)  (41,682)  — Preferred stock  (35,470)  (33,733)  (37,294) Minority interests  (11,447)  (1,623)  — Net proceeds from exercised stock options  3,196  68,776  7,777 Bank credit facilities fees and other  (1,569)  (6,856)  (1,377) Net cash provided by (used in) financing activities  (189,585)  16,562  (364,190) Net increase in cash and cash equivalents  87,798  455,816  249 Cash and cash equivalents at beginning of year  463,652  7,836  7,587 Cash and cash equivalents at end of year  $ 551,450  $ 463,652  $  7,836 Interest paid  $ 143,958  $ 163,513  $ 173,728 Income taxes paid  $ 178,379  $ 268,796  $ 128,320 The accompanying Notes to Consolidated Financial Statements, which include information regarding noncash transactions, are an integral part of these financial statements. 2004 ANNUAL REPORT  | 51