a. Includes charges to the mining and exploration segment for FCX stock option exercises, which are eliminated in consolidation, totaling $87.3 million in 2004, $57.8 million in  2003 and $5.5 million in 2002. b. We defer recognizing profits on PT Freeport Indonesia’s sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s sales to PT Smelting until their sales of final  products to third parties. Changes in the amount of these deferred profits impacted operating income by $(24.7) million in 2004, $13.8 million in 2003 and $(28.8) million in  2002. Our consolidated earnings fluctuate depending on the timing and prices of these sales. At December 31, 2004, our deferred profits to be recognized in future periods’  operating income totaled $80.9 million, $41.6 million to net income, after taxes and minority interest sharing. Management’s Discussion and Analysis Years Ended December 31,  2004  2003  2002 Mining and exploration$^{a}$  $744.8  $792.5  $687.2  Smelting and refining   (83.5)   (21.8)  2.6 Intercompany eliminations and other$^{a,b}$  42.3  52.6   (49.7) FCX operating income  $703.6  $823.3  $640.1 MINING AND EXPLORATION OPERATIONS  A summary of changes in PT Freeport Indonesia’s revenues follows (in millions): 2004  2003 PT Freeport Indonesia revenues – prior year  $1,744.6  $1,519.0 Price realizations:  Copper  545.4  146.4 Gold  66.0  134.9 Sales volumes:  Copper   (249.0)  (160.1) Gold   (376.4)  55.1 Adjustments, primarily for copper pricing on prior year open sales  4.9  0.6 Treatment charges, royalties and other  11.1  48.7 PT Freeport Indonesia revenues – current year  $1,746.6  $1,744.6 PT Freeport Indonesia, Gross Profit Per Pound of Copper, before intercompany profit eliminations (cents): Years Ended December 31,  2004  2003  2002 Average realized price  136.9  81.9  70.6 Production costs:  Site production and delivery, before reclamation, noncash and nonrecurring costs (credits) shown below  77.1$^{a}$  47.6$^{a}$  36.0 a Gold and silver credits  (62.2)  (69.8)  (48.2) Treatment charges  20.4  17.9  18.3 Royalty on metals  4.4  2.0  1.6 Net cash production costs (credits)  39.7  (2.3)  7.7 Depreciation and amortization  17.0  14.7  14.4 Reclamation, noncash and nonrecurring costs (credits)  (0.4)$^{b}$  1.2$^{b}$  0.5 Total production costs  56.3  13.6  22.6 Adjustments, primarily for copper pricing on prior year open sales and gold/silver hedging  1.9  2.8  0.9 Gross profit per pound of copper, before intercompany profit eliminations  82.5  71.1  48.9 a. Net of deferred mining costs totaling $77.8 million (7.8 cents per pound) in 2004, $64.4 million (5.0 cents per pound) in 2003 and $30.6 million (2.0 cents per pound)  in 2002. b. Includes a gain on insurance settlement totaling $8.0 million (0.8 cents per pound) in 2004 and equipment losses of $8.4 million (0.7 cents per pound) in 2003 related to the fourth-quarter 2003 Grasberg pit events. measures of performance determined in accordance with  generally accepted accounting principles and should not  be considered in isolation or as a substitute for measures  of performance determined in accordance with generally  accepted accounting principles. This measure is presented  by other copper and gold mining companies, although our  Net cash production costs (credits) per pound of copper is  a measure intended to provide investors with information  about the cash generating capacity of our mining operations  expressed on a basis relating to its primary metal product,  copper. PT Freeport Indonesia uses this measure for the  same purpose and for monitoring operating performance  by its mining operations. This information differs from  28 |  FREEPORT-McMoRan COPPER & GOLD INC.