Freeport-McMoRan 2008 Annual Report Download - page 27

Management’s Discussion and Analysis
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 25
b. Includes charges to revenues totaling $78 million ($52 million to net loss or $0.14 per
share) in 2008 and $30 million ($18 million to net income or $0.05 per share) in 2007
for unrealized losses on copper derivative contracts entered into with our U.S.
copper rod customers, which allows us to receive market prices in the month of
shipment while the customer pays the fixed price they requested. Refer to Note 17
for further discussion.
c. Includes charges to revenues for mark-to-market accounting adjustments on the
2007 copper price protection program totaling $175 million ($106 million to net
income or $0.27 per share) and a reduction in average realized copper prices of
$0.05 per pound.
d. Includes charges to revenues for redemptions of our Gold-Denominated Preferred
Stock, Series II, and Silver-Denominated Preferred Stock totaling $82 million ($44
million to net income or $0.20 per share) and a reduction in average realized gold
prices of approximately $39 per ounce. Refer to Note 17 for further discussion.
e. Includes charges for LCM inventory adjustments totaling $782 million ($479 million
to net loss or $1.26 per share).
f. Includes long-lived asset impairments and other charges totaling $11.0 billion
($6.7 billion to net loss or $17.52 per share), and also includes goodwill impairment
charges totaling $6.0 billion ($6.0 billion to net loss or $15.69 per share). Refer
to Notes 2 and 7 and “Critical Accounting Estimates – Asset Impairments” for
further discussion.
g. Includes the impacts of purchase accounting fair value adjustments associated with
the acquisition of Phelps Dodge, which are primarily because of increased
carrying values of acquired property, plant and equipment and metal
inventories, including mill and leach stockpiles, and also includes amounts
for non-operating income and expense mostly related to accretion of the fair
values of assumed environmental obligations (determined on a discounted
cash flow basis). These impacts totaled $1.1 billion, including $1.0 billion to
operating loss and $93 million for non-operating income and expenses, ($679
million to net loss or $1.78 per share) in 2008 and $1.3 billion to operating
income ($793 million to net income or $2.00 per share) in 2007. Refer to Note
19 for a summary of the impacts of purchase accounting fair value
adjustments on our business segments for the years ended December 31,
2008 and 2007.
h. After preferred dividends. The year ended December 31, 2008, also includes charges
of $22 million ($0.06 per share) associated with privately negotiated transactions to
induce conversion of 0.3 million shares of our 5½% Convertible Perpetual Preferred
Stock into approximately 5.8 million shares of FCX common stock (refer to Note 13
and “Capital Resources and Liquidity – Financing Activities” for further discussion).
i. Includes net losses on early extinguishment and conversions of debt totaling $5
million ($0.01 per share) in 2008 associated with an open-market purchase of our
9½% Senior Notes; $132 million ($0.33 per share) in 2007 primarily related to
premiums paid and the accelerated recognition of deferred financing costs
associated with early repayments of debt; and $30 million ($0.14 per share) in 2006
primarily related to the completion of a tender offer and privately negotiated
transactions to induce conversion of our 7% Convertible Senior Notes into FCX
common stock and open-market purchases of our 101/8% Senior Notes.
j. Reflects assumed conversion of our 5½% Convertible Perpetual Preferred Stock and
6¾% Mandatory Convertible Preferred Stock for 2007 and of our 5½% Convertible
Perpetual Preferred Stock for 2006.
k. On March 19, 2007, we issued 137 million common shares to acquire Phelps Dodge,
and on March 28, 2007, we sold 47 million common shares. Common shares
outstanding on December 31, 2008, totaled 384 million.
l. Reflects per pound weighted average production and delivery costs and unit net
cash costs (net of by-product credits) for all copper mines. For reconciliations of the
per pound costs by operating division to production and delivery costs applicable to
sales reported in our consolidated financial statements, refer to “Operations – Unit
Net Cash Costs” and to “Product Revenues and Production Costs.”
Revenues
Consolidated revenues include the sale of copper rod, copper
cathodes, copper concentrates, molybdenum, gold and other
metals by our North and South America copper mines, the sale of
copper concentrates (which also contain significant quantities of
gold and silver) by our Indonesia mining operation, the sale of
molybdenum in various forms by our Molybdenum operations,
and the sale of copper anodes, copper cathodes, and gold in
anodes and slimes by Atlantic Copper. Consolidated revenues
totaled $17.8 billion in 2008, compared with $16.9 billion in 2007
and $5.8 billion in 2006. Following is a summary of changes in our
consolidated revenues between years (in millions):
2008 2007
Consolidated revenues – prior year $ 16,939 $ 5,791
Sales volumes:
Copper 2,367 6,742
Gold (671) 341
Molybdenum 505 1,495
a
Price realizations:
Copper (2,631) 702
Gold 235 174
Molybdenum 266 N/A
Purchased copper and molybdenum (5) 1,901
Adjustments, primarily for copper pricing on
prior year open sales 309 (175)
Treatment charges 104 (114)
Impact of the 2007 copper price protection program 175 (175)
Atlantic Copper revenues (47) 146
Other, net 250 111
Consolidated revenues – current year $ 17,796 $ 16,939
a. As FCX was not a producer of molybdenum prior to the acquisition of Phelps Dodge,
the change in sales volumes for 2007 reflects sales of produced molybdenum
beginning March 20, 2007.
2008 Compared with 2007
Consolidated sales volumes in 2008 totaled 4.1 billion pounds of
copper, 1.3 million ounces of gold and 71 million pounds of
molybdenum, compared with 3.4 billion pounds of copper, 2.3
million ounces of gold and 52 million pounds of molybdenum in
2007. Higher copper and molybdenum sales volumes in 2008
reflected a full twelve months of sales at our North and South
America copper mines and Molybdenum operations, compared
with 2007, which included sales from these operations beginning
March 20, 2007. Higher copper sales volumes in 2008 also
reflected additional copper production from the Safford mine,
which began production in December 2007, and higher production
from the Cerro Verde concentrator, which reached design capacity
in mid-2007. At the Grasberg open-pit mine, the sequencing in
mining areas with varying ore grades causes fluctuations in the
timing of ore production resulting in varying quarterly and annual
sales of copper and gold. As a result, gold sales volumes for 2008
were lower than in 2007 because of mining in a lower-grade
section of the Grasberg open pit during the first nine months of
2008, which resulted in lower grades and recovery rates.
Realized copper prices decreased in 2008 to an average of
$2.69 per pound, compared with $3.34 per pound (excluding the
impact from the 2007 copper price protection program) in 2007.
Realized gold and molybdenum prices increased in 2008 to an
average of $861 per ounce for gold and $30.55 per pound for
molybdenum, compared with $682 per ounce for gold and $26.81
per pound for molybdenum in 2007.
For 2008, more than half of our mined copper was sold in
concentrate, approximately 27 percent as rod (principally from
our North America operations) and approximately 19 percent as
cathodes. Substantially all of our concentrate sales contracts and
some of our cathode sales contracts provide final copper pricing
in a specified future period (generally one to four months from the