Freeport-McMoRan 2011 Annual Report Download - page 108

106 | FREEPORT-McMoRan COPPER & GOLD INC.
counterparties that meet certain requirements and periodically
reviews the creditworthiness of these counterparties. FCX does not
anticipate that any of the counterparties it deals with will default
on their obligations. As of December31,2011, FCX did not have any
signicant credit exposure associated with derivative transactions.
Other Financial Instruments. Other nancial instruments include
cash and cash equivalents, accounts receivable, trust assets,
available-for-sale securities, accounts payable and accrued liabilities,
dividends payable, Rio Tinto’s share of joint venture cash ows
and long-term debt. Refer to Note 16 for the fair values of these
nancial instruments.
Cash and Cash Equivalents, Accounts Receivable, Accounts
Payable and Accrued Liabilities, Dividends Payable and Rio Tinto’s
Share of Joint Venture Cash Flows. e nancial statement amount
is a reasonable estimate of the fair value because of the short
maturity of these instruments and generally negligible credit losses.
Trust Assets and Available-for-Sale Securities. e nancial
statement amount represents the fair value of trust assets and
available-for-sale securities (see Note 16 for further discussion
of fair values).
Long-Term Debt. e nancial statement amount represents
cost except for long-term debt acquired in the FMC acquisition,
which was recorded at fair value at the acquisition date.
NOTE 16. Fair Value Measurement
Fair value accounting guidance includes a hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value. e hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 inputs) and the lowest priority to unobservable inputs
(Level 3 inputs).
Level 1 Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical,
unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, quoted prices
for similar assets or liabilities in active markets, inputs
other than quoted prices that are observable for the asset
or liability, or inputs that are derived principally from
or corroborated by observable market data by correlation
or other means; and
Level 3 Prices or valuation techniques that require inputs that are
both signicant to the fair value measurement and
unobservable (supported by little or no market activity).
A summary of FCX’s nancial assets and liabilities measured at
fair value on a recurring basis follows:
Fair Value at December 31, 2011
Total Level 1 Level 2 Level 3
Assets
Cash equivalents:
Money market funds $ 4,007 $ 4,007 $ — $ —
Trust assets:
Government mortgage-backed
securities 47 — 47 —
U.S. core fixed income fund 46 — 46 —
Government bonds and notes 21 — 21 —
Corporate bonds 19 — 19 —
Money market funds 9 9 — —
Asset-backed securities 9 — 9 —
Municipal bonds 1 — 1 —
Total trust assets 152 9 143 —
Available-for-sale securities:
Equity securities 9 9 — —
Money market funds 2 2 — —
Total available-for-sale securities 11 11 — —
Derivatives:
Embedded derivatives in provisional
sales/purchases contracts 72 — 72 —
Copper futures and swap contracts 3 3 — —
Copper forward contracts 2 1 1 —
Total derivative assets 77 4 73 —
Total assets $ 4,247 $ 4,031 $ 216 $ —
Liabilities
Derivatives:
Embedded derivatives in provisional
sales/purchases contracts $ (82) $ — $ (82) $ —
Copper futures and swap contracts (13) (11) (2) —
Total derivative liabilities $ (95) $ (11) $ (84) $ —
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS