Freeport-McMoRan 2011 Annual Report Download - page 109

2011 ANNUAL REPORT | 107
Fair Value at December 31, 2010
Total Level 1 Level 2 Level 3
Assets
Cash equivalents:
Money market funds $ 3,584 $ 3,584 $ — $ —
Trust assets:
U.S. core fixed income fund 42 — 42 —
Government mortgage-backed
securities 35 — 35 —
Corporate bonds 23 — 23 —
Asset-backed securities 22 — 22 —
Money market funds 15 15 — —
Government bonds and notes 10 — 10 —
Municipal bonds 1 — 1 —
Total trust assets 148 15 133 —
Available-for-sale securities:
a
Equity securities 9 9 — —
Money market funds 6 6 — —
Total available-for-sale securities 15 15 — —
Derivatives:
Embedded derivatives in provisional
sales/purchases contracts
b
357 — 357 —
Copper futures and swap contracts 18 18 — —
Total derivative assets 375 18 357 —
Total assets $ 4,122 $ 3,632 $ 490 $ —
Liabilities
Derivatives:
Embedded derivatives in provisional
sales/purchases contracts
b
$ (115) $ — $ (115) $ —
Copper forward contracts (10) (1) (9) —
Total derivative liabilities $ (125) $ (1) $ (124) $ —
a. Excluded were $19 million of time deposits.
b. At the end of 2011, FCX reevaluated its level determination for its embedded derivatives in
provisional sales/purchases contracts, including those reported at December 31, 2010.
Although the critical input in these measurements are quoted market prices for copper,
gold and molybdenum, the contracts themselves are not traded on an exchange and,
therefore, are more appropriately classified within Level 2 of the fair value hierarchy.
Valuation Techniques
Money market funds are classied within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in
active markets.
Fixed income securities (government and agency securities,
U.S. core xed income fund, corporate bonds and asset-backed
securities) are valued using a bid evaluation or a mid evaluation.
A bid evaluation is an estimated price at which a dealer would
pay for a security. A mid evaluation is the average of the estimated
price at which a dealer would sell a security and the estimated
price at which a dealer would pay for a security. ese evaluations
are based on quoted prices, if available, or models that use
observable inputs and, as such, are classied within Level 2 of the
fair value hierarchy.
Equity securities are valued at the closing price reported on the
active market on which the individual securities are traded and, as
such, are classied within Level 1 of the fair value hierarchy.
FCX’s embedded derivatives on provisional copper concentrate,
copper cathode and gold purchases and sales have critical inputs
of quoted monthly LME or COMEX forward prices (copper)
and the London Bullion Market Association forward price (gold)
at each reporting date based on the month of maturity; however,
FCX’s contracts themselves are not traded on an exchange,
as such, these derivatives are classied within Level 2 of the fair
value hierarchy. FCX’s embedded derivatives on provisional
molybdenum purchases have critical inputs based on the latest
average weekly Metals Week Molybdenum Dealer Oxide prices;
however, FCX’s contracts themselves are not traded on an
exchange, as such, these derivatives are classied within Level 2
of the fair value hierarchy.
FCX’s derivative nancial instruments for copper futures
and swap contracts and forward contracts that are traded on the
respective exchanges are classied within Level 1 of the fair
value hierarchy because they are valued using quoted monthly
COMEX or LME forward prices at each reporting date based
on the month of maturity (refer to Note 15 for further discussion).
Certain of these contracts are traded on the over-the-counter market
and are classied within Level 2 of the fair value hierachy.
e techniques described above may produce a fair value
calculation that may not be indicative of net realizable value or
reective of future fair values. Furthermore, while FCX believes its
valuation techniques are appropriate and consistent with other
market participants, the use of dierent techniques or assumptions
to determine fair value of certain nancial instruments could
result in a dierent fair value measured at the reporting date. ere
have been no changes in the techniques used at December31,2011.
e carrying value for certain FCX nancial instruments (i.e.,
accounts receivable, accounts payable and accrued liabilities,
dividends payable, and Rio Tinto’s share of joint venture cash ows)
approximate fair value and, therefore, have been excluded from the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS