Freeport-McMoRan 2003 Annual Report Download - page 42

40 FREEPORT-McMoRan COPPER & GOLD INC. 2003 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
reclassified the $26.6 million of original issuance
costs from capital in excess of par value of common
stock as other assets. FCX also recorded a $24.7
million cumulative effect adjustment for the amorti-
zation of the original issuance costs through July 1,
2003 (see Note 1 of “Notes to Consolidated
Financial Statements”). Effective July 1, 2003, div-
idend payments on our mandatorily redeemable
preferred stock are classified as interest
expense. SFAS No. 150 does not allow prior period
financial statements to be restated to reflect the
changes in classification.
Effective December 31, 2003, we adopted SFAS
No. 132 (revised 2003), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits,”
which requires additional disclosures to those in the
original SFAS No. 132 about the assets, obligations,
cash flows and net periodic benefit cost of defined
benefit pension plans and other defined benefit
postretirement plans.
Effective December 31, 2003, we adopted
Financial Accounting Standards Board Interpretation
No. 46 (revised December 2003), “Consolidation
of Variable Interest Entities-an interpretation of ARB
No. 51” (FIN 46). FIN 46 is intended to clarify the
application of Accounting Research Bulletin No. 51
“Consolidated Financial Statements” (ARB No. 51),
to certain entities in which equity investors do not
have characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated
financial support. Adoption of FIN 46 did not result in
any changes to our consolidated subsidiaries.
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking
statements in which we discuss factors we believe
may affect our performance in the future. Forward-
looking statements are all statements other than
historical facts, such as those regarding our anticipated
sales volumes, ore grades, general and administrative
expenses, unit net cash production costs, operating
cash flows, the impact of copper and gold price
changes, royalty costs, the impacts of the recent slip-
page and debris flow in the Grasberg open pit, poten-
tial insurance recoveries, capital expenditures, future
environmental costs, debt repayments and refinanc-
ing, treatment charge rates, depreciation rates,
exploration efforts and results, dividend payments
and liquidity. We caution you that these statements
are not guarantees of future performance, and our
actual results may differ materially from those pro-
jected, anticipated or assumed in the forward-look-
ing statements. Important factors that can cause our
actual results to differ materially from those antici-
pated in the forward-looking statements include unan-
ticipated declines in the average grades of ore
mined, unanticipated milling and other processing
problems, labor relations, weather conditions, the
speculative nature of mineral exploration, fluctuations
in interest rates and other adverse financial market
conditions, Indonesian political risks and other factors
described in more detail under the heading “Risk
Factors” in our Form 10-K for the year ended
December 31, 2003.
PRODUCT REVENUES AND PRODUCTION COSTS
PT Freeport Indonesia Product Revenues and
Net Cash Production Costs (Credits)
Net cash production costs per pound of copper is a
measure intended to provide investors with information
about the cash generating capacity of our mining
operations in Indonesia. This measure is presented by
other copper and gold mining companies, although
our measures may not be comparable to similarly
titled measures reported by other companies.
We calculate gross profit per pound of copper
under a “by-product” method, while the copper, gold
and silver contained within our concentrates are
treated as co-products in our financial statements.
We use the by-product method in our presentation of
gross profit per pound of copper because (1) the
majority of our revenues are copper revenues, (2) we
produce and sell one product, concentrates, which
contains all three metals and (3) it is not possible to
specifically assign our costs to revenues from the
copper, gold and silver we produce in concentrates.
In the co-product method presentation below, costs
are allocated to the different products based on their
relative revenue values. Presentations under both
methods are presented below along with a reconcilia-
tion to amounts reported in our consolidated finan-
cial statements.