Freeport-McMoRan 2004 Annual Report Download - page 78

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Notes To Consolidated Financial Statements
Foreign Currency Exchange Contracts.฀PT฀Freeport฀
Indonesia฀and฀Atlantic฀Copper฀enter฀into฀foreign฀currency฀
forward฀contracts฀to฀hedge฀the฀market฀risks฀of฀their฀fore-
casted฀costs฀denominated฀in฀a฀currency฀other฀than฀the฀U.S.฀
dollar,฀their฀functional฀currency.฀The฀primary฀objective฀of฀
these฀contracts฀is฀either฀to฀lock฀in฀an฀exchange฀rate฀or฀to฀
minimize฀the฀impact฀of฀adverse฀exchange฀rate฀changes.฀As฀
of฀December฀31,฀2004,฀PT฀Freeport฀Indonesia฀had฀foreign฀
currency฀contracts฀to฀hedge฀450.0฀billion฀in฀rupiah฀payments฀
from฀April฀2005฀through฀December฀2005,฀or฀approximately฀
32฀percent฀of฀aggregate฀projected฀rupiah฀payments฀for฀2005,฀
at฀an฀average฀exchange฀rate฀of฀10,059฀rupiah฀to฀one฀U.S.฀
dollar.฀PT฀Freeport฀Indonesia฀accounts฀for฀these฀contracts฀
as฀cash฀flow฀hedges.฀As฀of฀December฀31,฀2004,฀PT฀Freeport฀
Indonesia฀expects฀to฀reclass฀$2.9฀million฀of฀unrealized฀gains฀
to฀2005฀earnings฀related฀to฀its฀outstanding฀foreign฀currency฀
contracts.
Debt and Interest Rate Contracts.฀Atlantic฀Copper฀
entered฀into฀interest฀rate฀swaps฀to฀manage฀exposure฀to฀
interest฀rate฀changes฀on฀a฀portion฀of฀its฀variable-rate฀debt.฀
The฀primary฀objective฀of฀these฀contracts฀is฀to฀lock฀in฀an฀
interest฀rate฀considered฀to฀be฀favorable.฀Under฀the฀terms฀
of฀its฀swaps,฀Atlantic฀Copper฀will฀pay฀3.6฀percent฀on฀$36.5฀
million฀in฀the฀first฀quarter฀of฀2005.฀Interest฀on฀comparable฀
floating฀rate฀debt฀averaged฀3.6฀percent฀in฀2004,฀4.4฀percent฀
in฀2003฀and฀1.9฀percent฀in฀2002,฀resulting฀in฀additional฀
interest฀costs฀totaling฀$1.4฀million฀in฀2004,฀$2.1฀million฀in฀
2003฀and฀$3.2฀million฀in฀2002.฀
Atlantic฀Copper฀is฀a฀party฀to฀letters฀of฀credit฀totaling฀$13.0฀
million฀at฀December฀31,฀2004.฀Fair฀value฀of฀these฀letters฀of฀
credit฀approximates฀their฀face฀value฀at฀December฀31,฀2004.
Note 12. Segment Information
FCX฀follows฀SFAS฀No.฀131,฀“Disclosures฀About฀Segments฀of฀
an฀Enterprise฀and฀Related฀Information,”฀which฀requires฀that฀
companies฀disclose฀segment฀data฀based฀on฀how฀management฀
makes฀decisions฀about฀allocating฀resources฀to฀segments฀
and฀measuring฀their฀performance.฀FCX฀has฀two฀operating฀
segments:฀“mining฀and฀exploration”฀and฀“smelting฀and฀
refining.”฀The฀mining฀and฀exploration฀segment฀includes฀the฀
copper฀and฀gold฀mining฀operations฀of฀PT฀Freeport฀Indonesia฀
in฀Indonesia฀and฀FCX’s฀Indonesian฀exploration฀activities.฀
The฀smelting฀and฀refining฀segment฀includes฀Atlantic฀Copper’s฀
operations฀in฀Spain฀and฀PT฀Freeport฀Indonesia’s฀equity฀
investment฀in฀PT฀Smelting฀in฀Gresik,฀Indonesia.฀The฀segment฀
data฀presented฀below฀were฀prepared฀on฀the฀same฀basis฀as฀the฀
consolidated฀FCX฀financial฀statements.
76฀| FREEPORT-McMoRan COPPER & GOLD INC.