Freeport-McMoRan 2007 Annual Report Download - page 60

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
58 Financial & Operating Information
Management’s Discussion and Analysis
NEW ACCOUNTING STANDARDS
Fair Value Measurements. In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements,” which provides enhanced
guidance for using fair value to measure assets and liabilities. SFAS
No. 157 does not require any new fair value measurements under U.S.
GAAP; rather this statement establishes a common definition of fair
value, provides a framework for measuring fair value under U.S. GAAP
and expands disclosure requirements about fair value measurements.
On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the
effective date of SFAS No. 157 for nonfinancial assets or liabilities that
are not required or permitted to be measured at fair value on a recurring
basis to fiscal years beginning after November 15, 2008, and interim
periods within those years. We are currently evaluating the impact, if
any, the adoption of SFAS No. 157 will have on our financial reporting
and disclosures.
Fair Value Option for Financial Assets and Liabilities. In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities – Including an amendment of FASB
Statement No. 115,” which permits entities to choose to measure many
financial instruments and certain other items at fair value that are
not currently required to be measured at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. We do not
believe the adoption of SFAS No. 159 will have a material impact on
our financial reporting and disclosures.
Business Combinations. In December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (SFAS No. 141R).
Under SFAS No. 141R, all business combinations will be accounted for
under the acquisition method. SFAS No. 141R makes certain other
changes to the accounting for business combinations, with the most
significant changes as follows: (i) whether all or a partial interest is
acquired, the acquirer will recognize the full value of assets acquired,
liabilities assumed and noncontrolling interests; (ii) direct costs of a
business combination will be charged to expense if they are not
associated with issuing debt or equity securities; (iii) any contingent
consideration will be recognized and measured at fair value on the
acquisition date, with subsequent changes to the fair value recognized
in earnings; and (iv) equity issued in consideration for a business
combination will be measured at fair value as of the acquisition date.
SFAS No. 141R applies prospectively to business combinations for
which the acquisition date is on or after fiscal years beginning after
December 15, 2008. Early adoption is prohibited.
Noncontrolling Interests in Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of
ARB No. 51,” which clarifies that noncontrolling interests (minority
interests) are to be treated as a separate component of equity and any
changes in the ownership interest (in which control is retained)
are to be accounted for as capital transactions. However, a change in
ownership of a consolidated subsidiary that results in a loss of
control would be considered a significant event that triggers gain or loss
recognition, with the establishment of a new fair value basis in any
remaining ownership interests. SFAS No. 160 also provides additional
disclosure requirements for each reporting period. SFAS No. 160 applies
to fiscal years beginning on or after December 15, 2008, with early
adoption prohibited. This statement is required to be adopted
prospectively, except for the following provisions, which are expected to
be applied retrospectively: (i) the reclassification of noncontrolling
interests to equity in the consolidated balance sheets and (ii) the
adjustment to consolidated net income to include net income attributable
to both the controlling and noncontrolling interests.
PRODUCT REVENUES AND PRODUCTION COSTS
Unit net cash cost per pound of copper and molybdenum are measures
intended to provide investors with information about the cash-
generating capacity of our mining operations expressed on a basis
relating to the primary metal product for the respective operations.
We use this measure for the same purpose and for monitoring operating
performance by our mining operations. This information differs from
measures of performance determined in accordance with U.S. GAAP
and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S. GAAP.
This measure is presented by other mining companies, although our
measures may not be comparable to similarly titled measures reported by
other companies.
2008 2009 2010 2011 2012 Thereafter Fair Value
Fixed-rate debt $ – $ – $ – $ 119 $ – $ 5,809 $ 6,373
Average interest rate – – – 8.7% – 8.2% 8.2%
Variable-rate debt $ 31 $ 49 $ 22 $ 22 $ 74 $ 1,085 $ 1,222
Average interest rate 6.8% 5.3% 6.9% 7.3% 6.1% 7.9% 7.6%
Chilean pesos to one U.S. dollar, a ten-peso increase or decrease in the
exchange rate would result in an approximate $9 million change in
aggregate annual operating costs. Based on estimated annual payments
of 425 million Peruvian nuevo soles for operating costs and an exchange
rate of 3.05 Peruvian nuevo soles to one U.S. dollar, a 0.10 nuevo sol
increase or decrease in the exchange rate would result in an approximate
$5 million change in aggregate annual operating costs.
Interest Rate Risk
At December 31, 2007, we had total debt of $7.2 billion, of which
approximately 18 percent was variable-rate debt with interest rates
based on LIBOR or the Euro Interbank Offered Rate (EURIBOR). The table
below presents average interest rates for our scheduled maturities of
principal for our outstanding debt and the related fair values at
December 31, 2007: