Freeport-McMoRan 2007 Annual Report Download - page 82

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
80 Financial & Operating Information
Notes to Consolidated Financial Statements
Outstanding stock options with exercise prices greater than the average
market price of FCX’s common stock during the period are excluded
from the computation of diluted net income per share of common stock.
FCX’s convertible instruments are also excluded when including the
conversion of these instruments increases reported diluted net income per
share. No amounts were excluded for 2007. Excluded amounts in 2006
and 2005 were approximately one million stock options with weighted-
average exercise prices of $63.77 in 2006 and $36.99 in 2005.
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. generally accepted accounting principles
(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. FCX is currently evaluating the
impact, if any, the adoption of SFAS No. 157 will have on its 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 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. FCX does not believe
adoption of SFAS No. 159 will have a material impact on its 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, and the new standard makes certain
other changes to the accounting for business combinations, of which
the most significant are 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 is 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.
Reclassifications. For comparative purposes, primarily because of
the acquisition of Phelps Dodge, certain prior year amounts have been
reclassified to conform with the current year presentation.
NOTE 2. ACQUISITION OF PHELPS DODGE
On March 19, 2007, FCX acquired Phelps Dodge, a fully integrated producer
of copper and molybdenum, with mines in North and South America
and processing capabilities for other by-product minerals, such as gold,
silver and rhenium, and several development projects, including Tenke
Fungurume in the Democratic Republic of Congo (DRC).
In the acquisition, each share of Phelps Dodge common stock was
exchanged for 0.67 of a share of FCX common stock and $88.00 in cash.
As a result, FCX issued 136.9 million shares and paid $18.0 billion in cash
to Phelps Dodge shareholders. The acquisition has been accounted for
under the purchase method as required by SFAS No. 141, with FCX as the
accounting acquirer.
The initial estimates of the fair value of assets acquired and liabilities
assumed and the results of Phelps Dodge’s operations are included
in FCX’s consolidated financial statements beginning March 20, 2007.