Freeport-McMoRan 2012 Annual Report Download - page 52

50
MANAGEMENT’S DISCUSSION AND ANALYSIS
Following is a summary of estimated annual payments and
the impact of changes in foreign currency rates on our annual
operating costs:
10% Change
Exchange Rate per $1 in Exchange Rate
at December 31, Estimated Annual Payments (in millions)
2012 2011 2010 (in local currency) (in millions)
b
Increase Decrease
Indonesia
Rupiah 9,622 9,060 8,990 5.3 trillion $ 551 $ (50) $ 61
Australian dollar 0.93 0.98 0.98 230 million $ 246 $ (22) $ 27
South America
Chilean peso 480 519 468 300 billion $ 625 $ (57) $ 69
Peruvian nuevo sol 2.55 2.70 2.81 380 million $ 149 $ (14) $ 17
Atlantic Copper
Euro 0.76 0.77 0.75 140 million $ 185 $ (17) $ 21
a. Reflects the estimated impact on annual operating costs assuming a 10 percent increase or decrease in the exchange rate reported at December 31, 2012.
b. Based on December 31, 2012, exchange rates.
a
Interest Rate Risk
At December 31, 2012, we had total debt of $3.5 billion, of which
approximately five percent was variable-rate debt with interest
rates based on the London Interbank Offered Rate (LIBOR) or the
2013 2014 2015 2016 2017 Thereafter Fair Value
Fixed-rate debt $ — $ — $ 500 $ — $ 500 $ 2,357 $ 3,419
Average interest rate — — 1.4% — 2.2% 4.2% 3.5%
Variable-rate debt $ 2 $ — $ — $ — $ — $ 168 $ 170
Average interest rate —
a
— — — — 4.0% 4.0%
a. Less than 0.01%.
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,
2012 (in millions, except percentages):
NEW ACCOUNTING STANDARDS
We do not expect the provisions of recently issued accounting
standards to have a significant impact on our future financial
statements and disclosures.
OFF-BALANCE SHEET ARRANGEMENTS
Refer to Note 14 for discussion of off-balance sheet arrangements.
PRODUCT REVENUES AND PRODUCTION COSTS
Unit net cash costs 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 metals mining companies,
although our measures may not be comparable to similarly titled
measures reported by other companies.
We present gross profit per pound of copper in the following
tables using both a “by-product” method and a “co-product”
method. We use the by-product method in our presentation of
gross profit per pound of copper because (i) the majority of our
revenues are copper revenues, (ii) we mine ore, which contains
copper, gold, molybdenum and other metals, (iii) it is not possible
to specifically assign all of our costs to revenues from the copper,
gold, molybdenum and other metals we produce, (iv) it is the
method used to compare mining operations in certain industry
publications and (v) it is the method used by our management and
the Board to monitor operations. In the co-product method
presentation below, shared costs are allocated to the different
products based on their relative revenue values, which will vary to
the extent our metals sales volumes and realized prices change.
We show revenue adjustments for prior period open sales as
separate line items. Because these adjustments do not result from
current period sales, we have reflected these separately from
revenues on current period sales. Noncash and other costs
consist of items such as stock-based compensation costs, start-up
costs, write-offs of equipment and/or unusual charges. They are
removed from site production and delivery costs in the calculation