Freeport-McMoRan 2013 Annual Report Download - page 86

84 | FREEPORT-McMoRan
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
84 | FREEPORT-McMoRan
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include the accounts
of those subsidiaries where FCX directly or indirectly has more
than 50 percent of the voting rights and has the right to control
significant management decisions. The most significant entities
that FCX consolidates include its 90.64 percent-owned subsidiary
PT Freeport Indonesia (PT-FI), and its wholly owned subsidiaries,
Freeport-McMoRan Corporation (FMC, formerly Phelps Dodge
Corporation), Atlantic Copper, S.L.U. (Atlantic Copper) and FCX Oil
& Gas Inc. (FM O&G). FCX acquired Plains Exploration &
Production Company (PXP) and McMoRan Exploration Co. (MMR),
collectively known as FM O&G, on May 31, 2013, and June 3, 2013,
respectively. FCX’s results of operations include PXP’s results
beginning June 1, 2013, and MMR’s results beginning June 4, 2013
(refer to Note 2 for further discussion). FCX’s unincorporated
joint ventures with Rio Tinto plc (Rio Tinto) and Sumitomo Metal
Mining Arizona, Inc. (Sumitomo) are reflected using the
proportionate consolidation method (refer to Note 3 for further
discussion). All significant intercompany transactions have been
eliminated. Dollar amounts in tables are stated in millions,
except per share amounts.
Investments in unconsolidated companies owned 20 percent or
more are recorded using the equity method. Investments in
companies owned less than 20 percent, and for which FCX does
not exercise significant influence, are carried at cost.
Business Segments. Subsequent to the acquisitions of PXP and
MMR, FCX has organized its operations into six primary divisions —
North America copper mines, South America mining, Indonesia
mining, Africa mining, Molybdenum mines and United States (U.S.)
oil and gas operations. Notwithstanding this structure, FCX
internally reports information on a mine-by-mine basis for its
mining operations. Therefore, FCX concluded that its operating
segments include individual mines or operations relative to its
mining operations. For oil and gas operations, FCX determines
its operating segments on a country-by-country basis. Operating
segments that meet certain financial thresholds are reportable
segments. Refer to Note 16 for further discussion.
Use of Estimates. The preparation of FCX’s financial statements
in conformity with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying notes. The more significant areas requiring the use
of management estimates include reserve estimation (minerals,
and oil and natural gas); timing of transfers of oil and gas
properties not subject to amortization into the full cost pool; asset
lives for depreciation, depletion and amortization; environmental
obligations; asset retirement obligations; estimates of recoverable
copper in mill and leach stockpiles; deferred taxes and valuation
allowances; reserves for contingencies and litigation; asset
impairment, including estimates used to derive future cash flows
associated with those assets; determination of fair value of assets
acquired, liabilities assumed and redeemable noncontrolling
interest, and recognition of goodwill and deferred taxes in
connection with business combinations; pension benefits; and
valuation of derivative instruments. Actual results could differ
from those estimates.
Foreign Currencies. For foreign subsidiaries whose functional
currency is the U.S. dollar, monetary assets and liabilities
denominated in the local currency are translated at current
exchange rates, and non-monetary assets and liabilities, such as
inventories, property, plant, equipment and development costs,
are translated at historical rates. Gains and losses resulting from
translation of such account balances are included in net income,
as are gains and losses from foreign currency transactions. The
functional currency for the majority of FCX’s foreign operations is
the U.S. dollar.
Cash Equivalents. Highly liquid investments purchased with
maturities of three months or less are considered cash equivalents.
Inventories. The components of inventories include materials
and supplies, mill and leach stockpiles, and product inventories.
Product inventories mostly include finished goods (primarily
concentrates and cathodes) at mining operations, and
concentrates and work-in-process at Atlantic Copper’s smelting
and refining operations (refer to Note 4 for further discussion).
Mill and leach stockpiles, and inventories of materials and
supplies, as well as salable products, are stated at the lower of
weighted-average cost or market. Costs of finished goods and
work-in-process (i.e., not materials and supplies) inventories
include labor and benefits, supplies, energy, depreciation,
depletion, amortization, site overhead costs and other necessary
costs associated with the extraction and processing of ore,
including, depending on the process, mining, haulage, milling,
concentrating, smelting, leaching, solution extraction, refining,
roasting and chemical processing. Corporate general and
administrative costs are not included in inventory costs.
Work-in-Process. In-process inventories include mill and leach
stockpiles at mining operations and Atlantic Copper’s in-process
product inventories. In-process inventories represent materials
that are currently in the process of being converted to a salable
product. Conversion processes for mining operations vary
depending on the nature of the copper ore and the specific mining
operation. For sulfide ores, processing includes milling and
concentrating and results in the production of copper and
molybdenum concentrates or, alternatively, copper cathode by
concentrate leaching. For oxide ores and certain secondary
sulfide ores, processing includes leaching of stockpiles, solution
extraction and electrowinning (SX/EW) and results in the
production of copper cathodes. In-process stockpile material is
measured based on assays of the material included in these