Freeport-McMoRan 2014 Annual Report Download - page 64

MANAGEMENT’S DISCUSSION AND ANALYSIS
62
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 13 for discussion of off-balance sheet arrangements.
PRODUCT REVENUES AND PRODUCTION COSTS
Mining Product Revenues and Unit Net Cash 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
of unit net cash costs. As discussed above, gold, molybdenum
and other metal revenues at copper mines are reflected as credits
against site production and delivery costs in the by-product
method. The following schedules for our mining operations are
presentations under both the by-product and co-product methods
together with reconciliations to amounts reported in our
consolidated financial statements.
Oil & Gas Product Revenues and Cash Production Costs per Unit
Realized revenues and cash production costs per unit are
measures intended to provide investors with information about
the cash operating margin of our oil and gas operations expressed
on a basis relating to each product sold. We use this measure for
the same purpose and for monitoring operating performance by
our oil and gas 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. Our measures may not be comparable to similarly titled
measures reported by other companies.
We show revenue adjustments from derivative contracts as
separate line items. Because these adjustments do not result from
oil and gas sales, these gains and losses have been reflected
separately from revenues on current period sales. Additionally,
accretion and other costs are removed from production and
delivery costs in the calculation of cash production costs per BOE.
The following schedules include calculations of oil and gas product
revenues and cash production costs together with a reconciliation
to amounts reported in our consolidated financial statements.
Interest Rate Risk
At December 31, 2014, we had total debt maturities based on the
principal amounts of $18.8 billion, of which approximately
22 percent was variable-rate debt with interest rates based on
the LIBOR or the Euro Interbank Offered Rate. The table below
presents average interest rates for our scheduled maturities of
principal for our outstanding debt (excluding fair value
adjustments) and the related fair values at December 31, 2014
(in millions, except percentages):
2015 2016 2017 2018 2019 Thereafter Fair Value
Fixed-rate debt $ 4 $ 1 $ 1,251 $ 1,501 $ 237 $ 11,702 $ 14,679
Average interest rate 1.1% 3.9% 2.2% 2.4% 6.1% 4.8% 4.4%
Variable-rate debt $ 474 $ 650 $ 200 $ 2,200 $ 425 $ 107 $ 4,056
Average interest rate 1.3% 1.7% 1.7% 1.7% 2.1% 3.9% 1.7%