Exhibit 18.1
March 25, 1994
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, LA 70112
RE: Form 10-K Report for the year ended December 31, 1993
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This letter is written to meet the requirements of Regulation S-K calling
for a letter from a registrant's independent accountants whenever there has
been a change in accounting principle or practice.
We have been informed that, as of January 1, 1993, Freeport-McMoRan Copper
& Gold Inc. (FCX) changed its methods of accounting for the following
items:
1. Turnarounds - the accounting for maintenance turnarounds was changed
from the deferral method to the direct expense method. Previously, FCX
deferred costs related to periodic scheduled maintenance (turnarounds)
when incurred and amortized them on a straight-line basis, generally
over six months to two years until the next scheduled turnaround.
According to the management of FCX, this change was made to conform
FCX's policy with that which is followed by its parent, Freeport-
McMoRan Inc. (FTX). According to the management of FTX, which also
changed its policy for accounting for turnarounds, this change was made
to conform FTX's policy with that which is followed by IMC-Agrico
Company, a joint venture to which substantially all of FTX's phosphate
fertilizer production assets were contributed on July 1, 1993.
2. Deferred Charges - the accounting for deferred charges was changed to
provide for deferral of only those costs that directly relate to the
acquisition, construction and development of assets and to the issuance
of debt and related instruments. Previously, certain other costs which
benefitted future periods were deferred and amortized over the period
benefitted. According to FTX management, they believe this change
provides a better measure of operating results. In addition, the
administrative costs of accounting for assets will be reduced by not
deferring any relatively insignificant expenditures that do not have a
material effect on measuring periodic net income.
3. Management Information Systems (MIS) Costs - Costs of MIS equipment and
software that have a material impact on periodic measurement of net
income are capitalized and amortized over their estimated productive
lives. Other MIS costs, including equipment and purchased software
that involve relatively immaterial amounts (currently individual
expenditures of less than $500,000) and short estimated productive
lives (currently less than three years) are charged to expense when
incurred. Previously, most expenditures for MIS equipment and
purchased software were capitalized. The accounting for MIS costs was
changed to recognize the rapid rate of change in MIS, which results in
short productive lives of equipment and software and a need for
continuing investments. Generally within a two-to-three year period,
if such hardware has not been replaced, significant upgrades will have
been required. Within two years, maintenance costs on existing
equipment often equals or exceeds replacement cost. Software is
subject to constant modification to meet the needs of the changing
hardware environment, as well as the changing business environment.
Reasonable business judgement is required in determining appropriate
application of accounting principles, including judgement regarding the
cost and the materiality of the impact of accounting precision.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting
profession for the items referred to above. Thus, we cannot make an
objective determination of whether the changes in accounting described in
the preceding paragraph are to preferable methods. However, we have
reviewed the pertinent factors, including those related to financial
reporting, in these particular cases on a subjective basis, and our opinion
stated below is based on our determination made in this manner.
We are of the opinion that FCX's changes in methods of accounting are to
acceptable alternative methods of accounting, which, based upon the reasons
stated above for the respective changes (including the costs and benefits
of alternative principles and the related materiality of the application
thereof) and our discussions with you, are also preferable under the
circumstances in these particular cases. In arriving at this opinion, we
have relied on the business judgement and business planning of your
management.
Very truly yours,
/s/ Arthur Andersen & Co.
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Arthur Andersen & Co.