fcx2q10_10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
  
to
Commission File Number: 001-11307-01
 
 
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)

Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
  
   
333 North Central Avenue
  
Phoenix, AZ
85004-4414
(Address of principal executive offices)
(Zip Code)
 
(602) 366-8100
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
R Yes   oÿNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       R Yes oÿNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R                                                              Accelerated filer oÿ                                  Non-accelerated filer oÿ                                            Smaller reporting company oÿ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ÿo Yes R No

On July 30, 2010, there were issued and outstanding 470,436,600 shares of the registrant’s common stock, par value $0.10 per share.

 
 
 
 

FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS

   
 
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E-1
   


FREEPORT-McMoRan COPPER & GOLD INC.

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

   
June 30,
    
December 31,
  
   
2010
    
2009
  
   
(In Millions)
  
                 
ASSETS
                
Current assets:
                
Cash and cash equivalents
  
$
3,042
    
$
2,656
  
Trade accounts receivable
    
1,009
      
1,517
  
Other accounts receivable
    
235
      
286
  
Inventories:
                
Product
    
1,031
      
1,110
  
Materials and supplies, net
    
1,097
      
1,093
  
Mill and leach stockpiles
    
768
      
667
  
Other current assets
    
111
      
104
  
Total current assets
    
7,293
      
7,433
  
Property, plant, equipment and development costs, net
    
16,272
      
16,195
  
Long-term mill and leach stockpiles
    
1,353
      
1,321
  
Intangible assets, net
    
333
      
347
  
Other assets
    
728
      
700
  
Total assets
  
$
25,979
    
$
25,996
  
                 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Accounts payable and accrued liabilities
  
$
2,065
    
$
2,038
  
Dividends payable, including dividends payable to noncontrolling interests
    
329
      
99
  
Accrued income taxes
    
240
      
474
  
Current portion of reclamation and environmental obligations
    
198
      
214
  
Current portion of long-term debt and short-term borrowings
    
101
      
16
  
Rio Tinto share of joint venture cash flows
    
50
      
161
  
Total current liabilities
    
2,983
      
3,002
  
Long-term debt, less current portion
    
4,684
      
6,330
  
Deferred income taxes
    
2,612
      
2,503
  
Reclamation and environmental obligations, less current portion
    
2,005
      
1,981
  
Other liabilities
    
1,402
      
1,423
  
Total liabilities
    
13,686
      
15,239
  
Equity:
                
FCX stockholders’ equity:
                
6¾% Mandatory Convertible Preferred Stock
    
–
      
2,875
  
Common stock
    
59
      
55
  
Capital in excess of par value
    
18,639
      
15,680
  
Accumulated deficit
    
(4,466
)
    
(5,805
)
Accumulated other comprehensive loss
    
(268
)
    
(273
)
Common stock held in treasury
    
(3,432
)
    
(3,413
)
Total FCX stockholders’ equity
    
10,532
      
9,119
  
Noncontrolling interests
    
1,761
      
1,638
  
Total equity
    
12,293
      
10,757
  
Total liabilities and equity
  
$
25,979
    
$
25,996
  
                 



The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                         
 
Three Months Ended
  
Six Months Ended
  
 
June 30,
  
June 30,
  
 
2010
  
2009
  
2010
  
2009
  
                 
 
(In Millions, Except Share Amounts)
  
                         
Revenues
$
3,864
  
$
3,684
  
$
8,227
  
$
6,286
  
Cost of sales:
                        
Production and delivery
  
2,052
    
1,809
    
3,970
    
3,371
  
Depreciation, depletion and amortization
  
249
    
256
    
520
    
488
  
Lower of cost or market inventory adjustments
  
–
    
–
    
–
    
19
  
Total cost of sales
  
2,301
    
2,065
    
4,490
    
3,878
  
Selling, general and administrative expenses
  
101
    
89
    
196
    
151
  
Exploration and research expenses
  
38
    
24
    
69
    
54
  
Restructuring and other charges
  
–
    
(2
)
  
–
    
23
  
Total costs and expenses
  
2,440
    
2,176
    
4,755
    
4,106
  
Operating income
  
1,424
    
1,508
    
3,472
    
2,180
  
Interest expense, net
  
(122
)
  
(158
)
  
(267
)
  
(289
)
Losses on early extinguishment of debt
  
(50
)
  
–
    
(77
)
  
–
  
Other income (expense), net
  
9
    
(3
)
  
21
    
(17
)
Income before income taxes and equity in
                        
affiliated companies’ net earnings
  
1,261
    
1,347
    
3,149
    
1,874
  
Provision for income taxes
  
(433
)
  
(542
)
  
(1,111
)
  
(873
)
Equity in affiliated companies’ net earnings
  
4
    
7
    
9
    
18
  
Net income
  
832
    
812
    
2,047
    
1,019
  
Net income attributable to noncontrolling interests
  
(168
)
  
(164
)
  
(438
)
  
(268
)
Preferred dividends
  
(15
)
  
(60
)
  
(63
)
  
(120
)
Net income attributable to FCX common
                        
stockholders
$
649
  
$
588
  
$
1,546
  
$
631
  
                         
Net income per share attributable to
                        
FCX common stockholders:
                        
Basic
$
1.42
  
$
1.43
  
$
3.48
  
$
1.56
  
Diluted
$
1.40
  
$
1.38
  
$
3.40
  
$
1.54
  
                         
Weighted-average common shares outstanding:
                        
Basic
  
458
    
412
    
444
    
406
  
Diluted
  
473
    
471
    
474
    
426
  
                         
Dividends declared per share of common stock
$
0.30
  
$
–
  
$
0.45
  
$
–
  




The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   
Six Months Ended
  
   
June 30,
  
   
2010
    
2009
  
   
(In Millions)
  
                 
Cash flow from operating activities:
                
Net income
  
$
2,047
    
$
1,019
  
Adjustments to reconcile net income to net cash provided by
                
operating activities:
                
Depreciation, depletion and amortization
    
520
      
488
  
Lower of cost or market inventory adjustments
    
–
      
19
  
Stock-based compensation
    
75
      
57
  
Charges for reclamation and environmental obligations, including accretion
    
75
      
112
  
Payments of reclamation and environmental obligations
    
(97
)
    
(47
)
Losses on early extinguishment of debt
    
77
      
–
  
Deferred income taxes
    
107
      
61
  
Intercompany profit on PT Freeport Indonesia sales to PT Smelting
    
(29
)
    
37
  
Increase in long-term mill and leach stockpiles
    
(31
)
    
(31
)
Changes in other assets and liabilities
    
5
      
71
  
Other, net
    
26
      
36
  
(Increases) decreases in working capital:
                
Accounts receivable
    
502
      
(803
)
Inventories, and mill and leach stockpiles
    
(39
)
    
53
  
Other current assets
    
(9
)
    
105
  
Accounts payable and accrued liabilities
    
(161
)
    
(675
)
Accrued income and other taxes
    
(186
)
    
394
  
Net cash provided by operating activities
    
2,882
      
896
  
                 
Cash flow from investing activities:
                
Capital expenditures:
                
North America copper mines
    
(81
)
    
(100
)
South America
    
(154
)
    
(111
)
Indonesia
    
(195
)
    
(128
)
Africa
    
(50
)
    
(458
)
Other
    
(47
)
    
(97
)
Proceeds from the sale of assets and other, net
    
8
      
(1
)
Net cash used in investing activities
    
(519
)
    
(895
)
                 
Cash flow from financing activities:
                
Net proceeds from sale of common stock
    
–
      
740
  
Proceeds from debt
    
35
      
155
  
Repayments of debt
    
(1,655
)
    
(285
)
Cash dividends and distributions paid:
                
Common stock
    
(130
)
    
–
  
Preferred stock
    
(95
)
    
(120
)
Noncontrolling interests
    
(145
)
    
(63
)
Contributions from noncontrolling interests
    
15
      
29
  
Net payments for stock-based awards
    
(6
)
    
(7
)
Excess tax benefit from stock-based awards
    
4
      
–
  
Other
    
–
      
(3
)
Net cash (used in) provided by financing activities
    
(1,977
)
    
446
  
                 
Net increase in cash and cash equivalents
    
386
      
447
  
Cash and cash equivalents at beginning of year
    
2,656
      
872
  
Cash and cash equivalents at end of period
  
$
3,042
    
$
1,319
  



The accompanying notes are an integral part of these consolidated financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

   
FCX Stockholders’ Equity
          
   
Mandatory
              
Accumu-
                  
   
Convertible
              
lated
  
Common Stock
     Total          
   
Preferred Stock
  
Common Stock
          
Other
  
Held in Treasury
  
FCX
          
   
Number
      
Number
      
Capital in
  
Accumu-
  
Compre-
  
Number
      
Stock-
  
Non-
      
   
of
  
At Par
  
of
  
At Par
  
Excess of
  
lated
  
hensive
  
of
  
At
  
holders’
  
controlling
  
Total
  
   
Shares
  
Value
  
Shares
  
Value
  
Par Value
  
Deficit
  
Loss
  
Shares
  
Cost
  
Equity
  
Interests
  
Equity
  
   
(In Millions)
  
                                                                           
Balance at December 31, 2009
    
29
  
$
2,875
    
552
  
$
55
  
$
15,680
  
$
(5,805
)
$
(273
)
  
122
  
$
(3,413
)
$
9,119
  
$
1,638
  
$
10,757
  
Conversions of 6¾% Mandatory
                                                                          
Convertible Preferred Stock
    
(29
)
  
(2,875
)
  
39
    
4
    
2,871
    
–
    
–
    
–
    
–
    
–
    
–
    
–
  
Exercised and issued stock-based
                                                                          
awards
    
–
    
–
    
1
    
–
    
13
    
–
    
–
    
–
    
–
    
13
    
–
    
13
  
Stock-based compensation
    
–
    
–
    
–
    
–
    
74
    
–
    
–
    
–
    
–
    
74
    
–
    
74
  
Tax benefit for stock-based awards
    
–
    
–
    
–
    
–
    
1
    
–
    
–
    
–
    
–
    
1
    
–
    
1
  
Tender of shares for stock-based
                                                                          
awards
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
(19
)
  
(19
)
  
–
    
(19
)
Dividends on common stock
    
–
    
–
    
–
    
–
    
–
    
(207
)
  
–
    
–
    
–
    
(207
)
  
–
    
(207
)
Dividends on preferred stock
    
–
    
–
    
–
    
–
    
–
    
(63
)
  
–
    
–
    
–
    
(63
)
  
–
    
(63
)
Dividends and distributions to
                                                                          
noncontrolling interests
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
(330
)
  
(330
)
Contributions from noncontrolling
                                                                          
interests
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
15
    
15
  
Comprehensive income:
                                                                          
Net income
    
–
    
–
    
–
    
–
    
–
    
1,609
    
–
    
–
    
–
    
1,609
    
438
    
2,047
  
Other comprehensive income,
                                                                          
  net of taxes:
                                                                          
Unrealized losses on securities
    
–
    
–
    
–
    
–
    
–
    
–
    
(2
)
  
–
    
–
    
(2
)
  
–
    
(2
)
Defined benefit plans:
                                                                          
  Amortization of unrecognized
                                                                          
amounts
    
–
    
–
    
–
    
–
    
–
    
–
    
7
    
–
    
–
    
7
    
–
    
7
  
Other comprehensive income
    
–
    
–
    
–
    
–
    
–
    
–
    
5
    
–
    
–
    
5
    
–
    
5
  
Total comprehensive income
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
1,614
    
438
    
2,052
  
Balance at June 30, 2010
    
–
  
$
–
    
592
  
$
59
  
$
18,639
  
$
(4,466
)
$
(268
)
  
122
  
$
(3,432
)
$
10,532
  
$
1,761
  
$
12,293
  
                                                                           







The accompanying notes are an integral part of these consolidated financial statements.

 
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.  
GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2009 Annual Report on Form 10-K. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month and six-month periods ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

2.  
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income attributable to common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in millions, except per share amounts):
 
   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2010
  
2009
  
2010
  
2009
  
Net income
  
$
832
  
$
812
  
$
2,047
  
$
1,019
  
Net income attributable to noncontrolling interests
    
(168
)
  
(164
)
  
(438
)
  
(268
)
Preferred dividends
    
(15
)
  
(60
)
  
(63
)
  
(120
)
Net income attributable to FCX common stockholders
    
649
    
588
    
1,546
    
631
  
Plus income impact of assumed conversion of:
                          
6¾% Mandatory Convertible Preferred Stocka
    
15
    
49
    
63
    
–
b
5½% Convertible Perpetual Preferred Stockc
    
–
    
11
    
–
    
23
  
Diluted net income attributable to FCX common
                          
stockholders
  
$
664
  
$
648
  
$
1,609
  
$
654
  
                           
Weighted-average shares of common stock outstanding
    
458
    
412
    
444
    
406
  
Add stock issuable upon conversion, exercise or
                          
vesting of:
                          
6¾% Mandatory Convertible Preferred Stocka
    
13
    
39
    
26
    
–
b
5½% Convertible Perpetual Preferred Stockc
    
–
    
18
    
–
    
18
  
Dilutive stock options
    
2
    
1
    
3
d
  
1
  
Restricted stock
    
–
    
1
    
1
    
1
  
Weighted-average shares of common stock outstanding
                          
for purposes of calculating diluted net income per share
    
473
    
471
    
474
    
426
  
                           
Diluted net income per share attributable to
                          
FCX common stockholders
  
$
1.40
  
$
1.38
  
$
3.40
  
$
1.54
  
                           
 
a.  
All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock (refer to Note 6 for further discussion). During the second quarter of 2010, 28 million shares of preferred stock were converted into 39 million shares of FCX common stock (conversion rate of 1.3716 shares of FCX common stock).
 
b.  
Preferred dividends of $97 million and additional shares of FCX common stock of approximately 39 million shares for the 6¾% Mandatory Convertible Preferred Stock were excluded for the six months ended June 30, 2009, because they were anti-dilutive.
 
c.  
In September 2009, FCX redeemed the remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock.
 
d.  
Potential additional shares of FCX common stock of approximately one million were anti-dilutive.
 
FCX’s convertible instruments are excluded from the computation of diluted net income per share of common stock when including the assumed conversion of these instruments results in an anti-dilutive effect on earnings per share (see footnote b above).
 
Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period also are excluded from the computation of diluted net income per share of common stock.
 
 
7
 
Excluded amounts were approximately nine million stock options with a weighted-average exercise price of $75.56 for second-quarter 2010 and approximately six million stock options with a weighted-average exercise price of $77.55 for the six months ended June 30, 2010. Stock options for approximately eight million shares with a weighted-average exercise price of $73.00 were excluded for second-quarter 2009, and stock options for approximately nine million shares with a weighted-average exercise price of $69.73 were excluded for the six months ended June 30, 2009.

3.  
PENSION AND POSTRETIREMENT BENEFITS
The components of net periodic benefit cost for pension and postretirement benefits follow (in millions):
 
   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2010
  
2009
  
2010
  
2009
  
Service cost
  
$
8
  
$
8
  
$
18
  
$
17
  
Interest cost
    
26
    
28
    
53
    
55
  
Expected return on plan assets
    
(24
)
  
(20
)
  
(47
)
  
(40
)
Amortization of net actuarial loss
    
6
    
7
    
11
    
15
  
Curtailments
    
–
    
–
    
–
    
(4
)
Special retirement benefits
    
–
    
–
    
–
    
(5
)
Net periodic benefit costs
  
$
16
  
$
23
  
$
35
  
$
38
  
                           
Net periodic benefit costs decreased by $7 million in second-quarter 2010 mainly as a result of an increase in the expected return on plan assets ($4 million) primarily because of the 2009 gains on plan assets.

Net periodic benefit costs decreased by $3 million in the first six months of 2010 mainly as a result of an increase in the expected return on plan assets ($7 million) and a decrease in the amortization of actuarial losses ($4 million) primarily because of the 2009 gains on plan assets. These decreases were partially offset by the absence of the first-quarter 2009 gains on special retirement benefits and curtailments ($9 million) caused by workforce reductions in connection with the fourth-quarter 2008 and first-quarter 2009 revised mine operating plans.

4.  
INVENTORIES, AND MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
   
June 30,
  
December 31,
  
   
2010
  
2009
  
Mining Operations:
              
Raw materials
  
$
1
  
$
1
  
Work-in-process
    
95
    
108
  
Finished goodsa
    
600
    
588
  
Atlantic Copper, S.A. (Atlantic Copper):
              
Raw materials (concentrates)
    
144
    
171
  
Work-in-process
    
187
    
227
  
Finished goods
    
4
    
15
  
Total product inventories
    
1,031
    
1,110
  
Total materials and supplies, netb
    
1,097
    
1,093
  
Total inventories
  
$
2,128
  
$
2,203
  
               
 
a.  
Primarily includes copper concentrates, anodes, cathodes and rod, and molybdenum.
 
b.  
Materials and supplies inventory is net of obsolescence reserves totaling $23 million at June 30, 2010, and $21 million at December 31, 2009.

 
8

A summary of mill and leach stockpiles follows (in millions):
 
   
June 30,
  
December 31,
  
   
2010
  
2009
  
Current:
              
Mill stockpiles
  
$
58
  
$
46
  
Leach stockpiles
    
710
    
621
  
Total current mill and leach stockpiles
  
$
768
  
$
667
  
               
Long-terma:
              
Mill stockpiles
  
$
453
  
$
442
  
Leach stockpiles
    
900
    
879
  
Total long-term mill and leach stockpiles
  
$
1,353
  
$
1,321
  
               
 
a.  
Metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for lower of cost or market (LCM) molybdenum inventory adjustments totaling $19 million ($19 million to net income attributable to FCX common stockholders or $0.04 per diluted share) for the first six months of 2009 resulting from lower molybdenum prices.

5.  
INCOME TAXES
FCX’s income tax provision for second-quarter 2010 resulted from taxes on international operations ($382 million) and U.S. operations ($51 million). FCX’s income tax provision for the first six months of 2010 resulted from taxes on international operations ($979 million) and U.S. operations ($132 million). FCX’s consolidated effective income tax rate was 35 percent for the first six months of 2010.

FCX’s income tax provision for second-quarter 2009 resulted from taxes on international operations ($538 million) and U.S. operations ($4 million). FCX’s income tax provision for the first six months of 2009 resulted from taxes on international operations ($868 million) and U.S. operations ($5 million). During the first half of 2009, FCX did not record a benefit for losses generated in the U.S., and those losses could not be used to offset income generated from international operations. These factors combined with the high proportion of income earned in Indonesia, which was taxed at an effective tax rate of 43 percent, caused FCX’s consolidated effective income tax rate of 47 percent for the first six months of 2009 to be higher than the U.S. federal statutory rate of 35 percent.

6.  
DEBT AND EQUITY TRANSACTIONS
During the second quarter of 2010, FCX purchased in the open market $85 million of its 8.25% Senior Notes due 2015 for $92 million and $193 million of its 8.375% Senior Notes due 2017 for $210 million. These open-market purchases resulted in losses on early extinguishment of debt totaling $28 million ($23 million to net income attributable to FCX common stockholders or $0.05 per diluted share). For the first six months of 2010, FCX purchased in the open market $218 million of its 8.25% Senior Notes for $237 million and $329 million of its 8.375% Senior Notes for $358 million, which resulted in losses on early extinguishment of debt totaling $55 million ($46 million to net income attributable to FCX common stockholders or $0.10 per diluted share).

On April 1, 2010, FCX redeemed all of its $1.0 billion of outstanding Senior Floating Rates Notes due 2015 for which holders received 101 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $22 million ($19 million to net income attributable to FCX common stockholders or $0.04 per diluted share) in the second quarter and the six-month periods of 2010.

Consolidated interest expense (before capitalization) totaled $132 million in second-quarter 2010, $172 million in second-quarter 2009, $283 million for the first six months of 2010 and $348 million for the first six months of 2009. Capitalized interest expense totaled $10 million in second-quarter 2010, $14 million in second-quarter 2009, $16 million for the first six months of 2010 and $59 million for the first six months of 2009. Lower capitalized interest in the 2010 periods primarily reflects the completion of development activities for the initial project at FCX’s Tenke Fungurume mine, which commenced initial copper production in March 2009.

During April 2010, holders of FCX’s 6¾% Mandatory Convertible Preferred Stock elected to convert 787,158 preferred shares into 1,079,615 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). On May 1, 2010, the remaining 27,504,512 shares of FCX’s 6¾% Mandatory Convertible
 
9
 
Preferred Stock were automatically converted into 37,725,139 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock). For the first six months of 2010, a total of 28,749,560 outstanding shares of FCX’s 6¾% Mandatory Convertible Preferred Stock were converted into 39,432,793 shares of FCX common stock (conversion rate equal to 1.3716 shares of FCX common stock).

In April 2010, FCX’s Board of Directors (Board) authorized an increase in the annual cash dividend on its common stock from $0.60 per share to $1.20 per share. On June 24, 2010, FCX declared a quarterly dividend of $0.30 per share, which was paid on August 1, 2010, to common shareholders of record at the close of business on July 15, 2010.

Total comprehensive income attributable to FCX common stockholders totaled $666 million in second-quarter 2010, $654 million in second-quarter 2009, $1,614 million for the first six months of 2010 and $825 million (including a $61 million gain related to the remeasurement of certain defined benefit plans during the first quarter of 2009) for the first six months of 2009.

In May 2000, FCX’s Board adopted a shareholder rights plan. Under the rights plan, each share of outstanding common stock included a purchase right that would become exercisable if a third party acquired (or announced it would acquire) 20 percent or more of FCX’s outstanding common stock without the approval of FCX’s Board. If such acquisition occurred, each purchase right (other than rights held by the third party) entitled its holder to purchase FCX’s securities at a substantial discount. The shareholder rights plan expired in accordance with its terms on May 16, 2010.

7.  
FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and FCX intends to offset or mitigate such risks. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price, foreign currency and interest rate risks. The fair values of FCX’s derivative financial instruments are based on widely published market prices.

A summary of unrealized (losses) gains recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item (firm sales commitments) follows (in millions):
 
 
Three Months Ended June 30,
  
 
2010
  
2009
  
     
Hedged
      
Hedged
  
 
Derivative
  
Item
  
Derivative
  
Item
  
Commodity contracts:
                        
Freeport-McMoRan Corporation’s (FMC)
                        
copper futures and swap contractsa
$
(20
)
$
20
  
$
1
  
$
(1
)

 
Six Months Ended June 30,
  
 
2010
  
2009
  
     
Hedged
      
Hedged
  
 
Derivative
  
Item
  
Derivative
  
Item
  
Commodity contracts:
                        
FMC’s copper futures and swap contractsa
$
(18
)
$
18
  
$
6
  
$
(6
)
                         
 
a.  
Amounts are recorded in revenues.

FCX realized (losses) gains, which are recorded in revenues, of $(9) million during second-quarter 2010, $15 million during second-quarter 2009, $1 million during the first six months of 2010 and $18 million during the first six months of 2009 from matured derivative financial instruments that qualified for hedge accounting.
 
A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for derivative financial instruments, including embedded derivatives, which do not qualify as hedge transactions follows (in millions):
 
 
Three Months Ended
  
Six Months Ended
  
 
June 30,
  
June 30,
  
 
2010
  
2009
  
2010
  
2009
  
Commodity contracts:
                        
Embedded derivatives in provisional sales contractsa
$
(330
)
$
283
  
$
(199
)
$
596
  
Embedded derivatives in provisional purchase
                        
contractsb
  
1
    
(2
)
  
(1
)
  
(1
)
PT Freeport Indonesia’s copper forward contractsa
  
–
    
(97
)
  
–
    
(97
)
Atlantic Copper’s copper forward contractsb
  
1
    
–
    
2
    
4
  
FMC’s copper futures and swap contractsa
  
(1
)
  
17
    
(1
)
  
49
  
 
a.  
Amounts recorded in revenues.
 
b.  
Amounts recorded in cost of sales as production and delivery costs.

A summary of the fair values of unsettled derivative financial instruments recorded on the consolidated balance sheets follows (in millions):
 
   
June 30,
  
December 31,
  
   
2010
  
2009
  
Derivatives designated as hedging instruments
              
Commodity contracts:
              
FMC’s copper futures and swap contracts:
              
Asset positiona
  
$
1
  
$
11
  
Liability positionb
    
(8
)
  
–
  
               
Derivatives not designated as hedging instruments
              
Commodity contracts:
              
Embedded derivatives in provisional sales/purchases contracts:c
              
Asset position
  
$
48
  
$
235
  
Liability position
    
(190
)
  
(70
)
Atlantic Copper’s copper forward contracts:
              
Asset positiona
    
–
    
1
  
FMC’s copper futures and swap contracts:d
              
Asset positiona
    
–
    
2
  
               
 
a.  
Amounts recorded in other current assets.
 
b.  
Amounts recorded in accounts payable and accrued liabilities.
 
c.  
Amounts recorded either as a net accounts receivable or a net accounts payable.
 
d.  
FCX has paid $19 million to brokers associated with margin requirements (recorded in other current assets) at June 30, 2010, and FCX had received $6 million from brokers associated with margin requirements at December 31, 2009.
 
Commodity Contracts.  From time to time, FCX has entered into forward, futures and swap contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of June 30, 2010, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative commodity contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FMC’s U.S. copper rod customers request a fixed market price instead of the New York Mercantile Exchange (COMEX) average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures and swap contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in FCX receiving the COMEX average copper price in the month of shipment. Hedge gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month and six-month periods ended June 30, 2010 and 2009, resulting from hedge ineffectiveness. At June 30, 2010, FCX held copper futures and
 
11
 
swap contracts that qualified for hedge accounting for 63 million pounds at an average price of $3.06 per pound, with maturities through July 2011.

Derivatives Not Designated as Hedging Instruments
Embedded derivatives and derivative financial instruments that do not meet the criteria to qualify for hedge accounting are discussed below.

Embedded Derivatives. As described in Note 1 to FCX’s 2009 Annual Report on Form 10-K under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on London Metal Exchange (LME) or COMEX prices at the time of shipment as specified in the contract. Similarly, FCX purchases copper and molybdenum under contracts that provide for provisional pricing (molybdenum purchases are based on an average Metals Week Molybdenum Oxide price). FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism that is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX price (copper), London Bullion Market Association price (gold) or the average Metals Week Molybdenum Oxide price (molybdenum) as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. A summary of FCX’s embedded derivatives at June 30, 2010, follows:
 
       
Average Price
      
   
Open
  
Per Unit
  
Maturities
  
   
Positions
  
Contract
  
Market
  
Through
  
Embedded derivatives in provisional
                      
sales contracts:
                      
Copper (millions of pounds)
  
680
  
$
3.19
  
$
2.93
  
November 2010
  
Gold (thousands of ounces)
  
146
    
1,218
    
1,243
  
August 2010
  
Embedded derivatives in provisional
                      
purchase contracts:
                      
Copper (millions of pounds)
  
173
    
3.18
    
2.95
  
November 2010
  
Molybdenum (thousands of pounds)
  
238
    
16.18
    
14.11
  
July 2010
  

Copper Forward Contracts. Atlantic Copper enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At June 30, 2010, Atlantic Copper held net forward copper sales contracts for 23 million pounds at an average price of $2.96 per pound, with maturities through August 2010.

In April 2009, FCX entered into copper forward sales contracts to lock in prices at an average of $1.86 per pound on 355 million pounds of PT Freeport Indonesia’s provisionally priced copper sales at March 31, 2009, which final priced from April 2009 through July 2009. These economic hedge transactions were intended to reduce short-term price volatility in earnings and cash flows. Gains and losses for these economic hedge transactions were recorded in revenues. FCX has not entered into additional forward sales contracts since April 2009 for its provisionally priced copper sales, but may enter into future transactions to lock in pricing on provisionally priced sales from time to time. However, FCX does not intend to change its long-standing policy of not hedging future copper production.

Copper Futures and Swap Contracts. In addition to the contracts discussed above that qualify for fair value hedge accounting, FCX also has similar contracts with FMC’s U.S. copper rod customers that do not qualify for hedge accounting because of certain terms in the sales contracts. Gains and losses for these economic hedge transactions are recorded in revenues. At June 30, 2010, FCX held copper futures and swap contracts for one million pounds at an average price of $2.83 per pound, with maturities through December 2010.
 
12
 
Foreign Currency Exchange Contracts.  As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions at FCX’s international subsidiaries increase its risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. FCX may hedge or protect its international subsidiaries’ foreign currency transactions from time to time by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. FCX had no outstanding foreign currency exchange contracts at June 30, 2010.

Interest Rate Swap Contracts.  From time to time, FCX or its subsidiaries may enter into interest rate swaps to manage its exposure to interest rate changes and to achieve a desired proportion of fixed-rate versus floating-rate debt based on current and projected market conditions. FCX may enter into interest rate swap contracts to lock in an interest rate considered to be favorable in order to protect against its exposure to variability in future interest payments attributable to increases in interest rates of the designated floating-rate debt. In some situations, FCX may enter into fixed-to-floating interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from market interest rate changes and to take advantage of lower interest rates. FCX had no outstanding interest rate swap contracts at June 30, 2010.

Credit Risk.  FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses highly rated financial institutions that meet certain requirements. FCX also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their credit ratings. FCX does not anticipate that any of the financial institutions it deals with will default on their obligations. At June 30, 2010, FCX did not have any significant credit exposure associated with derivative transactions.

Other Financial Instruments.  Other financial instruments include cash and cash equivalents, accounts receivable, trust assets, available-for-sale securities, accounts payable and accrued liabilities, dividends payable, Rio Tinto share of joint venture cash flows and long-term debt. Refer to Note 8 for the fair values of these financial instruments.

8.  
FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are described below:
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
Level 2
Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
 
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
13
 
A summary of FCX’s financial assets and liabilities measured at fair value on a recurring basis follows (in millions):
 
 
Fair Value at June 30, 2010
  
 
Total
  
Level 1
  
Level 2
  
Level 3
  
Assets
                        
Cash equivalents:
                        
Money market funds
$
2,904
  
$
2,904
  
$
–
  
$
–
  
Time deposits
  
99
    
99
    
–
    
–
  
Total cash equivalents
  
3,003
    
3,003
    
–
    
–
  
                         
Trust assets (current and long-term):
                        
U.S. core fixed income fund
  
42
    
–
    
42
    
–
  
Government mortgage-backed securities
  
26
    
–
    
26
    
–
  
Government bonds and notes
  
25
    
–
    
25
    
–
  
Corporate bonds
  
21
    
–
    
21
    
–
  
Asset-backed securities
  
18
    
–
    
18
    
–
  
Money market funds
  
19
    
19
    
–
    
–
  
Total trust assets
  
151
    
19
    
132
    
–
  
                         
Available-for-sale securities:
                        
Time deposits
  
44
    
44
    
–
    
–
  
Money market funds
  
7
    
7
    
–
    
–
  
Equity securities
  
4
    
4
    
–
    
–
  
Total available-for-sale securities
  
55
    
55
    
–
    
–
  
                         
Derivatives:
                        
Embedded derivatives in provisional sales/purchases
                        
contracts
  
48
    
48
    
–
    
–
  
Copper futures and swap contracts
  
1
    
1
    
–
    
–
  
Total derivatives
  
49
    
49
    
–
    
–
  
                         
Total assets
$
3,258
  
$
3,126
  
$
132
  
$
–
  
                         
Liabilities
                        
Derivatives:
                        
Embedded derivatives in provisional sales/purchases
                        
contracts
$
(190
)
$
(190
)
$
–
  
$
–
  
Copper futures and swap contracts
  
(8
)
  
(8
)
  
–
    
–
  
Total derivative liabilities
$
(198
)
$
(198
)
$
–
  
$
–
  
                         

Valuation Techniques

Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Fixed income securities (government and agency securities, corporate bonds, asset-backed securities and U.S. core fixed income fund) are valued using a bid evaluation or a mid evaluation. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and as such are classified within Level 1 of the fair value hierarchy.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted market prices based on the forward LME or COMEX prices (copper) and the London Bullion Market Association price (gold) and, as such, are classified within Level 1 of the fair value hierarchy. FCX’s embedded derivatives on provisional molybdenum purchases are valued based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices and, as such, are classified within Level 1 of the fair value hierarchy.
 
14
 
FCX’s derivative financial instruments for copper futures and swap contracts and forward contracts are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets (refer to Note 7 for further discussion).

The carrying value for certain FCX financial instruments, (i.e., accounts receivable, accounts payable and accrued liabilities, dividends payable, and Rio Tinto’s share of joint venture cash flows) approximate fair value, and therefore, have been excluded from the table below. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):
 
 
At June 30, 2010
  
At December 31, 2009
  
 
Carrying
  
Fair
  
Carrying
  
Fair
  
 
Amount
  
Value
  
Amount
  
Value
  
Cash and cash equivalentsa
$
3,042
  
$
3,042
  
$
2,656
  
$
2,656
  
Derivatives included in accounts receivablea
  
48
    
48
    
235
    
235
  
Trust assets (current and long-term)a, b
  
151
    
151
    
146
    
146
  
Available-for-sale securities (current and
                        
long-term)a, b
  
55
    
55
    
74
    
74
  
Derivative assetsa, c
  
1
    
1
    
14
    
14
  
Derivatives included in accounts payable and
                        
accrued liabilitiesa
  
(198
)
  
(198
)
  
(70
)
  
(70
)
Long-term debt (including amounts due
                        
within one year)d
  
(4,785
)
  
(5,203
)
  
(6,346
)
  
(6,735
)
                         
 
a.  
Recorded at fair value.
 
b.  
Current portion included in other current assets and long-term portion included in other assets.
 
c.  
Included in other current assets.
 
d.  
Recorded at cost except for long-term debt acquired in the Phelps Dodge Corporation acquisition, which was recorded at fair value at the acquisition date. Fair value of substantially all of FCX’s long-term debt is estimated based on quoted market prices.

9.  
NEW ACCOUNTING STANDARDS
Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. In January 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance intended to improve disclosures related to fair value measurements. This guidance requires significant transfers in and out of Level 1 and Level 2 fair value measurements to be disclosed separately along with the reasons for the transfers. Additionally, in the reconciliation for the fair value measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances and settlements must be presented (cannot net as one number). This guidance also provides clarification for existing disclosures on (i) level of disaggregation and (ii) inputs and valuation techniques. In addition, this guidance includes conforming amendments for employers’ disclosure of postretirement benefit plan assets. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are required for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

10.  
SUBSEQUENT EVENTS
FCX evaluated events after June 30, 2010, and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

11.  
BUSINESS SEGMENTS
FCX has organized its operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines. Operating segments that meet certain thresholds are reportable segments. Further discussion of the reportable segments included in FCX’s primary operating divisions, as well as FCX’s other reportable segments – Rod & Refining and Atlantic Copper Smelting & Refining – follows.

North America Copper Mines.  FCX has six operating copper mines in North America – Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone in New Mexico. The North America copper mines include open-pit mining, sulfide ore concentrating, leaching, and solution extraction and electrowinning (SX/EW) operations. A majority of the copper produced at the North America copper mines is cast into copper rod by FCX’s Rod & Refining operations. The North America copper mines include the Morenci copper mine as a reportable segment.

Morenci. The Morenci open-pit mine, located in southeastern Arizona, primarily produces copper cathodes. FCX owns an 85 percent undivided interest in Morenci through an unincorporated joint venture. During the first six months of 2010, the Morenci mine produced 40 percent of FCX’s North America copper.

Other Mines. Other mines include FCX’s other operating southwestern U.S. copper mines – Sierrita, Bagdad, Safford, Miami and Tyrone – and its southwestern U.S. copper mines that are currently on care-and-maintenance status. In addition to copper, the Sierrita and Bagdad mines produce molybdenum concentrates as a by-product.

South America.  South America mining includes four operating copper mines – Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These operations include open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. South America mining includes the Cerro Verde copper mine as a reportable segment.

Cerro Verde. The Cerro Verde open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and copper concentrates. In addition to copper, the Cerro Verde mine produces molybdenum concentrates as a by-product. FCX owns a 53.56 percent interest in Cerro Verde. During the first six months of 2010, the Cerro Verde mine produced 51 percent of FCX’s South America copper.

Other Mines. Other mines include FCX’s Chilean copper mines – Candelaria, Ojos del Salado and El Abra. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver as by-products. FCX owns an 80 percent interest in both the Candelaria and Ojos del Salado mines, and owns a 51 percent interest in the El Abra mine.

Indonesia.  Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver. FCX owns 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through PT Indocopper Investama. FCX has established certain unincorporated joint ventures with Rio Tinto, under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver.

Africa.  Africa mining includes the Tenke Fungurume copper and cobalt mining concessions in the Katanga province of the Democratic Republic of Congo. The Tenke Fungurume mine includes open-pit mining, leaching and SX/EW operations. In addition to copper, the Tenke Fungurume mine produces cobalt hydroxide. Copper cathode production commenced in March 2009, and the first copper cathode was sold in second-quarter 2009. FCX owns an effective 57.75 percent interest in Tenke Fungurume.

Molybdenum.  The Molybdenum segment is an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world, and includes the wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. This segment also includes a sales company that purchases and sells molybdenum from the Henderson mine as well as from FCX’s North and South America copper mines that produce molybdenum as a by-product. In addition, at times this segment roasts and/or
 
processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products. The Molybdenum segment also includes FCX’s wholly owned Climax molybdenum mine in Colorado, which has been on care-and-maintenance status since 1995.

Rod & Refining.  The Rod & Refining segment consists of copper conversion facilities located in North America, and includes a refinery, three rod mills and a specialty copper products facility. These operations process copper produced at the North America mines and purchased copper into copper cathode, rod and custom copper shapes. At times these operations refine copper and produce copper rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to FCX’s facilities for processing into a product that is returned to the customer, who pays FCX for processing its material into the specified products.

Atlantic Copper Smelting & Refining.  Atlantic Copper, FCX’s wholly owned smelting unit in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. PT Freeport Indonesia sells copper concentrate and the South America copper mines sell copper concentrate and cathode to Atlantic Copper.

Intersegment Sales. Intersegment sales between FCX’s operations are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

Allocations. FCX allocates certain operating costs, expenses and capital expenditures to the operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. All U.S. federal and state income taxes are recorded and managed at the corporate level, whereas foreign income taxes are recorded and managed at the applicable mine or operation. In addition, most exploration and research activities are managed at the corporate level, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.
 
Business Segments

(In Millions)
North America Copper Mines
  
South America
  
Indonesia
  
Africa
                      
                                         
Atlantic
  
Corporate,
      
                                         
Copper
  
Other &
      
     
Other
      
Cerro
  
Other
              
Molyb-
  
Rod &
  
Smelting
  
Elimi-
  
FCX
  
 
Morenci
  
Mines
  
Total
  
Verde
  
Mines
  
Total
  
Grasberg
  
Tenke
  
denum
  
Refining
  
& Refining
  
nations
  
Total
  
Three Months Ended June 30, 2010
                                                                              
Revenues:
                                                                              
Unaffiliated customers
$
1
  
$
1
  
$
2
  
$
274
  
$
453
  
$
727
  
$
871
a
$
207
  
$
325
  
$
1,123
  
$
605
  
$
4
 
$
3,864
  
Intersegment
  
386
    
656
    
1,042
    
108
    
14
    
122
    
56
    
–
    
–
    
6
    
11
    
(1,237
)
  
–
  
Production and delivery
  
177
    
360
    
537
    
148
    
241
    
389
    
427
    
96
    
190
    
1,121
    
605
    
(1,313
)
  
2,052
  
Depreciation, depletion and amortization
  
35
    
36
    
71
    
33
    
26
    
59
    
57
    
30
    
12
    
2
    
9
    
9
    
249
  
Selling, general and administrative expenses
  
–
    
–
    
–
    
–
    
–
    
–
    
23
    
–
    
3
    
–
    
4
    
71
    
101
  
Exploration and research expenses
  
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
38
    
38
  
Operating income (loss)
  
175
    
261
    
436
    
201
    
200
    
401
    
420
    
81
    
120
    
6
    
(2
)
  
(38
)
  
1,424
  
                                                                               
Interest expense, net
  
–
    
3
    
3
    
–
    
–
    
–
    
–
    
–
    
–
    
–
    
3
    
116
    
122
  
Provision for income taxes
  
–
    
–
    
–
    
68
    
66
    
134
    
177
    
18
    
–
    
–
    
–
    
104
    
433
  
Total assets at June 30, 2010
  
1,882
    
4,218
    
6,100
    
4,318
    
2,744
    
7,062
    
4,703
    
3,458
    
1,781
    
306
    
934
    
1,635
    
25,979
  
Capital expenditures
  
12
    
50
    
62
    
19
    
87
    
106
    
97
    
11
    
5
    
1
    
3
    
11
    
296
  
                                                                               
                                                                               
Three Months Ended June 30, 2009
                                                                              
Revenues:
                                                                              
Unaffiliated customers
$
18
  
$
27
  
$
45
  
$
342
  
$
465
  
$
807
  
$
1,430
a
$
57
  
$
186
  
$
741
  
$
415
  
$
3
  
$
3,684
  
Intersegment
  
234
    
424
    
658
    
70
    
7
    
77
    
180
    
–