FCX Q312 10-Q

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 September 30, 2012
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
85004-2189
(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.
þ Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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).       þ Yes  ¨ No

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 þ         Accelerated filer ¨          Non-accelerated filer ¨         Smaller reporting company ¨

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

On October 31, 2012, there were issued and outstanding 949,318,834 shares of the registrant’s common stock, par value $0.10 per share.


FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.


2
Table of Contents                 

Part I.
FINANCIAL INFORMATION

Item 1.
Financial Statements.

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

 
September 30,
2012
 
December 31,
2011
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,727

 
$
4,822

Trade accounts receivable
1,424

 
892

Other accounts receivable
242

 
250

Inventories:
 
 
 
Mill and leach stockpiles
1,595

 
1,289

Materials and supplies, net
1,465

 
1,354

Product
1,374

 
1,226

Other current assets
353

 
214

Total current assets
10,180

 
10,047

Property, plant, equipment and development costs, net
20,294

 
18,449

Long-term mill and leach stockpiles
1,871

 
1,686

Long-term receivables
1,004

 
675

Intangible assets, net
321

 
325

Other assets
847

 
888

Total assets
$
34,517

 
$
32,070

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,531

 
$
2,297

Dividends payable
299

 
240

Current portion of reclamation and environmental obligations
259

 
236

Accrued income taxes
59

 
163

Current portion of debt
2

 
4

Total current liabilities
3,150

 
2,940

Long-term debt, less current portion
3,521

 
3,533

Deferred income taxes
3,378

 
3,255

Reclamation and environmental obligations, less current portion
2,194

 
2,138

Other liabilities
1,531

 
1,651

Total liabilities
13,774

 
13,517

Equity:
 
 
 
FCX stockholders’ equity:
 
 
 
Common stock
107

 
107

Capital in excess of par value
19,094

 
19,007

Retained earnings
1,953

 
546

Accumulated other comprehensive loss
(439
)
 
(465
)
Common stock held in treasury
(3,576
)
 
(3,553
)
Total FCX stockholders’ equity
17,139

 
15,642

Noncontrolling interests
3,604

 
2,911

Total equity
20,743

 
18,553

Total liabilities and equity
$
34,517

 
$
32,070

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

3
Table of Contents                 

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In millions, except per share amounts)
Revenues
$
4,417

 
$
5,195

 
$
13,497

 
$
16,718

Cost of sales:
 
 
 
 
 
 
 
Production and delivery
2,592

 
2,570

 
7,642

 
7,504

Depreciation, depletion and amortization
298

 
257

 
856

 
756

Total cost of sales
2,890

 
2,827

 
8,498

 
8,260

Selling, general and administrative expenses
110

 
102

 
311

 
323

Exploration and research expenses
79

 
78

 
214

 
194

Environmental obligations and shutdown costs
(73
)
 
38

 
18

 
98

Total costs and expenses
3,006

 
3,045

 
9,041

 
8,875

Operating income
1,411

 
2,150

 
4,456

 
7,843

Interest expense, net
(42
)
 
(78
)
 
(148
)
 
(250
)
Losses on early extinguishment of debt
—

 
—

 
(168
)
 
(68
)
Other (expense) income, net
(15
)
 
28

 
23

 
40

Income before income taxes and equity in affiliated
 
 
 
 
 
 
 
companies’ net earnings
1,354

 
2,100

 
4,163

 
7,565

Provision for income taxes
(215
)
 
(808
)
 
(1,128
)
 
(2,698
)
Equity in affiliated companies’ net earnings
1

 
2

 
—

 
14

Net income
1,140

 
1,294

 
3,035

 
4,881

Net income attributable to noncontrolling interests
(316
)
 
(241
)
 
(737
)
 
(961
)
Net income attributable to FCX common stockholders
$
824

 
$
1,053

 
$
2,298

 
$
3,920

 
 
 
 
 
 
 
 
Net income per share attributable to FCX common stockholders:
 
 
 
 
 
 
 
Basic
$
0.87

 
$
1.11

 
$
2.42

 
$
4.14

Diluted
$
0.86

 
$
1.10

 
$
2.41

 
$
4.10

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
949

 
948

 
949

 
947

Diluted
953

 
955

 
953

 
955

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.3125

 
$
0.25

 
$
0.9375

 
$
1.25

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


4
Table of Contents                 

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In millions)
 
 
 
 
 
 
 
 
Net income
$
1,140

 
$
1,294

 
$
3,035

 
$
4,881

 
 
 
 
 
 
 
 
Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities arising during the period
1

 
(1
)
 
—

 
(1
)
Translation adjustments arising during the period
—

 
(2
)
 
(1
)
 
(1
)
Defined benefit plans:
 
 
 
 
 
 
 
Amortization of unrecognized amounts included in net
 
 
 
 
 
 
 
periodic benefit costs
7

 
5

 
22

 
11

Adjustment to deferred tax valuation allowance
—

 
—

 
5

 
—

Other comprehensive income
8

 
2

 
26

 
9

 
 
 
 
 
 
 
 
Total comprehensive income
1,148

 
1,296

 
3,061

 
4,890

Total comprehensive income attributable to noncontrolling
 
 
 
 
 
 
 
interests
(315
)
 
(241
)
 
(737
)
 
(961
)
Total comprehensive income attributable to FCX common
 
 
 
 
 
 
 
stockholders
$
833

 
$
1,055

 
$
2,324

 
$
3,929


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




5
Table of Contents                 

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
September 30,
 
2012
 
2011
 
(In millions)
Cash flow from operating activities:
 
 
 
Net income
$
3,035

 
$
4,881

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
856

 
756

Stock-based compensation
77

 
92

Pension plans contributions
(114
)
 
(29
)
Net charges for reclamation and environmental obligations, including accretion
64

 
144

Payments for reclamation and environmental obligations
(148
)
 
(131
)
Losses on early extinguishment of debt
168

 
68

Deferred income taxes
223

 
419

Increase in long-term mill and leach stockpiles
(184
)
 
(174
)
Other, net
71

 
(26
)
(Increases) decreases in working capital and other tax payments:
 
 
 
Accounts receivable
(603
)
 
1,034

Inventories
(581
)
 
(266
)
Other current assets
(33
)
 
(152
)
Accounts payable and accrued liabilities
78

 
(101
)
Accrued income taxes and other tax payments
(400
)
 
(641
)
Net cash provided by operating activities
2,509

 
5,874

 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures:
 
 
 
North America copper mines
(569
)
 
(342
)
South America
(659
)
 
(431
)
Indonesia
(624
)
 
(463
)
Africa
(428
)
 
(89
)
Molybdenum
(197
)
 
(317
)
Other
(41
)
 
(107
)
Other, net
(19
)
 
24

Net cash used in investing activities
(2,537
)
 
(1,725
)
 
 
 
 
Cash flow from financing activities:
 
 
 
Proceeds from debt
3,023

 
37

Repayments of debt
(3,179
)
 
(1,303
)
Cash dividends paid:
 
 
 
Common stock
(832
)
 
(1,186
)
Noncontrolling interests
(76
)
 
(350
)
Contributions from noncontrolling interests
15

 
27

Net (payments for) proceeds from stock-based awards
(3
)
 
2

Excess tax benefit from stock-based awards
7

 
23

Other, net
(22
)
 
(9
)
Net cash used in financing activities
(1,067
)
 
(2,759
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(1,095
)
 
1,390

Cash and cash equivalents at beginning of year
4,822

 
3,738

Cash and cash equivalents at end of period
$
3,727

 
$
5,128

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

6
Table of Contents                 

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

 
FCX Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
Retained
Earnings
 
Accumu-
lated
Other Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total FCX
Stock-holders' Equity
 
 
 
 
 
Number
of
Shares
 
At Par
Value
 
Capital in
Excess of
Par Value
 
 
 
Number
of
Shares
 
At
Cost
 
 
Non-
controlling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
1,071

 
$
107

 
$
19,007

 
$
546

 
$
(465
)
 
123

 
$
(3,553
)
 
$
15,642

 
$
2,911

 
$
18,553

Exercised and issued stock-based awards
2

 
—

 
14

 
—

 
—

 
—

 
—

 
14

 
—

 
14

Stock-based compensation
—

 
—

 
77

 
—

 
—

 
—

 
—

 
77

 
—

 
77

Tax benefit for stock-based awards
—

 
—

 
6

 
—

 
—

 
—

 
—

 
6

 
—

 
6

Tender of shares for stock-based awards
—

 
—

 
7

 
—

 
—

 
1

 
(23
)
 
(16
)
 
—

 
(16
)
Dividends on common stock
—

 
—

 
—

 
(891
)
 
—

 
—

 
—

 
(891
)
 
—

 
(891
)
Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(76
)
 
(76
)
Change in ownership interests
—

 
—

 
(17
)
 
—

 
—

 
—

 
—

 
(17
)
 
17

 
—

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
15

 
15

Total comprehensive income
—

 
—

 
—

 
2,298

 
26

 
—

 
—

 
2,324

 
737

 
3,061

Balance at September 30, 2012
1,073

 
$
107

 
$
19,094

 
$
1,953

 
$
(439
)
 
124

 
$
(3,576
)
 
$
17,139

 
$
3,604

 
$
20,743

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


7
Table of Contents                 

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 annual report on Form 10-K for the year ended December 31, 2011 (2011 Annual Report). The information furnished herein reflects all adjustments that 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 nine-month periods ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

2.
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income attributable to FCX common stockholders 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
Net income
$
1,140

 
$
1,294

 
$
3,035

 
$
4,881

 
Net income attributable to noncontrolling interests
(316
)
 
(241
)
 
(737
)
 
(961
)
 
Net income attributable to FCX common stockholders
$
824

 
$
1,053

 
$
2,298

 
$
3,920

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
949

 
948

 
949

 
947

 
Add shares issuable upon exercise or vesting of:
 
 
 
 
 
 
 
 
 Dilutive stock options
3

 
6

a 
3

a 
7

a 
 Restricted stock units
1

 
1

 
1

 
1

 
Weighted-average shares of common stock outstanding
 
 
 
 
 
 
 
 
for purposes of calculating diluted net income per share
953

 
955

 
953

 
955

 
 
 
 
 
 
 
 
 
 
Diluted net income per share attributable to FCX
  common stockholders
$
0.86

 
$
1.10

 
$
2.41

 
$
4.10

 
a.
Excluded shares of common stock associated with outstanding stock options with exercise prices less than the average market price of FCX's common stock that were anti-dilutive based on the treasury stock method of approximately three million for the third-quarter 2011, one million for the nine months ended September 30, 2012, and two million for the nine months ended September 30, 2011.

Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income per share of common stock. Excluded amounts were approximately 24 million stock options with a weighted-average exercise price of $42.52 per option for third-quarter 2012 and approximately 19 million stock options with a weighted-average exercise price of $43.80 per option for the nine months ended September 30, 2012. Approximately 5 million stock options with a weighted-average exercise price of $55.57 per option were excluded for third-quarter 2011, and approximately 3 million stock options with a weighted-average exercise price of $55.74 per option were excluded for the nine months ended September 30, 2011.

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Table of Contents                 


3.
INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
September 30,
2012
 
December 31, 2011
Mining operations:a
 
 
 
Raw materials
$
2

 
$
1

Finished goodsb
820

 
769

Atlantic Copper, S.L.U. (Atlantic Copper):
 
 
 
Raw materials (concentrates)
339

 
260

Work-in-process
191

 
187

Finished goods
22

 
9

Total product inventories
1,374

 
1,226

Total materials and supplies, netc
1,465

 
1,354

Total inventories, excluding mill and leach stockpiles
$
2,839

 
$
2,580

a.
FCX's mining operations also have work-in-process inventories (i.e., mill and leach stockpiles), which are summarized below.
b.
Primarily included molybdenum concentrates and copper concentrates, anodes, cathodes and rod.
c.
Materials and supplies inventory was net of obsolescence reserves totaling $26 million at September 30, 2012, and December 31, 2011.

A summary of mill and leach stockpiles follows (in millions):
 
September 30,
2012
 
December 31, 2011
Current:
 
 
 
Mill stockpiles
$
97

 
$
69

Leach stockpiles
1,498

 
1,220

Total current mill and leach stockpiles
$
1,595

 
$
1,289

Long-term:a
 
 
 
Mill stockpiles
$
595

 
$
535

Leach stockpiles
1,276

 
1,151

Total long-term mill and leach stockpiles
$
1,871

 
$
1,686

 
a.
Metals in stockpiles not expected to be recovered within the next 12 months.

4.
INCOME TAXES
Geographic sources of FCX's provision for income taxes follow (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
United States operations
$
98

 
$
163

 
$
291

 
$
421

International operations
117

a 
645

 
837

a 
2,277

Total
$
215

 
$
808

 
$
1,128

 
$
2,698


a.
Included a net tax benefit of $234 million associated with an adjustment to Cerro Verde's deferred income tax liability.

FCX’s consolidated effective income tax rate was 27 percent (33 percent excluding Cerro Verde's $234 million net deferred tax liability adjustment) for the first nine months of 2012 and 36 percent for the first nine months of 2011. Variations in the relative proportions of jurisdictional income can result in fluctuations to FCX’s consolidated effective income tax rate.


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Table of Contents                 

With the exception of Tenke Fungurume S.A.R.L. (TFM), FCX has not elected to permanently reinvest earnings from its foreign subsidiaries and has recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. Cerro Verde previously recorded deferred Peruvian income tax liabilities for income taxes that would become payable if the reinvested profits used to fund the initial Cerro Verde sulfide expansion are distributed prior to the expiration of Cerro Verde's current stability agreement on December 31, 2013. Reinvested profits are not expected to be distributed prior to December 31, 2013. Accordingly, a net deferred income tax liability of $234 million ($123 million net of noncontrolling interests) was reversed and recognized as an income tax benefit in third-quarter 2012.

In July 2012, Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) signed a new 15-year mining stability agreement with the Peruvian government, which is expected to become effective January 1, 2014, after the current mining stability agreement expires on December 31, 2013. In connection with the new mining stability agreement, Cerro Verde's income tax rate will increase from 30 percent to 32 percent. As a result of the change in the income tax rate, FCX recognized additional deferred tax expense of $26 million ($23 million net of noncontrolling interests) in third-quarter 2012, which relates primarily to the assets recorded in connection with the 2007 acquisition of Freeport-McMoRan Corporation (FMC).

In September 2011, Peru enacted a new mining tax and royalty regime and also created a special mining burden that companies with stability agreements could elect to pay. Cerro Verde elected to pay this special mining burden during the remaining term of its stability agreement. As a result, Cerro Verde recognized additional current and deferred tax expense of $57 million ($50 million net of noncontrolling interests) in third-quarter 2011. The deferred portion of this accrual related primarily to the assets recorded in connection with the 2007 acquisition of FMC.

5.
DEBT AND EQUITY TRANSACTIONS
In February 2012, FCX sold $500 million of 1.40% Senior Notes due 2015, $500 million of 2.15% Senior Notes due 2017 and $2.0 billion of 3.55% Senior Notes due 2022 for total net proceeds of $2.97 billion. Interest on the 1.40% Senior Notes is payable semiannually on February 13 and August 13, which commenced on August 13, 2012. Interest on the 2.15% Senior Notes and the 3.55% Senior Notes is payable semiannually on March 1 and September 1, which commenced on September 1, 2012. These unsecured senior notes rank equally with FCX's other existing and future unsecured and unsubordinated indebtedness.

On March 14, 2012, FCX redeemed the remaining $3.0 billion of its outstanding 8.375% Senior Notes due 2017, for which holders received 104.553 percent of the principal amount together with the accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt of $168 million ($149 million to net income attributable to FCX common stockholders or $0.16 per diluted share) for the first nine months of 2012.

During the first quarter of 2011, FCX entered into a new senior unsecured revolving credit facility, which replaced the revolving credit facilities that were scheduled to mature on March 19, 2012. FCX recognized a loss on early extinguishment of debt totaling $7 million ($6 million to net income attributable to FCX common shareholders or $0.01 per diluted share) for the first nine months of 2011 associated with this transaction.

On April 1, 2011, FCX redeemed its remaining $1.1 billion of outstanding 8.25% Senior Notes due 2015, for which holders received 104.125 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 $55 million ($49 million to net income attributable to FCX common stockholders or $0.05 per diluted share) for the first nine months of 2011.

During the second quarter of 2011, FCX purchased in the open market $35 million of its 9.5% Senior Notes due 2031 for $49 million, which resulted in losses on early extinguishment of debt totaling $6 million ($5 million to net income attributable to FCX common stockholders or $0.01 per diluted share) for the first nine months of 2011.

Consolidated interest expense (excluding capitalized interest) totaled $56 million in third-quarter 2012, $105 million in third-quarter 2011, $210 million for the first nine months of 2012 and $325 million for the first nine months of 2011. Capitalized interest totaled $14 million in third-quarter 2012, $27 million in third-quarter 2011, $62 million for the first nine months of 2012 and $75 million for the first nine months of 2011.


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On February 7, 2012, the Board of Directors authorized an increase in the cash dividend on FCX's common stock from an annual rate of $1.00 per share to $1.25 per share. On September 26, 2012, FCX's Board of Directors declared a quarterly dividend of $0.3125 per share, which was paid on November 1, 2012, to common shareholders of record at the close of business on October 15, 2012.

6. 
FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. 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 changes, foreign currency exchange rates and interest rates.

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 September 30, 2012, 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 FCX'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. Hedging 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 nine-month periods ended September 30, 2012 and 2011, resulting from hedge ineffectiveness. At September 30, 2012, FCX held copper futures and swap contracts that qualified for hedge accounting for 53 million pounds at an average contract price of $3.59 per pound, with maturities through December 2013.

A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Copper futures and swap contracts:
 
 
 
 
 
 
 
Unrealized gains (losses):
 
 
 
 
 
 
 
Derivative financial instruments
$
13

 
$
(62
)
 
$
20

 
$
(72
)
Hedged item
(13
)
 
62

 
(20
)
 
72

 
 
 
 
 
 
 
 
Realized gains (losses):
 
 
 
 
 
 
 
Matured derivative financial instruments
1

 
(10
)
 
(3
)
 
(4
)

Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. As described in Note 1 to FCX’s 2011 Annual Report under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) price (copper) or the COMEX price (copper) and the London Bullion Market Association (London PM) price (gold) 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 generally based on an average Metals Week Molybdenum Dealer 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

11
Table of Contents                 

(copper), London PM price (gold) or the average Metals Week Molybdenum Dealer 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 September 30, 2012, follows:
 
Open Positions
 
Average Price
Per Unit
 
Maturities Through
 
 
Contract
 
Market
 
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
557

 
$
3.49

 
$
3.72

 
March 2013
Gold (thousands of ounces)
67

 
1,698

 
1,781

 
December 2012
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
326

 
3.50

 
3.72

 
January 2013

Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, 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 September 30, 2012, Atlantic Copper held net forward copper purchase contracts for 31 million pounds at an average contract price of $3.71 per pound, with maturities through December 2012.

A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Embedded derivatives in provisional sales contractsa
$
164

 
$
(657
)
 
$
188

 
$
(682
)
Copper forward contractsb
5

 
4

 
17

 
(2
)
a.
Amounts recorded in revenues. 
b.
Amounts recorded in cost of sales as production and delivery costs.

Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled derivative financial instruments recorded on the consolidated balance sheets follows (in millions):
 
September 30,
2012
 
December 31, 2011
Derivatives designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Copper futures and swap contracts:a
 
 
 
Asset positionb
$
11

 
$
3

Liability positionc
1

 
13

 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Embedded derivatives in provisional sales/purchase contracts:d
 
 
 
Asset position
$
131

 
$
72

Liability position
74

 
82

Copper forward contracts:
 
 
 
Asset positionb
1

 
2

Liability positionc
1

 
—

a.
FCX received $1 million from brokers associated with margin requirements (recorded in accounts payable and accrued liabilities) as of September 30, 2012, and FCX paid $31 million for margin requirements (recorded in other current assets) as of December 31, 2011. In addition, FCX held $3 million in margin funding from customers as of December 31, 2011, associated with margin requirements (recorded in accounts payable and accrued liabilities).
b.
Amounts recorded in other current assets. 
c.
Amounts recorded in accounts payable and accrued liabilities. 
d.
Amounts recorded either as a net accounts receivable or a net accounts payable.

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Table of Contents                 

Foreign Currency Exchange Contracts.  As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions of 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 September 30, 2012.

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 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 September 30, 2012.

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 counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of September 30, 2012, 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, investment securities, accounts payable and accrued liabilities, dividends payable and long-term debt. Refer to Note 7 for the fair values of these financial instruments.

Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Dividends Payable. The financial statement amount is a reasonable estimate of the fair value because of the short maturity of these instruments and generally negligible credit losses.

Trust Assets and Investment Securities. The financial statement amount represents the fair value of trust assets and investment securities except for the investment in McMoRan Exploration Co.'s (MMR) 5¾% Convertible Perpetual Preferred Stock, which is recorded at cost.

Long-Term Debt. The financial statement amount represents cost except for long-term debt acquired in the FMC acquisition, which was recorded at fair value at the acquisition date.

7.
FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a 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). FCX did not have any significant transfers in or out of Levels 1, 2 or 3 for the third quarter of 2012.


13
Table of Contents                 

The carrying value for certain FCX financial instruments (i.e., cash, accounts receivable, accounts payable and accrued liabilities, and dividends payable) approximate fair value because of their short-term nature and generally negligible credit losses. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):
 
At September 30, 2012
 
Carrying
 
Fair Value
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents:a
 
 
 
 
 
 
 
 
 
Money market funds
$
3,053

 
$
3,053

 
$
3,053

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Investment securities (current and long-term):
 
 
 
 
 
 
 
 
 
MMR investmentb
453

 
436

 
—

 
436

 
—

Money market fundsa, c
47

 
47

 
47

 
—

 
—

Equity securitiesa, c
8

 
8

 
8

 
—

 
—

Total investment securities
508

 
491

 
55

 
436

 
—

 
 
 
 
 
 
 
 
 
 
Trust assets (long-term):a, c
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund
49

 
49

 
—

 
49

 
—

Government mortgage-backed securities
41

 
41

 
—

 
41

 
—

Corporate bonds
30

 
30

 
—

 
30

 
—

Government bonds and notes
21

 
21

 
—

 
21

 
—

Asset-backed securities
13

 
13

 
—

 
13

 
—

Money market funds
6

 
6

 
6

 
—

 
—

Municipal bonds
1

 
1

 
—

 
1

 
—

Total trust assets
161

 
161

 
6

 
155

 
—

 
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in an asset positiond
131

 
131

 
—

 
131

 
—

Copper futures and swap contractse
11

 
11

 
10

 
1

 
—

Copper forward contractse
1

 
1

 
1

 
—

 
—

Total derivative assets
143

 
143

 
11

 
132

 
—

 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
3,848

 
$
3,125

 
$
723

 
$
—

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in a liability positiond
$
74

 
$
74

 
$
—

 
$
74

 
$
—

Copper futures and swap contractsf
1

 
1

 
1

 
—

 
—

Copper forward contractsf
1

 
1

 
1

 
—

 
—

Total derivative liabilities
76

 
76

 
2

 
74

 
—

 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portiong
3,523

 
3,632

 
—

 
3,632

 
—

 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
3,708

 
$
2

 
$
3,706

 
$
—



14
Table of Contents                 

 
At December 31, 2011
 
Carrying
 
Fair Value
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents:a
 
 
 
 
 
 
 
 
 
Money market funds
$
4,007

 
$
4,007

 
$
4,007

 
$
—

 
$
—

 
Investment securities (current and long-term):
 
 
 
 
 
 
 
 
 
MMR investmentb
475

 
507

 
—

 
507

 
—

Equity securitiesa, c
9

 
9

 
9

 
—

 
—

Money market fundsa, c
2

 
2

 
2

 
—

 
—

Total investment securities
486

 
518

 
11

 
507

 
—

 
 
 
 
 
 
 
 
 
 
Trust assets (long-term):a, c
 
 
 
 
 
 
 
 
 
Government mortgage-backed securities
47

 
47

 
—

 
47

 
—

U.S. core fixed income fund
46

 
46

 
—

 
46

 
—

Government bonds and notes
21

 
21

 
—

 
21

 
—

Corporate bonds
19

 
19

 
—

 
19

 
—

Money market funds
9

 
9

 
9

 
—

 
—

Asset-backed securities
9

 
9

 
—

 
9

 
—

Municipal bonds
1

 
1

 
—

 
1

 
—

Total trust assets
152

 
152

 
9

 
143

 
—

 
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in an asset positiond
72

 
72

 
—

 
72

 
—

Copper futures and swaps contractse
3

 
3

 
3

 
—

 
—

Copper forward contractse
2

 
2

 
1

 
1

 
—

Total derivative assets
77

 
77

 
4

 
73

 
—

 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
4,754

 
$
4,031

 
$
723

 
$
—

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in a liability positiond
$
82

 
$
82

 
$
—

 
$
82

 
$
—

Copper futures and swap contractsf
13

 
13

 
11

 
2

 
—

Total derivative liabilities
95

 
95

 
11

 
84

 
—

 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portiong
3,537

 
3,797

 
—

 
3,797

 
—

 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
3,892

 
$
11

 
$
3,881

 
$
—

a.
Recorded at fair value. 
b.
Recorded at cost and included in other assets.
c.
Current portion included in other current assets and long-term portion included in other assets. 
d.
Embedded derivatives are recorded in accounts receivable and/or accounts payable and accrued liabilities.
e.
Included in other current assets.
f.
Included in accounts payable and accrued liabilities.
g.
Recorded at cost except for long-term debt acquired in the FMC acquisition, which was recorded at fair value at the acquisition date.


15
Table of Contents                 

Valuation Techniques

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

MMR's 5¾% Convertible Perpetual Preferred Stock is not actively traded; therefore, FCX's investment in the MMR 5¾% Convertible Perpetual Preferred Stock is valued based on a pricing simulation model that uses the quoted market prices of MMR's publicly traded common stock as the most significant observable input and other inputs, such as expected volatility, expected settlement date, and risk-free interest rate. Therefore, this investment is classified within Level 2 of the fair value hierarchy.

Fixed income securities (government and agency securities, U.S. core fixed income funds, corporate bonds and asset-backed securities) 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 have critical inputs of quoted monthly LME or COMEX copper forward prices and the London PM gold forward price at each reporting date based on the month of maturity; however, FCX's contracts themselves are not traded on an exchange. Likewise, FCX’s embedded derivatives on provisional molybdenum purchases have critical inputs based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices; however, FCX's contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME forward prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy.

Long-term debt, including current portion, is not actively traded and is valued using prices obtained from a readily available pricing source and, as such, is classified within Level 2 of the fair value hierarchy.

The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at September 30, 2012.
 
8.
CONTINGENCIES AND COMMITMENTS
Environmental. FCX's mining, exploration, production and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. FCX reviews changes in facts and circumstances associated with its environmental and reclamation obligations at least quarterly. There have been no material changes to FCX's environmental and reclamation obligations since year-end 2011. However, updated cost assumptions, including increases and decreases to cost estimates, changes in the anticipated scope and timing of remediation activities and settlement of environmental matters may result in revisions to certain environmental obligations. As a result, FCX recorded adjustments to environmental obligations totaling net credits of $82 million in third-quarter 2012 and $36 million during the first nine months of 2012, and net charges of $31 million in third-quarter 2011 and $35 million during the first nine months of 2011.


16
Table of Contents                 

Gilt Edge Mine Site. On July 12, 2010, FCX was notified by the U.S. Department of Justice, acting at the request of the U.S. Environmental Protection Agency (EPA), that it was preparing to file suit in federal court against two of its wholly owned subsidiaries (Cyprus Mines Corporation and Cyprus Amax Minerals Company) and several other parties to recover costs incurred or to be incurred by the U.S. in remediating hazardous substances at the Gilt Edge mine site in Lawrence County, South Dakota. In September 2011, FCX reached an agreement in principle to settle this matter for an amount that is not material to FCX and less than the amount included for this matter in FCX's aggregate environmental obligations. The consent decree was finalized and approved by the court on October 10, 2012.

Asset Retirement Obligations (AROs). During third-quarter 2012, Cerro Verde updated its closure plan and increased its ARO by $77 million to reflect revised cost estimates and accelerated timing of certain closure activities.

Litigation. There have been no material updates to previously reported legal proceedings included in Note 13 of FCX's 2011 Annual Report and in Note 8 of FCX's quarterly reports on Form 10-Q for the periods ended March 31, 2012, and June 30, 2012.

Other Contingencies. The Indonesian tax authorities issued assessments for various audit exceptions on
PT Freeport Indonesia's income tax returns as follows (in millions):
Date of assessment
 
Tax return year
 
Tax assessment
 
Interest assessment
 
Total
October 2010
 
2005
 
$
106

 
$
52

 
$
158

November 2011
 
2006
 
22

 
10

 
32

March 2012
 
2007
 
91

 
44

 
135

Total
 
 
 
$
219

 
$
106

 
$
325

 
PT Freeport Indonesia has filed objections to the assessments. During first-quarter 2012, PT Freeport Indonesia's objections to the assessments related to 2005 were substantially all rejected by the Indonesian tax authorities and, in May 2012, appeals were filed with the Indonesian Tax Court. As of September 30, 2012, PT Freeport Indonesia has paid $158 million (of which $124 million is included in long-term receivables) for the disputed tax assessments related to 2005, 2006 and 2007.

Mining Contracts. Effective March 26, 2012, the Democratic Republic of Congo (DRC) government issued a Presidential Decree approving the modifications to TFM's bylaws. As a result, FCX's effective ownership interest in TFM was reduced from 57.75 percent to 56.0 percent and $50 million of TFM's intercompany loans payable to FMC were converted to equity.

9.
NEW ACCOUNTING STANDARDS
In May 2011, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) in connection with guidance for fair value measurements and disclosures. This ASU clarifies the FASB's intent on current guidance, modifies and changes certain guidance and principles, and expands disclosures concerning Level 3 fair value measurements in the fair value hierarchy (including quantitative information about significant unobservable inputs within Level 3 of the fair value hierarchy). In addition, this ASU requires disclosure of the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position, but whose fair value is required to be disclosed. This ASU became effective for interim and annual reporting periods beginning after December 15, 2011. FCX adopted this guidance effective January 1, 2012.


17
Table of Contents                 

In June 2011, FASB issued an ASU in connection with guidance on the presentation of comprehensive income. The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This ASU requires an entity to present the components of net income and other comprehensive income and total comprehensive income (includes net income) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity, but does not change the items that must be reported in other comprehensive income. This ASU became effective for interim and annual reporting periods beginning after December 15, 2011. Effective January 1, 2012, FCX adopted this ASU and presented total comprehensive income in a separate statement. Additionally, in December 2011, FASB deferred the effective date in this ASU for presenting reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements.
 
10.
SUBSEQUENT EVENTS
FCX evaluated events after September 30, 2012, 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 or operations. Operating segments that meet certain thresholds are reportable segments.

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 its operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. 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 country. 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.





18
Table of Contents                 

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 September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
39

 
$
10

 
$
49

 
$
504

 
$
491

 
$
995

 
$
845

a 
$
365

 
$
308

 
$
1,221

 
$
633

 
$
1

 
$
4,417

Intersegment
456

 
811

 
1,267

 
71

 
126

 
197

 
146

 
2

 
—

 
7

 
5

 
(1,624
)
 
—

Production and delivery
268

 
492

 
760

 
197

 
333

 
530

 
587

 
172

 
273

 
1,222

 
624

 
(1,576
)
 
2,592

Depreciation, depletion and amortization
31

 
57

 
88

 
39

 
35

 
74

 
54

 
42

 
18

 
2

 
11

 
9

 
298

Selling, general and administrative expenses
—

 
1

 
1

 
1

 
1

 
2

 
31

 
2

 
3

 
—

 
4

 
67

 
110

Exploration and research expenses
1

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
78

 
79

Environmental obligations and shutdown costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(73
)
 
(73
)
Operating income (loss)
195

 
271

 
466

 
338

 
248

 
586

 
319

 
151

 
14

 
4

 
(1
)
 
(128
)
 
1,411

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
1

 
1

 
2

 
—

 
—

 
—

 
3

 
—

 
—

 
—

 
3

 
34

 
42

Provision for (benefit from) income taxes
—

 
—

 
—

 
(88
)
b 
72

 
(16
)
 
111

 
28

 
—

 
—

 
—

 
92

 
215

Total assets at September 30, 2012
2,297

 
5,528